UBS: Mexicana “unlikely to resume operations” after grounding

Compania Mexicana de Aviacion is unlikely to resume operations after grounding all its flights over the weekend, four weeks after filing for bankruptcy protection in Mexico and the U.S., UBS AG said.

Compania Mexicana de Aviacion is unlikely to resume operations after grounding all its flights over the weekend, four weeks after filing for bankruptcy protection in Mexico and the U.S., UBS AG said.

That will initially curb air traffic and hurt airport operators, including Grupo Aeroportuario del Sureste SAB, Grupo Aeroportuario del Pacifico SAB and Grupo Aeroportuario del Centro Norte SAB, UBS analysts Tomas Lajous and Luis Galvez wrote today in an e-mailed note.

โ€œWe expect this should be permanent,โ€ the analysts wrote. โ€œTraffic is set to suffer a material supply-side hit until a way out is found.โ€

Investor group Tenedora K bought the majority of Mexicana last week.

Mexicana and low-cost MexicanaLink and MexicanaClick halted operations โ€œindefinitelyโ€ on Aug. 28, said Nuevo Grupo Aeronautico SA, the holding company for the airline. On Aug. 3, the company filed for bankruptcy protection in Mexico and under Chapter 15 of the U.S. Bankruptcy Code.

โ€œGiven that the drop is supply-side driven, we expect traffic to recover fairly rapidly,โ€ UBS said.

Chapter 15

The Chapter 15 petition, which bars U.S. creditors from seizing planes or canceling contracts, listed more than $500 million in assets and $1 billion in debt.

The airline operated 69 planes under the Mexicana brand and 35 aircraft under MexicanaClick, which it started in 2005. MexicanaLink, a separate unit unveiled last year, has 15 planes, according to the website. Mexicana also has 165 sales locations.

Mexicana spokesman Adolfo Crespo declined to comment on the UBS report.

A spokesman for Tenedora K declined to comment. He said his name couldnโ€™t be used, citing company policy.

โ€œI donโ€™t share UBSโ€™s opinion,โ€ said Juan Molinar Horcasitas, Mexicoโ€™s communications and transportation minister, in a news conference today in Mexico City. โ€œMeetings are continuing with a diverse group of investors that have shown a very clear interest in restructuring the companies.โ€

Molinar said Mexico is a market best suited to have one domestically owned international airline, with several competing for routes within the country.

Forecast

Aeroportuario del Pacifico, the operator of airports in the Pacific and central regions of Mexico, cut its forecasts for total revenue and passengers in 2010.

Passengers will climb 2.5 percent to 4 percent in 2010, compared to the same period last year, the company said today in an e-mailed statement. Thatโ€™s down from an increase of 5.5 percent to 7 percent expected before Mexicana halted operations.

The companyโ€™s total revenue is now expected to climb 11 percent to 13.5 percent from 2009, the statement said. The company previously forecast a 13 percent to 16 percent increase in revenue from the previous year.

Closely held Consorcio Aeromexico SA is Mexicoโ€™s second- largest airline after Mexicana and operates internationally.

Stephen Trent, an analyst with Citigroup Inc. in New York, cut his recommendation on Aeroportuario del Pacifico to โ€œholdโ€ from โ€œbuy,โ€ according to a statement e-mailed today.

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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