Corporación Internacional de Aviació

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Corporación Internacional de Aviación, S.A. de C.V. (Cintra)

Xola 535
03100 Mexico, D.F.
Mexico
(525) 448-8022
Fax: (525) 448-8042

Public Company
Founded: 1921 as Compañia Mexicana de Transportación Aérea
Employees: 15,540
Sales: $1.69 billion (1996)
Stock Exchanges: Mexico City
SICs: 4512 Air Transportation, Scheduled; 6719 Offices of Holding Companies, Not Elsewhere Classified

Corporación Internacional de Aviación, S.A. de C.V. (Cintra) is the holding company for Aerovías de México and Corporación Mexicana de Aviación, whose holdings include Aeroméxico and Mexicana, respectively—Mexico’s two largest airlines. It was established in 1996 by four creditor Mexican banks, which took 70 percent of the shares in exchange for airline debt they converted into equity. The Mexican government took a 21 percent stake. Cintra controlled 78 percent of the market for domestic flights in 1996 and 39 percent of the Mexico-U.S. market.

Mexicana and Aéronaves to 1945

The history of Cintra’s holdings is a virtual history of commercial aviation in Mexico. Founded in 1921, Compañia Mexicana de Transportación Aérea was the first commercial-aviation company in Latin America. It catered to oil executives, flying them between Mexico City and Tampico—then the center of the Mexican petroleum industry—for $100 each, or $50 if a passenger flew more than 100 hours a month. George Rihl founded Compañia Mexicana de Aviación in 1924 with 50,000 pesos ($25,000) in capital, teaming with William “Slim” Mallory, a pilot. Operating three Lincoln Standard airplanes, it was a specialty payroll-delivery service dropping sacks of currency at the Tampico oilfields to avoid banditry on the roads. Rihl then eliminated rival Compañia Mexicana de Transportación Aérea by purchasing it.

In 1925 Sherman Fairchild bought a 20-percent interest in Mexicana, which began flying Fairchild airplanes in 1927 and obtained landing rights in Brownsville, Texas, the following year. By this time Mexicana had won its first mail contract, to carry mail between Mexico City and Tampico for 10 years, and it also flew to Tejería, Veracruz, Tapichula, and Guatemala City. Around 1930 the carrier introduced a flight to Mérida with five improvised stops. That year Pan American Airways bought Mexicana for 300,000 pesos ($150,000). Mexico City’s airport opened in 1934, but air travel remained very primitive. Planes skidded on wet runways and cattle wandered onto the field, despite barbed wire, forcing pilots to buzz them in order to scare them away. Cabins were neither pressurized nor heated.

Antonio Díaz Lombardo, a banker, founded Compañia Aéronaves de México, S.A. (predecessor of Aerovias) in 1934 with capital of 100,000 pesos ($50,000). Its first airplane was a Stinson SR, purchased in Kansas City and then flown to Mexico City, where it was put into service flying to Acapulco, with stops (if needed) in Iguala and Chilpancingo. Aéronaves received a government mail contract for the route in 1935 and bought Transportes Aéreas del Pacífico in that year. It adopted the Boeing 247, carrying 10 passengers, for its fleet in 1940 or 1941. Also in 1940 or 1941, Pan American acquired a large minority stake in Aéronaves. Later that year the airline won permission to open a Baja California route and one flying between Acapulco and Oaxaca.

Mexicana acquired the routes of Aerovias Centrales, S.A., a dissolved Pan American subsidiary that served the Pacific coast, in 1935. It began to operate Douglas DC-2 aircraft, which could carry 14 passengers, in 1937. The airline began flying to Havana in 1941 and in that year started direct service from Mexico City to Monterrey and also to the U.S. border at Nuevo Laredo, from where Braniff linked the flights to the U.S. Midwest.

World War II established better conditions for commercial aviation. The beefed-up Mexican air force built airfields with concrete runways in strategic locations, and the meteorological service added personnel for the 28 radiocommunications stations maintained by the air force. During this period both Mexicana and Aéronaves adopted the Douglas DC-3, carrying 21 passengers, for the majority of their routes. The DC-4, with room for 54 passengers, was in service before 1950, but it was not until that year that the first airplanes with pressurized cabins became available (the DC-6 for Mexicana, the Convair 340 for Aéronaves).

