As filed with the U.S. Securities and Exchange Commission on December 6, 2024.

Registration No. 333-279379

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Grupo Aeroméxico, S.A.B. de C.V.

(Exact name of Registrant as specified in its charter)

 

 

Aeromexico Group

(Translation of Registrant’s name into English)

 

 

 

United Mexican States (State or other jurisdiction of incorporation or organization)		4512 (Primary Standard Industrial Classification Code Number) Avenida Paseo de la Reforma 243, 25th Floor Col. Renacimiento, Cuauhtémoc 06500 Mexico City United Mexican States +52 (55) 9132 4000		None (I.R.S. Employer Identification No.)

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Cogency Global Inc.

122 East 42nd Street, 18th Floor

New York, New York 10168

+1 (212) 947-7200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

John R. Vetterli Juan Antonio Martín White & Case LLP 1221 Avenue of the Americas New York, New York 10020 (212) 819-8200		Richard D. Truesdell, Jr. Maurice Blanco Davis Polk & Wardwell LLP 450 Lexington Avenue New York, NY 10017 (212) 450-4000

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company. ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated December 6, 2024

PRELIMINARY PROSPECTUS

 

 

    American Depositary Shares

This is the initial public offering of Grupo Aeroméxico, S.A.B. de C.V. The selling shareholders are offering     common shares, without nominal value, of Grupo Aeroméxico, S.A.B. de C.V., or the shares, which will be represented by American Depositary Shares, or ADSs. Each ADS represents one of our shares. This offering is made concurrently with a public offering authorized by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores), or the CNBV, of shares in Mexico, which we refer to as the “Mexican offering,” and together with this offering, the “global offering,” and that will commence on the same date as this offering. The Mexican offering is being conducted by the lead Mexican underwriters named elsewhere in this prospectus, or the Mexican underwriters, pursuant to a prospectus prepared in accordance with the laws of Mexico. The closing of the Mexican offering is conditioned upon the closing of this offering. Shares being offered in the global offering may be reallocated between the Mexican offering and this offering. See “Underwriting (Conflict of Interest).”

This is our initial public offering and prior to this offering, there has been no public market for the ADSs. The estimated initial public offering price is between U.S.$    and U.S.$    per ADS. We have applied to list the ADSs on the New York Stock Exchange, or NYSE, under the symbol “AERO.”

The shares underlying the ADSs are registered in the Mexican National Securities Registry (Registro Nacional de Valores), or the RNV, maintained by the CNBV. We have applied for the listing of the shares underlying the ADSs with the Mexican Stock Exchange (Bolsa Mexicana de Valores), or the BMV. Such listing is expected to be effected on or prior to the global offering. Registration and listing of the shares in Mexico will not be a certification as to the investment quality of the securities, the solvency of the issuer or the accuracy or completeness of the information contained in this prospectus. The ADSs are not required to be and will not be registered in the RNV maintained by the CNBV nor listed on the BMV.

Following this global offering, we may be required to amend our bylaws to split our single series of common shares into three series of shares and to reclassify the shares sold in this global offering into such three series of shares, and your rights as an ADS holder may be modified to comply with the DGIE Regulatory Approval and the Mexican Foreign Investment Law. See “Summary—Recent Developments—DGIE Approval” and “Risk Factors—Risks Related to the ADSs and the Shares Underlying the ADSs—Following this global offering, we may be required to amend our bylaws to split our single series of common shares into three series of shares and to reclassify the shares sold in this global offering into new series of shares and your rights as an ADS holder may be modified to comply with the DGIE Regulatory Approval and the Mexican Foreign Investment Law.”

Investing in the ADSs involves a high degree of risk. Please see “Risk Factors” beginning on page 33.

For a description of the rights relating to our shares underlying the ADSs being offered hereby, see “Description of Capital Stock” beginning on page 232.

 

Per ADS and Share

Offering Total

Mexican Offering Total

Global Offering total

Price to the public

$

$

$

$

Underwriting fees and commissions(1)

$

$

$

$

Proceeds to the selling shareholders (before expenses)

$

$

$

$

 

(1)	See “Underwriting (“Conflicts of Interest”) for a description of the compensation payable to underwriters.

We have agreed to reimburse the underwriters for certain expenses in connection with the offering. See “Underwriting (Conflict of Interest).”

