Interjet looks to restructure debt in bankruptcy

July 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

July 2021 Issue

Budget Mexican airline Interjet has filed for bankruptcy protection in Mexico, a move that would enable the company to resume payments to employees that have been frozen for several months.

Interjet, which is now controlled by businessman Alejandro del Valle, hired Mexico City-based Argoss Partners to help resolve problems with its creditors through a prearranged bankruptcy and obtain debtor in possession financing. Interjet now plans to submit a restructuring plan to Mexico’s bankruptcy regulator for review.

“We want a pre-agreed process and work on the main points with creditors,” said Carlos Ortiz-Cañavate, a partner at Argoss. Another partner, Igor Marzo, said the new Interjet could be much smaller in size and range than before, in terms of operating flights in Mexico and America.

The airline, which stopped flying in December 2020, has faced numerous obstacles to restarting operations, from unpaid taxes and back wages to a lack of planes since lessors took back most of the company’s aircraft.

In late April, following an extraordinary general meeting, the company issued a statement noting that “100 percent of Interjet shareholders have reached an agreement to enter bankruptcy” and they “approved that work will start aimed at rescuing the company” with the objective of “returning to the operations of the company as soon as possible, giving priority to the rights of the workers”.

“With these actions, Interjet will give the certainty of an orderly restructuring process that will allow the attraction of new investors,” it added.

Interjet’s bankruptcy follows three years of continuous net losses. The airline’s employees are currently on strike and went seven months without payment before Interjet stopped flights late last year.

In July 2020, Interjet’s new management group attempted to invest $150m to keep the company afloat, but it continued to flounder amid the global downturn in air travel caused by the COVID-19 pandemic. The objective of Interjet’s bankruptcy filing is to successfully reorganise the company’s debts, bring certainty to providers and employees, and forge a solid ground that allows the airline’s recovery and future viability, Interjet said in a statement.

Interjet is the second Mexican airline to file for bankruptcy protection since the beginning of the pandemic last year. Grupo Aeromexico SAB filed for bankruptcy in June after the virus devastated demand for air travel worldwide. Unlike airlines in other jurisdictions, Mexican carriers did not receive any government aid. Mexican bankruptcy proceedings can result in financial reorganisation or cessation of operations. A third of all bankruptcy filings resulted in cessation of operations between 2000 and 2020, according to government data.

Ten years ago, Interjet was the second largest airline in Mexico. However, its business model, which operated low-cost and full-service models combined with its high levels of debt, caused it to lag behind competitors. Prior to its bankruptcy, Interjet was Mexico’s third largest carrier by passenger numbers. The company’s liabilities totalled around 1.2bn peso as of March, with just over $25m owed to payroll workers. The company has also accumulated almost $15m in judgments for pending debts in the US. The company held talks with its suppliers to close a series of agreements regarding its outstanding debts before entering commercial bankruptcy in Mexico, and eventually a process similar to restructuring in the US, with the intention of restarting operations in July.

Interjet launched in 2005 and quickly rose to prominence following the exit of Mexicana from the domestic market. The company has struggled financially for the better part of a decade, however. In 2013, Interjet stopped paying taxes, building up a debt that may never be paid. While the airline offered low fares and reached up to 10 countries across the Americas, it also tried to compete with legacy carrier Aeromexico.

Since 2013, the airline was profitable only in 2013, 2015 and 2016. Between 2017 and 2019’s first quarter, Interjet had a combined net loss of over $211m. The company, which scrapped plans for a last-minute public offering in 2011, said it had been in talks to sell a stake to a US airline in 2016, though no deal materialised.

Richard Summerfield