Mexican Billionaires Invest in Low-Cost Airline
Posted on: Tuesday, 26 July 2005, 00:00 CDT
Jul. 26--MEXICO CITY -- Two Mexican billionaires are preparing to shake up Mexico's clubby airline industry, but they plan to do it by pouring millions of dollars into an upstart low-cost airline instead of bidding for the nation's two legacy carriers.
Companies controlled by Carlos Slim Helu, Latin America's richest man, and Emilio Azcarraga, the head of media giant Grupo Televisa SA, said Monday that they would invest in Vuela Compañia de Aviacion SA, a discounter that could begin flying during the first half of 2006.
Vuela's deep-pocketed backers are the latest investors scrambling to offer low-cost options to Mexico's nearly 30 million domestic airline passengers. A separate project has the backing of Brazil's Gol Linhas
Aereas Inteligentes SA, a carrier that launched in 2001 and is now Latin America's leading low-cost airline.
But the proliferation of discount airline projects spells bad news for the government's fast-approaching sale of legacy carriers AeroMexico and Mexicana, which belong to state-controlled holding company Cintra SA.
"This is all very bad news for Cintra and its carriers," said airline expert Michael Roach, of Roach & Sbarra Consulting in San Francisco. "They have little asset value, other than slots at the Mexico City airport, and their business models cannot withstand well-financed competition."
Regulators said Monday they would extend the deadline for investors to submit bids for AeroMexico and Mexicana until Aug. 9. The original deadline was Friday.
The two carriers together control about two-thirds of domestic air traffic, but critics say they have high prices, bloated costs and tough-minded labor unions.
Mexicana recently launched a low-cost carrier of its own, Click Mexicana, which offers fares about 30 percent lower than those of legacy carriers.
Defenders of the legacy carriers criticized government regulators for issuing operating licenses to upstart low-cost carriers while trying to sell AeroMexico and Mexicana.
"If some of Mexico's leading investors are backing low-cost airlines, we're worried about whether other investors will want to purchase AeroMexico and Mexicana," said Jorge Sunderland, a spokesman for the Mexican pilots' union.
Under the deal announced Monday, Mr. Slim's bank, Grupo Financiero Inbursa SA, and Televisa each will own 25 percent of Vuela.
Vuela already had support from the investment fund of a former Mexican finance minister, Pedro Aspe; Connecticut-based Discovery Capital Management; and Grupo TACA, a Central American airline.
All told, the partners plan to invest $100 million in Vuela, according to Bloomberg News.
"Mexico presents an attractive opportunity for Vuela because it is a large market with good growth potential," Televisa said in a news release.
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Source: The Dallas Morning News
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