Delta Air Lines announced yesterday that it will exercise its option to purchase a fraction of Aeromexico’s DIP Financing commitments. In total, the US carrier intends to acquire US$185 million plus interest and fees of Apollo’s Tranche 2 Commitments under the Loan Agreement. Let’s investigate further.
Why is Delta buying Aeromexico’s debt?
Aeromexico has been in a Chapter 11 bankruptcy process for over a year now. The Mexican carrier received debtor-in-possession funding worth US$1 billion, provided entirely by Apollo Management Holdings.
In the meantime, it has held up its alliance with Delta Air Lines, its closest ally. Yesterday, Delta filed a notice of correspondence to the United States Bankruptcy Court in charge of Aeromexico’s Chapter 11.
In the letter, Peter W. Carter, executive vice president at Delta, notified Javier Arrigunaga, Aeromexico’s Chairman of the Board, that Delta is a party to a funding agreement with Apollo. It wrote,
“Under terms of the Funding Agreement, Delta has the option to purchase US$185 million (plus certain interest and fees) of Apollo’s Tranche 2 Commitments under the Loan Agreement (…). Delta intends to exercise its call option and purchase these Tranche 2 Commitments in the near future.”
The airline added that the agreement is in furtherance of the strategic relationship with Aeromexico.
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Delta’s strong support of Aeromexico
In a statement sent to Simple Flying, Delta Air Lines said,
“While Aeromexico’s team continues progressing toward successfully restructuring their business, Delta remains committed to supporting the process and furthering our strategic Joint Cooperation Agreement with Mexico’s flagship airline, as demonstrated in the filing. We are confident that Aeromexico is well-positioned for a brighter future and will emerge as a stronger Delta partner.”
Since both companies signed their Joint Venture in 2017, this may be the most challenging time ever. Not only is Aeromexico in Chapter 11, but the Federal Aviation Administration (FAA) downgraded Mexico’s air safety rating. Being in Category 2 means Aeromexico and Delta can’t execute their codeshare agreement. Plus, Aeromexico suffers a bunch of additional restrictions.
Still, the Mexican authorities hope to recover Category 1 status by the end of this year. In the meantime, Aeromexico will keep working on its Chapter 11.
Where’s Aeromexico currently standing?
During the last year, Aeromexico has accomplished many feats towards exiting its bankruptcy process, the airline recently said the Court. For instance, it finished negotiations and settlements with all of its Unions.
It has also renegotiated many agreements with lessors and OEMs. With Boeing, it reduced its standing order and will receive 24 Boeing 737 MAX and four B787 Dreamliners.
The airline has also improved its finances, and by the end of May, it had a cash balance of US$844 million. Most of this amount came from Apollo’s DIP Financing; nevertheless, Aeromexico had positive cash flows in April and May not related to the funding. It was the first time since the airline went into Chapter 11 that this happened.
Aeromexico is currently working on its Chapter 11 exit plan. It intends to file it by mid-September and successfully exit the bankruptcy process later this year.
Did you expect Delta to buy Aeromexico’s debt? Let us know in the comments below.