10 August 2010

Cloudy future for Mexican airline

Mexicana de Aviacion, one of the country's two major airlines, says pressure from creditors has forced it to gradually eliminate flights in the coming days. But passengers who had already started a journey will be given priority.

"Events of last week considerably weakened the cash flow that supports our operations," the company said in a prepared statement.

Mexicana, saddled with mounting debts and high employee costs, filed for creditor protection with

Mexican and US authorities last week after it failed to get employees to accept further wage cuts.
Mexicana has suspended ticket sales, raising questions about whether it could stave off bankruptcy -- and how long it can continue to operate.

In its statement, Mexicana painted a picture of worsening cash problems as creditors have turned their backs and employee costs remain burdensome. Without fresh revenue from new ticket sales the company would have to rely on other financing but said those options were scarce.

"Other sources of revenue have either dried up or are being retained by financial institutions following the company's recent decision to file bankruptcy proceedings," the company said.

The carrier's problems are expected to prove a boon for US airlines also flying to popular beach destinations American, Delta and Continental which have exposure in Mexico, according to Reuters.

By David Wilkening