Grupo Aeroméxico’s bonds are on a streak that overshadows all other Latin American debt, as an increase in US tourists to destinations like Cancun and Cozumel helps drive the company out of bankruptcy.
The airline dominates the ‘return to the beach’ that has impacted companies such as the Mexican hotel operator Grupo Posadas, as well as the Chilean and Brazilian airlines Latam Airlines Group and Gol Linhas Aéreas Inteligentes.
While other Latin American countries imposed strict measures for COVID-19 – from a total ban on foreigners entering Chile to a negative test requirement in Colombia – Mexico is trying to capitalize on a wave of Americans eager to lie on the beach . Travelers only need to go through a temperature check at the airport to enter the country, without proof of vaccination or good health.
That has helped Aeroméxico’s $ 400 million in bonds maturing in 2025 outperform more than 87% this year, compared to an average of 4.7% for Mexican dollar-denominated corporate bonds. It even overshadowed the rebound of industry competitors.
“The bonds seem to operate in their own world,” said Roger Horn, senior strategist at SMBC Nikko Securities America in New York. “There is a lot of money in stress out there hunting for something, and the reopening of Mexican tourism is one of the objectives.”
The second-biggest spike in corporate debt in Latin America this year is a bond maturing in 2023 sold by telecommunications company Digicel Group, up 25.6%, less than a third of Aeroméxico’s yield.
Chapter 11
It’s a remarkable turnaround from the depths of the pandemic, when tourist trips dried up and Aeromexico had to file for bankruptcy under Chapter 11 in the United States.
The case is ongoing in New York and should be a cause for caution, as the process generally leaves little money for unsecured creditors, so bondholders may not get as much as they expect from any restructuring, Horn said. The company’s next big legal hurdle will be a June 22 hearing on the fate of its loyalty program.
What’s more, the US Federal Aviation Administration (FAA) downgraded Mexico’s safety rating this week, banning an expansion of flights by the country’s airlines to its northern neighbor. In response, Aeroméxico bonds weakened 1.4 cents.
The limited reaction implies that bondholders think that the risk of collapse has disappeared and that the worst is over.
“The FAA downgrade of Mexico’s aviation safety rating doesn’t mean much to Aeromexico for now because cross-border passenger traffic has already returned to pre-pandemic levels,” Horn said.
Resume flights
Aeromexico has made every effort to take advantage of the traffic, resuming daily service to Austin and Dallas and increasing flights to Houston in April. Amid a strong national recovery, the company also opened a new route from Mexico City to Puerto Escondido, a port city with seven beaches on the Oaxacan coast, earlier this year.
Aeroméxico’s monthly passenger numbers rose to more than a million in April, 3% more than in March and almost 700% since the height of the pandemic in April last year. Still, the airline’s total passenger load remains below 2019 levels.
This week, Mexican corporate bonds were mostly down, resisting a gain in both dollar and peso-denominated sovereign bonds. The peso rose as the dollar held steady, giving risky assets a breather.
After a few days of heavy data, next week’s schedule will be lighter. Mexico will report figures for international reserves, figures from the PMI index and vehicle sales. The country will also release total remittances for April and consumer confidence figures for May.
WHAT TO SEE:
- May 31: outstanding net loans
- June 1: remittances, international reserves, PMI index
- June 2: vehicle sales, main indicators
- June 3: consumer confidence
- June 4: vehicle exports
BOND SALES:
- Volkswagen Leasing will sell 2,000 million pesos in bonds on June 23.
- Grupo Axo will hold a call with investors for bonds denominated in dollars.
- Grupo Bimbo requests a debt quota of 20,000 million pesos.
