Mexicana Airlines, One of the World's Oldest Airlines, Files for Bankruptcy Protection in Mexico and the United States and Suspends Flights Until Further Notice
Total Page：16
File Type：pdf, Size：1020Kb
Law and Business Review of the Americas Volume 17 Number 2 Article 9 2011 Mexicana Airlines, One of the World's Oldest Airlines, Files for Bankruptcy Protection in Mexico and the United States and Suspends Flights until Further Notice Lina Forero-Nino Follow this and additional works at: https://scholar.smu.edu/lbra Recommended Citation Lina Forero-Nino, Mexicana Airlines, One of the World's Oldest Airlines, Files for Bankruptcy Protection in Mexico and the United States and Suspends Flights until Further Notice, 17 LAW & BUS. REV. AM. 361 (2011) https://scholar.smu.edu/lbra/vol17/iss2/9 This Comment and Case Note is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in Law and Business Review of the Americas by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. MEXICANA AIRLINES, ONE OF THE WORLD'S OLDEST AIRLINES, FILES FOR BANKRUPTCY PROTECTION IN MEXICO AND THE UNITED STATES AND SUSPENDS FLIGHTS UNTIL FURTHER NOTICE Lina Forero-Nido* IMAGINEtraveling to BogotA, Colombia for a summer family vaca- tion. While on vacation, you receive an email from your airline car- rier notifying you that it has filed for bankruptcy and is consolidating some of its flights. You are concerned about whether your return flight is in jeopardy so you immediately confirm your flight number against the information provided in the email and find that your flight does not ap- pear to be affected. When you arrive at the airport on the day of your flight, you are in- formed by an employee of the airline that you will not be able to fly out of BogotA. The reason for this is because only one plane is permitted to fly per day and only the first 150 passengers that arrived at the airport had a seat on the plane. You were not within that group of 150. Unable to get more information about when you could expect to fly, you decide to leave the airport and return to a relative's house. Fortunately, three days later, your airline honored your tickets and you were able to travel back to the United States on August 17, 2010. Only eleven days later on August 28, 2010, your airline suspended all of its flights until further notice. In this case note, I will provide a history of Mexicana Airlines (Mexi- cana), explain the factors that led to the airline's downfall, review Mexi- cana's insolvency proceedings under Mexico's Law of Commercial Bankruptcy and under Chapter 15 of the U.S. Bankruptcy Code, and pre- dict whether the airline will be back in the air. *Lina Forero-Nifio received her B.A. in Communication from the University of Texas at San Antonio and is currently a J.D. Candidate at the SMU Dedman School of Law. 1. This scenario is based on the real life experiences of the author's family. The story served as the primary inspiration for writing this case note and learning about bankruptcy law. 361 362 LAW AND BUSINESS REVIEW OF THE AMERICAS [Vol. 17 I. HISTORY OF MEXICANA AIRLINES Mexicana Airlines was established in Mexico City on July 12, 1921 under the name Compatf[a Mexicana de Transportaci6nAdrea (Mexican Company of Air Transportation). 2 It began operations with four Lincoln Standard airplanes capable of carrying one passenger and fifty kilograms of cargo and mail while traveling at ninety-five kilometers per hour.3 The first services the airline provided were the shipment of mail and aerial photography.4 Americans piloted Mexicana's first flights for passengers.5 In 1924, the airline had new American owners and was formally known as Compafiia Mexicana de Aviacidn S.A. (Mexican Aviation Company). 6 Mexicana was the first airline in Mexico to receive the Mexican govern- ment's permission to service a route from Mexico City to Tampico. 7 In 1929, Pan American Airways purchased stock in Mexicana and Mexicana began to service international routes.8 The renowned American aviator, Charles A. Lindbergh, piloted Mexicana flights and participated in the restructuring of the airline.9 Mexicana was the first international airline to service a flight from Brownsville to Guatemala in 1930.10 During the 1930s, several other international routes were added, including a route to Los Angeles, California.'I During the 1940s and 1950s, the company ex- perienced steady growth as it added national and international flights, and acquired more sophisticated aircraft for its fleet.12 Mexicana gained popularity as celebrities such as Marilyn Monroe took international flights onboard Mexicana planes.' 3 But fierce competition in the airline industry caused serious economic problems for Mexicana and in 1967 it was near bankruptcy.' Mexicana was saved from bankruptcy by Crescencio Ballesteros and other businessmen who purchased Mexicana's stock.'5 In 1970, the airline flew more than three million passengers.16 In 1982, economic turmoil in Mexico forced Ballesteros and the other 2. Historia de Mexicana de Aviaci6n [History of Mexicana de Aviacionl, TERRA.COM, http://economia.terra.com.mx/herramientas/galerias/galeria.aspx?galeria=26 (last visited Sept. 26, 2010) (translated from Spanish). 