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Panama Jack
16th Dec 2004, 06:28
Mexico to sell 2 airlines
by Steve Cannon in Mexico City
Updated 07:23 PM EST, Dec-14-2004

The Mexican government is expected Wednesday, Dec. 15, to approve a plan to merge, then sell the country's two largest airlines for up to $2 billion by mid-2005 following years of failed attempts to do just that.

President Vicente Fox's administration will also appoint a new slate of directors to carry out the plans for Aeromexico SA de CV and Mexicana de Aviacion SA de C, which now operate separately under a state holding company. It is also expected to approve a plan to merge and sell two smaller regional carriers, AeroCaribe and Aerolitoral, also under the holding company Cintra SA de CV.

The Mexican government has tried to sell the airlines almost since taking them over in 1995 as part of an industry bailout that followed the 1994 peso devaluation and an ensuing economic crisis. At first, financial problems in both companies prevented a sale, and then a worldwide slowdown in the aviation business after Sept. 11 made it unfeasible.

The government now hopes an expected recovery in airline travel and in the world economy will prompt investors to bet big on Mexican aviation. But success is by no means certain, as many of the logical buyers are part of a U.S. airline industry still undergoing painful restructuring.

To guide the sale, the government proposes that Andres Conesa, the head of public credit in Mexico's Finance Ministry, take over as Cintra chairman. The company's current chairman, Rogelio Gasca Neri, would be in charge of merging Mexicana and Aeromexico, which he ran in the 1980s. Mexicana CEO Emilio Romano would run the merged regional airline, to be called Aeronacional.

Mexico's Federal Competition Commission has said the regional carrier must nearly triple its market share to about 20% of flights before it will give final approval to the sale. Mexicana and Aeromexico control nearly two-thirds of Mexico's aviation market.

Cintra has said it expects to complete the sale in the first half of 2005.

The merged company would be Latin America's largest air carrier and could be worth $800 million to $2 billion, analysts say, depending on the sale terms. Government agencies hold a 60% equity stake in the Cintra holding company.

Government regulators have capped foreign ownership in the sale of the merged airline at 25% and it's unclear whether that might be lifted. Political opposition to a foreign takeover of the airlines has stiffened in recent years, as Mexicans watched the country's largest banks, Banamex and Bancomer, sold to Citigroup Inc. and Spain's Banco Bilbao Vizcaya Argentaria SA.

Foreign companies that have expressed interest in buying into Mexican aviation include Continental Airlines Inc., which has more flights into Mexico than any U.S. carrier, American Airlines Inc., Delta Air Lines Inc., and Spain's Iberia Lineas Aereas de Espana SA.

Squawk7777
16th Dec 2004, 14:13
Interesting! Let's wait & see! Bigger is not always better. I still see the result of the TWA/AA merger here in STL aka The Land of the DEAD.

Merging seniority lists, aerolitoral pilots wanting to upgrading into AM etc. sounds like real fun!

7 7 7 7

Squawk7777
16th Dec 2004, 15:23
IATA sees slim profit prospects for 2005
Dateline: Thursday December 16, 2004

IATA Chief Economist Brian Pearce told a media symposium in Geneva earlier this week that modest net earnings are projected conditionally for 2005 but international airlines will post net losses of $4.8-$5 billion in 2004--owing mainly to soaring oil prices that will have hiked cumulative industry losses since 2001 to more than $35 billion.

Should oil prices recede to about $34-$36 a barrel in 2005--as is forecast--the industry could generate a slim net profit of $1-$2 billion next year, Pearce said. Fuel cost IATA airlines $62 billion in 2004, he added, about $15 billion more than in 2003, and carriers have been unable to pass on the full burden to passengers.
IATA DG and CEO Giovanni Bisignani termed the overall figures "terrible." Even if airlines were to make profits of some $1-$2 billion next year out of revenues of some $350 billion, "that is a long way from making us a good investment," he said. "Nevertheless, we still have the basis of a profitable industry."

"With oil prices expected to decline only moderately in 2005," Pearce stated, "the small net profit that we forecast" hinges on "further successes by the airlines and by IATA on their behalf in taking costs out of the business."

The bleak industry outlook came against the backdrop of a rise to 1.8 billion passengers that will have been carried by IATA's 270 member airlines by the end of this year, an increase from 1.6 billion travelers in 2003.

"Profitability, as measured by the EBIT margin, has remained negative in 2004 purely as a result of the price of oil," Pearce declared. "If the price of oil had remained at $25, its 2002 average and still above the 10-year average of $21, then profitability at the operating EBIT level would have 'recovered' to 5%--the sort of profitability seen in the late 1990s."--Leonard Hill

Panama Jack
16th Dec 2004, 16:37
Mergers always seem to be messy affairs, and I'm sure that Mexican airline employees are concerned and for good reason. I agree that bigger is not always better-- I think maybe these companies may be wanting to buy to keep the mexican company out of the competition's camp!

I'm actually surprised to not see LAN and TACA listed as companies that have expressed interest in buying, given their aggresive recent history in buying up other country's carriers or creating subsiduaries. (Panama Jack nervously awaits crazy_max to come out of his hole, guns blazing, for having mentioned the "T"-word.) :rolleyes: :hmm:

How would nearly bankrupt companies like AA, CO and DL buy a foreign airline? Would something like this be an stock swap? What is IB's financial condition these days?

XA - GMT
9th Jan 2005, 17:35
I worked for Mexicana 7 years since 1995 and it sounds like an old story to me. A lot of talking and no results at all. Can`t wait to here what ASPA has to say about it.