Struggling Mexicana airline halting all operations

[August 28, 2010]  MEXICO CITY (AP) -- Debt-ridden carrier Mexicana and its domestic subsidiaries will begin suspending flights midnight Friday and halt all operations by the next day as it seeks to restructure costs, Mexico's transportation secretary said.

The country's biggest airline is forced to shut down because it does not have enough money to keep flying, Juan Francisco Molinar Horcasitas told reporters.

But Mexicana de Aviacion "is in a process that should lead to restructuring," Molinar said. He declined to say give specific details of Mexicana's financial situation.

The airline filed for bankruptcy protection in Mexico and the United States on Aug. 2, and later stopped selling tickets and suspended some flights.

Executives said this month that the company needed an infusion of at least $100 million to keep flying, and on Aug. 21 a group of Mexican investors called Tenedora K announced it had bought a 95 percent stake in Grupo Mexicana, which controls Mexicana and the domestic airlines MexicanaClick and MexicanaLink. All three airlines will be grounded by Saturday afternoon.

On Friday, Mexicana said in a statement on its website that current management received the airline "in a state of technical bankruptcy."

In court filings, Mexicana said it was badly hit by the swine flu outbreak last year that scared away travelers for months and by the global economic slowdown. The airline added that high jet fuel prices and labor costs contributed to its financial troubles.

Before the bankruptcy filing, the company unsuccessfully sought union agreement on pay cuts of 41 percent for pilots and 39 percent for flight attendants, along with a 40 percent reduction in employees, saying both were needed to keep the company afloat. Labor leaders rejected the proposal, saying their members already agreed to cuts in 2006.

"The financial deterioration and lack of an agreement are forcing Grupo Mexicana to stop flying," Mexicana said in its statement.

Pilots' union president Fernando Perfecto said halting operations "is necessary to achieve a neat and orderly restructuring that gives us all the opportunity to relaunch Mexicana."

Flight attendants' union president Lizette Clavel did not rule out job cuts as part of future negotiations but said they must be within the current collective agreement.

Mexicana flies to more than 65 national and international destinations, including the United States, Canada, Central America, South America and Europe. It transported 11.1 million passengers in 2009, according to the company's website.

[Associated Press; By ISTRA PACHECO]

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