3. Id. 4. Id. 5. Mexicana, una Historia de Rescates [Mexicana, a History of Bailouts], RiEutEis, Aug. 27, 2010, http://www.cnnexpansion.com/negocios/2010/08/27/mexicana- quiebras-rescates-cnnexpansion (translated from Spanish). 6. Martin Hernandez & Jorge L6pez, Una Historia con Mucha Turbulencia [A Very Turbulent History], Ei. UNIVERSAl-, Aug. 28, 2010, http://www.eluniversal.com.mx/ finanzas/81631.html (translated from Spanish). 7. Mexicana, una Historia de Rescates, supra note 5. 8. Una Historia con Mucha Turbulencia, supra note 6. 9. Mexicana, una Historia de Rescates, supra note 5. 10. Historia de Mexicana de Aviaci6n, supra note 2. 11. Una Historia con Mucha Turbulencia, supra note 6. 12. Historia de Mexicana de Aviaci6n, supra note 2. 13. See id. 14. Una Historia con Mucha Turbulencia, supra note 6. 15. Mexicana, una Historia de Rescates, supra note 5. 16. Historia de Mexicana de Aviaci6n, supra note 2. 2011] MEXICANA AIRLINES 363 stockholders to sell Mexicana."' The Mexican government purchased fifty-four percent of Mexicana's stock.' 8 In 1990, a group of Mexican in- vestors called the Grupo Falcon became the new owner of Mexicana, but the Mexican government continued to maintain a thirty percent share in- terest.19 Mexicana's new owners initiated a campaign to improve the company's image and to purchase new aero navigation equipment.20 But in 1993, Mexicana's competitor, Aerom6xico, owned by private investors, purchased and operated Mexicana. 21 As a result of an economic crisis in Mexico in 1995, Aeromdxico and Mexicana were both taken over by the Mexican government. 22 On May 23, 1995, the government created a company called CINTRA for the pur- pose of "operating, reforming, and selling the airlines." 23 In 2001, Mexi- cana added MexicanaClick as its low-fare domestic subsidiary. 24 In 2005, the government sold Mexicana for $165.5 million to Grupo Posadas, a Mexican hotel company. 25 In 2007, Mexicana received numerous awards including "World Travel Awards' Best Airline Mexico and Central America for the eleventh year running, Best Business Class Latin America for the third year running, . and Best Airline in Mexico for two years running by Global Traveler magazine." 26 "Mexicana boarded 8.3 million passengers in 2008, with MexicanaClick carrying another 3.4 million." 27 In 2009, the airline industry was adversely affected by a "sharp decline of passengers" as a result of the economic recession and the H1NI outbreak.28 Nevertheless, Mexicana was distinguished as the "the leading carrier in Mexico and Central America" and joined the Oneworld Alliance on November 10, 2009, which placed it alongside the "best and biggest names in the airline business," including American Air- lines, British Airways, and Iberia.29 Mexicana and its subsidiaries "serve[d] fourteen countries and sixty-seven destinations, thirty-seven of them in Mexico." 30 Mexicana flew to forty-one destinations in fourteen countries in North America, Central and South America, and Europe, made more than 200 departures a day, and employed 8,400 staff. 3 1 It 17. Mexicana, una Historia de Rescates, supra note 5. 18. Una Historia con Mucha Turbulencia, supra note 6. 19. Mexicana, una Historia de Rescates, supra note 5. 20. Historia de Mexicana de Aviaci6n, supra note 2. 21. Mexicana, una Historia de Rescates, supra note 5. 22. Id. 23. Id.; CINTRA, Cintra.com, http://www.cintra.com.mx/Defaulte.htm (last visited Apr. 16, 2011) (translated from Spanish). 24. Historia de Mexicana de Aviaci6n, supra note 2. 25. Mexicana, una Historia de Rescates, supra note 5. 26. Press Release, Oneworld Alliance Welcomes Mexicana on Board (Nov. 9, 2009), http://www.oneworld.com/ow/news/details?objectlD=19840&pdf=1&showhtml=0. 27. Id. 28. Mexicana, una Historia de Rescates, supra note 5. 29. Oneworld, supra note 26. 30. Id. 31. Id. 364 LAW AND BUSINESS REVIEW OF THE AMERICAS [Vol. 17 "transported 11.1 million passengers in 2009."32 In May 2010, Mexicana reported two consecutive years of economic losses and asked the Mexican government for assistance. 33 By August 2010, Mexicana reported its economic situation as critical and the Mexi- can government refused to bail out Mexicana. 34 On August 2, 2010, "amid labor unrest and mounting financial woes," Mexicana filed for bankruptcy protection in Mexico and the United States.35 The company suspended all ticket sales on August 4, 2010, and reduced its flights on August 8, 2010.36 A group of Mexican investors, Tenedero K, acquired ninety-five percent of Mexicana's stock on August 21, 2010 to "save the debt ridden company," while the pilots' union held the remaining five percent of shares.37 On August 28, 2010, after eighty-nine years of con- tinuous service, Mexicana suspended flights for all of its three airlines until further notice.