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Aeromexico Faces Creditor Drama Over Chapter 11 Plan

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Aeromexico’s drama with a group of unsecured creditors continues, even as the company has announced there was majority support for its Chapter 11 Plan and Exit Financing. It is currently waiting to have a hearing that may propel the carrier out of the bankruptcy proceedings. But what are these creditors arguing? Let’s investigate further.

Aeromexico Faces Creditor Drama Over Chapter 11 Plan
Some of Aeromexico’s creditors are objecting to the airline’s Chapter 11 Plan. Photo: Vincenzo Pace | Simple Flying

New backlash

Last week, Aeromexico announced that the solicitation of votes on its Chapter 11 had concluded with strong creditor support. The airline received votes on accounts of claims totaling approximately US$2.68 billion, of which about 86% were submitted in favor. Shortly after, Aeromexico’s capital increase was also approved by shareholders through a couple of meetings.

Currently, Aeromexico is waiting for a hearing, set to happen on January 27. If the Court approves Aeromexico’s Plan, the airline could exit Chapter 11 shortly. Nonetheless, a certain group of unsecured creditors is unhappy with the current terms, and it is asking the court not to confirm the Plan. On January 19, three different groups objected to Aeromexico’s Plan: the Invictus Group, the Ad Hoc Group of OpCo Creditors, and the Official Committee of Unsecured Creditors.

While it is uncertain if the creditors’ claims could derail, in any way, Aeromexico’s process, the airline should face some pressure in the next couple of weeks.

Aeromexico B787-9
The airline could exit Chapter 11 in the first half of 2022. Photo: Guillermo Quiroz Martínez via@gquimar.

What are the creditors saying?

The Official Committee of Unsecured Creditors wrote,

“The Plan is the product of a flawed process whereby the Debtors (Aeromexico) abdicated their fiduciary duties and allowed a group of sophisticated creditors to negotiate directly with the Debtors’ insider prepetition shareholders.”

Meanwhile, the Ad Hoc Group said the plan is a perfect example of insiders benefitting themselves through a private partnership.

Finally, Invictus believes the plan fails to comply with the Bankruptcy Code in the United States. According to Invictus, any Chapter 11 Plan that impairs any class of claims “must be accepted by at least one class of claims impaired by the plan.” Throughout Aeromexico’s proceedings, there was only one creditor for Air Cargo, which was, shockingly, Invictus, and it voted to reject the Plan.

“The Debtors therefore lack an accepting impaired class for Air Cargo, rendering the Plan unconfirmable,” Invictus wrote.

The unsecured creditors have signaled that certain creditors like Delta Air Lines and Apollo Global Management have received a special treatment throughout the process. Once Aeromexico emerges from Chapter 11, Apollo will be the airline’s top shareholder, with a 26% share; Delta will dilute to approximately 20% from 49% at the moment.

Existing Aeromexico stockholders will see the value of their holdings drop after the airline restructures. Photo: Vincenzo Pace | Simple Flying

Aeromexico’s challenges ahead

In the next few days, Aeromexico will continue navigating through uncertainty. The unsecured creditors will continue lobbying against the airline’s Chapter 11 Plan; meanwhile, Aeromexico’s stock price will have ups and downs as most shareholders will heavily dilute following Chapter 11.

From a financial point of view, Aeromexico still has to publish the full 2021 financial results. The airline expects to have a net loss in 2021 but regain profitability throughout 2022.

In terms of passengers, Aeromexico closed the year with more than 16 million travelers, a 20% decrease compared to 2019 levels. Nonetheless, by December, the Mexican flag carrier had recovered 99% of its pre-pandemic traffic levels.

Nonetheless, Aeromexico still faces pressure from the international market, which hasn’t recovered quite as fast as the domestic. The airline has 20% fewer passengers in that segment compared to 2019. While the Federal Aviation Administration continues grading Mexico under a Category 2 status, disabling Mexican carriers to grow in the US market, it is unlikely Aeromexico will fully recover.

What do you think of the latest objections published by Aeromexico’s creditors? Let us know in the comments below.

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