Mixed Fortunes, 1945-90

Mexican shareholders had taken a 36 percent stake in Mexicana at the end of 1944. Following the requirements of a postwar law, Pan Am reduced its share of the company to 45 percent, and later to 35 percent. Its interest in Aéronaves fell to less than 11 percent in 1958. When a strike hit both airlines in 1959, the Mexican government purchased Aéronaves. At this time Aéronaves was serving more routes, but Mexicana had the best intercity ones, including nonstop rights between Mexico’s three largest cities. Beyond Mexico’s borders, Mexicana had service from Mexico City to Chicago, Los Angeles, and San Antonio, while Aéronaves held routes from Mexico City to New York City and Washington, D.C., and from Acapulco to Los Angeles.

Aéronaves received its first jet aircraft, the Douglas DC-8, in 1960 or 1961. In 1967 it became the first Latin American carrier with all jets, its fleet then being based on the DC-9. Aéronaves was offering regular service to 32 Mexican cities in 1964, and also to Detroit, Los Angeles, Miami, New York, and Tucson, Montreal and Toronto, and Caracas and Panama City. The airline was renamed Aeroméxico in 1971. It began service to Paris in 1973 and to Buenos Aires, Rio de Janeiro, Sao Paulo, and Central America during 1974-76. Aeroméxico ranked 24th in sales among Mexico-based companies in 1977. (Mexicana was 21st).

Mexicana, without government financing, was traveling a rockier road. There were many aviation strikes during 1960-62, but Mexicana was hardest hit, losing 74.1 million pesos ($5.9 million). It lost $4.6 million in fiscal 1966 and $3.2 million in fiscal 1967 and had outstanding debt of about $14 million at this time. Pan American sold its stock to Crescencio Ballesteros, a Mexican industrialist, and the company sold 10 airports for cash. In 1968 Mexicana earned a profit, in spite of two fatal crashes of its new Boeing 727 aircraft. By contrast, no Aéronaves passenger lost his life between 1959 and 1971.

Mexicana’s financial turnaround continued through the 1970s. By 1978 it had recorded 10 years of continuous annual profits. In 1977, with a fleet of 31 Boeing 727s, it became the largest passenger airline in Latin America in terms of total flights. That year it had revenues of 4.27 billion pesos ($208 million). It was the first Latin American airline to carry 5 million passengers a year in 1978. During the national economic crisis of 1982, however, it failed to make a profit, and the Mexican government raised its stake in the company from 14 to 54 percent. Mexicana had $350 million in outstanding loans at the time and was having difficulties in making payments.

Aeroméxico, carrying 40 percent of Mexico’s domestic air passengers, had revenues of 11.74 billion pesos ($479 million) and profits of $7.5 million in 1981. In 1987 it had a fleet of 45 jets and 39 destinations on three continents. However, in April 1988 the government declared Aéronaves, its parent, bankrupt, saying it was inefficient and was absorbing a subsidy of more than $100 million a year. In October a group of private investors led by Gerardo de Prevoisin bought between 65 and 75 percent of the company for about $330 million. It was renamed Aerovias de México.

Mexicana had a fleet of 44 jets in 1987, when it was serving 30 Mexican and 14 foreign destinations. In 1989 the government reduced its stake in the airline to 40.5 percent, and a consortium including Chase Manhattan Bank purchased a 25 percent share for $140 million. Mexicana made a profit of 307.6 billion pesos ($136.3 million) in 1988 but had $235.4 million outstanding in foreign loans. The company acquired Aerocaribe, a regional carrier serving the Yucatan Peninsula and other parts of southeastern Mexico in 1990, when it reached a peak of 9,058,498 passenger boardings.

Bumpy Ride in the 1990s

The private consortium, Corporación Falcón, which subsequently raised its stake in Mexicana to over 50 percent, also assumed management control of the airline and planned to invest more than $3 billion by 2000, increasing the airline’s fleet from 48 to 85 aircraft and cargo traffic nearly tenfold. It established new destinations, created a new business class, and contracted for 38 Airbus A320s to replace 42 aging Boeing 727-200 jets. But its campaign faltered. It lost $70 million in the first nine months of 1992 alone and fell behind Aeroméxico in domestic passengers carried in 1993.

To restore financial solvency, Aerovias slashed Aeroméxico’s fleet by more than a third and reduced its work force of 12,000 by two-thirds. It then launched an aggressive promotional and modernization campaign that included Mexico’s first frequent-flier program, the extensive use of electronic-information technology, and a 96-percent on-time rating, one of the best in the world. Aeroméxico’s market share climbed from 27 to 40 percent.

