(Bloomberg) -- Grupo Aeromexico SAB, Mexico’s second-largest airline, filed for bankruptcy in the U.S., becoming the latest in a string of Latin American carriers to seek court protection after the Covid-19 pandemic caused a severe downturn in travel.
The carrier will “continue operating and use Chapter 11 as a way to strengthen its financial position and liquidity,” according to a statement to the Mexican stock exchange Tuesday. Aeromexico said the goal will be “protecting and preserving its operations and assets and implementing the necessary operational adjustments to face Covid-19-related impact.”
Aeromexico saw the number of passengers it carried plummet more than 90% as governments grounded flights and travelers stayed home. The airline struck deals with labor groups and suppliers in May to cut costs by more than half to around $50 million a month, while offering its employees unpaid leave.
Latin American airlines, unlike their counterparts in the U.S. and Europe, have received scant government support even as travel demand plunged and the coronavirus prompted countries to seal borders. The region’s largest carrier, Latam Airlines SA, filed for Chapter 11 bankruptcy in May just weeks after Avianca Holdings SA, Colombia’s biggest airline.
Aeromexico operates routes in Mexico, and internationally to the U.S., Canada, Europe and Asia, among others. Delta Air Lines Inc. is its biggest shareholder.
The petition filed in federal bankruptcy court in Manhattan lists assets and liabilities of $1 billion to $10 billion and more than 100,000 creditors.
“The company has been evaluating the alternatives to improve its financial position after the impact of the crisis that affects all the airlines globally,” Aeromexico said in the petition.
The carrier’s available cash and the court’s approval to enter Chapter 11 will provide enough liquidity to comply with future obligations in an orderly manner, Aeromexico said. Tickets and existing reservations are still valid.
Early on in the crisis, Mexican President Andres Manuel Lopez Obrador ruled out bailouts for large companies. But even before the downturn, Aeromexico was suffering from increased competition that ate into its market share.
S&P Global Ratings cut the carrier further into junk in May, citing the potential lasting impacts of the pandemic on air travel. “There’s a high risk that lockdowns could remain in place for a longer-than-expected period, delaying a recovery in Aeromexico’s operations. This could cause the company’s metrics to weaken further in the next two years,” the credit grader said in a statement.
Aeromexico sold $400 million of five-year notes at the beginning of the year at a 7% yield, providing it with some cash before the travel crisis hit. Those bonds have since tumbled in value.
(Updates with details from petition starting in sixth paragraph)
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