Under scrutiny from Mexico's Chamber of Deputies and Mexican federal agencies, Cintra, the holding company for Aeromexico, Mexicana, and AeroPeru, is deliberating whether to retain common control or split each airline into a separate company.
Pressure on Cintra has been mounting since last May, when it first disclosed plans for an initial public offering that would allow the Mexican banks holding Cintra's shares to profit from the improved fortunes of its airlines. Cintra, the parent company for both airlines, planned an international IPO offering 20-30 per cent of its shares for an estimated US$200-300 million.
Following national elections that shifted the balance of power in Mexico's Chamber of Deputies, the legislature has insisted on re-examining certain decisions by former governments. Among those was the 1995 approval of Cintra's joint ownership of Mexico's two largest airlines, Aeromexico and Mexicana.
The chamber's anti-monopoly committee launched hearings in late November 1997, and found a surprising ally in the federal competition commission, which had originally approved Cintra's takeover.
Fernando Sanchez, commission president, told legislators that market concentration had worsened since Aeromexico and Mexicana came under Cintra's control. The two carriers now operated two-thirds of all commercial aircraft in Mexico. From 1994 through the first quarter of 1997, their domestic market share had grown from 73 to 80 per cent, while their regional subsidiaries expanded their share of the regional market from 43 to 59 per cent. The commission also found air fares between 26 city pairs were noncompetitive.
Sanchez cited presentations to his commission illustrating market consolidation. 'Aeromexico and Mexicana have manifested a preoccupation with consolidating their dominant position and the effect competition would have on the internationalisation of Cintra's capital.'
In response to these concerns, however, Sanchez said his office, in cooperation with the secretary of communications and transport, planned a number of actions designed to enhance competition. One of the measures is a plan to regulate fares in concentrated markets and simultaneously encourage new entrants to operate in these markets.
On the key issue of Cintra's joint ownership, Sanchez says Cintra's administration must be separated from management of the individual airlines. More importantly, he recommends separating Aeromexico and Mexicana for the purposes of any stock offering.
Sanchez stopped short of calling for Cintra's complete dissolution, but said his commission would review that question again before 2000.
Morales Dorea, general director of the junta that oversees Aeromexico and Mexicana, said Cintra would respond in early December with an announcement about its future. If Cintra decides to spin off the airlines, he predicted the separation would not be limited to any share offering, but would be complete.
Due to market conditions Cintra has delayed its IPO into 1998, but hopes to sell 25 per cent to foreign investors, the maximum allowed under Mexican law, for an estimated $350-$400 million. Cintra also plans to launch a domestic offering within Mexico, but Dorea could not estimate how many. 'It all depends on the market,' he says. 'We're willing to go out on the IPO and see what happens.'
David Knibb
Source: Airline Business
