A line of Aeromexico planes at the Mexico City airport. Photo: Shutterstock.com

Davis Polk & Wardwell is advising on a restructuring for Mexico's leading airline, Aeroméxico—the third Latin American carrier to apply for Chapter 11 protection in the U.S. since COVID-19 grounded planes around the world.

U.S. Bankruptcy Judge Shelley C. Chapman of the Southern District of New York on July 1 granted the request by Aeroméxico for relief, including authority to pay critical vendors and honor customer programs and airline agreements.

In soliciting help from U.S. bankruptcy courts to stay in business during the pandemic, Aeroméxico joins Colombia's Avianca—represented by Milbank—and Chile's LATAM Airlines—represented by Cleary Gottlieb Steen & Hamilton.

Delta Air Lines' global expansion strategy of buying equity in partner airlines has given it a 49% stake in Aeroméxico and a 20% stake in LATAM Airlines. Delta and Aeroméxico launched their first codeshare in 1994, while the affiliation with LATAM became official less than a year ago, in September.

So far there is no indication of financial assistance for either Latin American carrier from Atlanta-based Delta, which has received $5.4 billion in U.S. government aid to pay its employees through September.

Lawyers at Hughes Hubbard & Reed are representing Delta in the Aeroméxico bankruptcy proceedings.

"Our industry faces unprecedented challenges due to significant declines in demand for air transportation," said Andrés Conesa, chief executive officer of Aeroméxico. "We are committed to taking the necessary measures so that we can operate effectively in this new landscape and be well prepared for a successful future when the COVID-19 pandemic is behind us."

The Davis Polk team advising the Mexican airline includes restructuring partners Marshall S. Huebner and Timothy Graulich, litigation partner James I. McClammy, finance partner Vanessa L. Jackson and capital markets partner Maurice Blanco. All members of the team are based in the New York office.

The Mexican government has been reluctant to assist private industry during the health and economic emergency, with President Andrés Manuel López Obrador instead having reiterated vows of budget austerity.

In contrast, the government of Brazil, Latin America's largest economy, has actively coordinated with domestic airlines to keep critical cargo flowing across the vast country during COVID-19. Brazil is roughly the same size as the continental U.S.

Mexico has not restricted international arrivals or domestic air travel during the health crisis, though demand fell dramatically as consumers voluntarily cut back on travel to avoid contagion. Chile and Colombia, though, banned international travel and restricted domestic travel as well.

Aeroméxico is by far Mexico's largest carrier and most international airline, with an operating fleet of 119 aircraft composed of Boeing jet airliners and Embraer models. The country's flagship carrier, Mexicana, went out of business in 2010, making room for smaller upstarts that have focused mostly on domestic service.

The Chapter 11 process is designed to allow companies to maintain regular operations. Aeroméxico said the New York court has allowed it to pay employee wages and benefits in the ordinary course of business, honor already-purchased tickets and vouchers, maintain the company's points program for award travel and pay suppliers for goods and services.

The carrier expects to double the number of its domestic flights and quadruple the number of international flights in July compared to June, as Mexico moves to open its economy even amid rising cases of COVID-19. The nation of 120 million inhabitants recently surpassed France to become the country with the fifth-highest number of reported deaths from the novel coronavirus.

Aeroméxico said it is committed to safely expand flight service in the coming months, in line with local regulations and customer demand.

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