Mexicana punta a comprare Aeromexico

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Grupo Mexicana submits takeover bid for Consorcio Aeromexico
Friday, October 5, 2007

Grupo Mexicana has submitted a takeover bid for Consorcio Aeromexico. At a press conference, the group's stockholders, board members and CEO said that the bid is for at least 51% and possibly as much as 100% of the shares of Aeromexico. At a purchase price of 2.19 pesos per share, which translates into 2.17 billion pesos (approximately 200 million dollars) for the entire Aeromexico share package, Grupo Mexicana's offer is 25 percent higher than the next highest offer made by other investor groups on the stock exchange.

According to Grupo Mexicana Chairman of the Board Gaston Azcarraga, the decision to place a bid for Aeromexico was in the best interests of Mexico's commercial aviation industry. "Merging these two companies into one single aeronautical group will boost their profitability, enabling them to offer reliable transportation alternatives at an attractive price and guaranteeing job stability for their employees in the long term. We want to put together the aeronautical group this country deserves," said Gaston Azcarraga, adding that this is an opportunity to restructure the country's aviation market. "What we are proposing is a restructuring of the market that will ensure the survival of these two flagship airlines. We want to strengthen them and we know how to."

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Dal sito web di Mexicana:

Mexico City , October 3, 2007. Grupo Mexicana today announced that it has submitted a takeover bid for Consorcio Aeroméxico. At a press conference, the group’s stockholders, board members and CEO said that the bid is for at least 51% and possibly as much as 100% of the shares of Aeroméxico. At a purchase price of 2.19 pesos per share, which translates into 2.17 billion pesos (approximately 200 million dollars) for the entire Aeroméxico share package, Grupo Mexicana's offer is 25 percent higher than the next highest offer made by other investor groups on the stock exchange.

According to Grupo Mexicana Chairman of the Board Gastón Azcárraga, the decision to place a bid for Aeroméxico was in the best interests of Mexico's commercial aviation industry. “Merging these two companies into one single aeronautical group will boost their profitability, enabling them to offer reliable transportation alternatives at an attractive price and guaranteeing job stability for their employees in the long term. We want to put together the aeronautical group this country deserves,” said Gastón Azcárraga, adding that this is an opportunity to restructure the country’s aviation market. “What we are proposing is a restructuring of the market that will ensure the survival of these two flagship airlines. We want to strengthen them and we know how to.”

Grupo Mexicana submitted data to support its premise that, under current conditions, the domestic market cannot support two flagship airlines. Faced with growing competition, the best option for the country and users is a strong aviation group, complemented by more competitive, better-structured low-cost airlines. The number of airlines in the country has doubled since 2001 and the joint market share of Mexicana and Aeroméxico has dropped 47 percentage points since 1990. Based on figures for the first half of 2007, Mexicana's and Aeroméxico's share of the domestic market fell from 65% to 53% and is expected to drop below 50% by year-end. Meanwhile, low-cost airlines could see their market share increase to as much as 36% once they receive delivery of 25 new aircraft for which orders have already been placed

“The domestic aviation industry is facing a critical phase and we estimate the sector will incur losses close to 500 million dollars in 2007,” said Gastón Azcárraga.

In the specific case of Mexicana, cost restructuring initiatives have not managed to offset losses, which are on the increase. “Despite the efforts and sacrifices of our 6,000-strong workforce and despite savings of 150 million dollars, the company is expected to lose 100 million dollars more than it did last year,” said Mexicana CEO Manuel Borja.

The trend toward consolidation in the aviation industry can be seen worldwide. Countries like Canada, France and Spain have opted for one single flagship airline, even though they have a greater volume of air traffic than Mexico. By the same token, countries with larger markets like the United States have consolidated their flagship airlines by region, with one airline accounting for more than 80% of operations at certain airports, a percentage far greater than Mexicana and Aeroméxico could hope to attain on the domestic market, even if their operations were consolidated.

According to Gastón Azcárraga, “It is important to acknowledge that the rest of the world is one step ahead of us and that flagship airlines are already consolidating their operations between countries, as is the case of KLM and Air France, or the case of Lufthansa and British Airways, which are battling for control of Iberia.”

Even if Mexicana acquires Aeroméxico, this would not pose a problem in terms of unfair competition, given that restrictions on market access are minimal. There are currently 14 airlines operating regular services in Mexico and a wide range of substitute products that are accessible to users. Consequently, the merging of Mexicana and Aeroméxico would not give them the power to fix prices. “Judging from the trends we have observed, the joint market share of Mexicana and Aeroméxico would be less than 50%,” said Borja, adding that “It’s common practice worldwide for a given country to operate one single flagship airline that has a considerable market share, with competition coming from low-cost carriers.”

Grupo Mexicana believes that its bid for Aeroméxico is a way of guaranteeing the continuity and solidity of the commercial aviation industry in Mexico. Increased competition from major US carriers poses a serious threat to the viability of Mexico’s airlines, as is the case with Continental, American Airlines and Delta, which operate flights to Mexican cities out of their Dallas, Houston and Los Angeles hubs. “We are competing with US airlines that are approximately ten times larger than us and that have access to the economies of scale we are currently trying to build,” said Manuel Borja.

Gastón Azcárraga concluded by saying that Mexicana is prepared to accept the recommendations of the Federal Competition Commission to ensure the viability of the transaction, which will result in a 200-million-dollar capital injection for the group if the deal is successfully closed.

DaV