InterJet is widely reported to have problems paying its advance fuel bills. Before the pandemic, the Mexican airline had long term lease agreements with Aviation Capital Group for 10 A320s and two A320s through Wings Capital Partners (which are both wrapped within the WAVE-2019-1 ABS).
The airline, like many others large and small around the world, has had its balance sheet smashed by the pandemic. InterJet is reported to have had cash reserves but they were wiped out by the order on August 30 for the airline to pay $27 million in back taxes which left the airline “technically bankrupt” according to the CFO.
InterJet’s plans for getting through Winter 2020 and Spring 2021 have been widely lambasted to date, but what can the airline do? It has a good business model that will do well once more as soon as the pandemic restrictions have passed. But the airline has no real costs to cut. It was already running an ultra-low cost operation prior to the pandemic, but with 10% of all monthly revenue going straight to the authorities to guarantee the $27million in owed taxes – the airline has suffered one financial hit too many. Those lessors with aircraft still at the airline will need to look to secure them at speed before other creditors lay claims.
As with so many things these days, where there is a loser there will always be a winner, and right now the big winner is Volaris.
Earlier this year when Volaris posted an operating loss of 2.3bn pesos ($102m) demand was already starting to recover enabling the airline to operate 75% of its 2019 capacity last quarter, from less than 25% in Q2. Revenue declined 50% year-on-year to 4.7bn pesos ($210m), but Volaris has managed to cut operating expenses by over 50% during the crisis, as such revenue growth back towards normality helped Volaris to reduce its operating loss (excluding a special charge) to 1.5bn pesos ($66m). Volaris is currently burning through less than $1m per day and has been able to secure its cash position to 8.2bn pesos ($365m) at the end of Q3, thus the airline is in a net cash position as things stand.
With InterJet stumbling and AeroMexico already bankrupt, Volaris stand to make significant gains over this winter. This coupled with the dramatic cost cutting makes the airline a real contender for airline of the year 2020, and certainly makes the management team shine out. VivaAerobus is hot on the heels of Volaris though, and is also looking strong to come out of the pandemic stronger than it went into it. It will be interesting to see if these two airlines feel the need to take each other on in a price war or if they will be content, or indeed able to hold ticket prices where they are.