Aerovias de Mexico acquired 11 percent of Mexicana in 1992 and exchanged 15 percent of its own shares for a 55-percent stake in Corporación Falcon in 1993. The transaction, which in effect gave Aerovias a controlling interest in Mexicana, was valued at $110 million in cash and stock. The two companies maintained different executive staffs and public identities and images despite their close ties in ownership. In international services, Mexicana targeted ethnic traffic and gave priority to the United States, Central America, and the Caribbean. Aeroméxico aimed at business travelers and placed great emphasis on its routes to Europe, the United States, and South America. Aerovias also bought 47 percent of Aeroperú, a struggling state-run airline, for $15 million in 1993.

Aerovías’s expansion moves soon proved a disaster. In 1992 the company lost $52.3 million, mainly because the Mexican government had deregulated the Mexican airline industry, forcing Aeroméxico to wage a price war in order to maintain its market share. Aerovias now also had to contend with Mexicana’s problems. The company lost about $37 million in 1993, while Aerovías lost almost as much.

The economic slump that followed the peso devaluation of late 1994 created new problems for both airlines. Aerovías was taken over by its creditors, who were owed 2.6 billion pesos (about $380 million) in current liabilities alone. De Prevoisin, its chairman, fled the country amid charges of having embezzled more than $70 million in airline funds. A restructuring by creditor banks who exchanged debt for equity roughly halved the carrier’s liability, to 3.2 billion pesos (about $470 million). Aerovias’s outstanding long-term debt was 1.49 billion pesos ($220 million) at the end of 1995. Its net loss in 1995 of 136 million pesos ($20 million) on revenues of 6.17 billion pesos ($907 million) was, however, trivial compared to its net loss of 3.4 billion pesos (about $500 million) in 1994.

Mexicana, still 34 percent owned by the Mexican government, had a net loss for 1995 of 1.64 billion pesos ($241 million) on operating income of 5.32 billion pesos ($783 million), on top of a net loss of 2.84 billion pesos ($417 million) in 1994. Its outstanding long-term debt at the end of 1995 was 4.94 billion pesos ($727 million).

Cintra, the Corporación Internacional de Aviación, was created in June 1996 as the holding company for Aerovías and Mexicana, whose stockholders swapped their shares for stock in Cintra. The two airlines were required to maintain competition, however, keeping separate accounts and independent management. Aeroméxico had 39 percent of the domestic market in 1996, while Mexicana had 31 percent. Mexicana had 21 percent of the U.S.-Mexico market, while Aeroméxico had 18 percent. Aeroméxico flew 6,789,989 passengers in 1995, while Mexicana flew 6,562,278. In 1996 Mexicana had a fleet of 45 Boeing 727s, Airbus A320s, and Fokker 100s, some of them leased. Aeroméxico had a fleet of 51 MD-80s, DC-9s, Boeing 757s, and Boeing 767s.

Aeroméxico was believed to be more capable than its partner of combating competition from rivals such as Taesa and Aerocalifornia in the domestic market and foreign airlines on international routes. It installed a sophisticated computer system in 1995 to manage internal operations and had a strategic alliance with Delta Air Lines that included codesharing on a growing number of Mexico-U.S. routes. Mexicana had cut its work force, disposed of its DC-10s, and halved its number of Boeing 727s. Its number of Airbus A320s was to be increased to 28. It had codesharing arrangements with the Dutch airline KLM and Japan Airlines and joint-venture agreements with the Russian airline Aeroflot and the Venezuelan airline Avensa. Both Aeroméxico and Mexicana jointly offered, with Aeroperú, connecting services from the United States through Mexico to Peru, Chile, and Argentina.

Principal Subsidiaries

Of Aerovías de México, S.A. de C.V.: Aeromexpress, S.A. de C.V. (99 percent); Corporación Mexicana de Aviación, S.A. de C.V. (55 percent); Servicios Aéreos Litoral, S.A. de C.V. (99 percent). Of Corporación Mexicana de Aviación, S.A. de C.V.: Aerocozumel, S.A. de C.V.; Aeromonterrey, S.A. de C.V.; Aeropuertos y Terrenos, S.A. de C.V.; Aerovias Caribe, S.A. de C.V.; Servicios Operativos Aéreos, S.A. de C.V.; Turborreactores, S.A. de C.V.