The selling shareholders have granted to the underwriters and the Mexican underwriters independent options, exercisable for 30 days from the date of this prospectus, to purchase, in respect of the underwriters, up to an aggregate of     additional ADSs and, in respect of the Mexican underwriters, up to     additional shares at the applicable public offering price listed above, less underwriting discounts and commissions. The underwriters and the Mexican underwriters may exercise these options solely for the purpose of covering over-allotments, if any, made in connection with the offering of the ADSs and shares offered under this prospectus and the Mexican prospectus, respectively, on an independent but coordinated basis.

Neither the U.S. Securities and Exchange Commission, or the SEC, nor the CNBV nor any state securities commission, has approved or disapproved of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The ADSs have not been and will not be registered with the RNV maintained by the CNBV, and these securities may not be publicly offered in the United Mexican States, or Mexico. We have registered the shares underlying the ADSs with the RNV maintained by the CNBV and have applied to list them on the BMV. Such listing is expected to be obtained on or prior to the registration effectiveness date. Registration of the shares with the RNV in Mexico does not imply any certification as to the investment quality of the shares underlying the ADSs, our solvency, liquidity or credit quality, or the accuracy or completeness of the information contained in this prospectus, and does not ratify or validate any actions or omissions, if any, undertaken in contravention of applicable law. As required under the LMV and the regulations thereunder, we will notify the CNBV of the offering of the securities outside of Mexico and the terms of the securities. Such notice will be submitted to CNBV to comply with Article 7, second paragraph, of the LMV, and regulations thereunder, and for statistical and informational purposes.

We have prepared this prospectus and are solely responsible for its content; the CNBV has not reviewed or authorized such content. This prospectus may not be publicly distributed in Mexico.

The underwriters expect to deliver the ADSs to purchasers on or about   , 2025 through the book-entry facilities of The Depository Trust Company, or DTC.

To comply with the requirements of the authorizations granted in favor of our company to allow it to receive foreign investment and to be in a position to monitor and respect the limits provided in the Mexican Foreign Investment Law (Ley de Inversión Extranjera), we will employ detailed methods to record and count votes at shareholders’ meetings, so that votes cast by non-Mexican investors that exceed 49% of the number of shares owned by Mexican investors and represented at the relevant shareholders’ meeting will be recorded and deemed voted in the same way as the votes of the majority of the Mexican investors. The term “Mexican investors” includes (i) Mexican individuals, (ii) legal entities with foreign exclusion clause or with a majority of Mexican investment and controlled by Mexican investment, or (iii) vehicles (such as trusts) with a majority of Mexican investment or Mexican beneficiaries represented at the relevant shareholders’ meeting. As a result, ADS holders who are non-Mexican investors will not be able to exercise control over the management or direction of our company.

 

Barclays		Morgan Stanley		J.P. Morgan		Evercore ISI

 

Apollo Global Securities

Prospectus dated     , 2025

TABLE OF CONTENTS

 

GLOSSARY OF AIRLINE AND INDUSTRY TERMS			ii
PRESENTATION OF FINANCIAL AND OTHER INFORMATION			vii
PROSPECTUS SUMMARY			1
THE GLOBAL OFFERING			23
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA			28
RISK FACTORS			33
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			79
USE OF PROCEEDS			82
MARKET INFORMATION			83
CAPITALIZATION			86
SELECTED CONSOLIDATED FINANCIAL INFORMATION			87
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION			93
REGULATION			131
INDUSTRY			149
BUSINESS			154
MANAGEMENT			213
PRINCIPAL AND SELLING SHAREHOLDERS			226
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			229
DESCRIPTION OF CAPITAL STOCK			232
DESCRIPTION OF AMERICAN DEPOSITARY SHARES			244
DIVIDENDS			253
SHARES AND ADSS ELIGIBLE FOR FUTURE SALE			254
TAXATION			256
UNDERWRITING (CONFLICT OF INTEREST)			263
EXPENSES OF THE GLOBAL OFFERING			277
LEGAL MATTERS			278
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			279
WHERE YOU CAN FIND MORE INFORMATION			280
ENFORCEABILITY OF CIVIL LIABILITIES			281
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us that we have referred to you. Neither we, the selling shareholders nor the underwriters or any of their respective affiliates have authorized any other person to provide you with different or additional information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. Neither the selling shareholders nor the underwriters are making an offer to sell the ADSs in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, results of operations, financial condition, prospects and other information in this prospectus may have changed since that date.

The selling shareholders are offering the ADSs in the United States and countries other than Mexico solely on the basis of the information contained in this prospectus. No offer or sale of the ADSs may be made in Mexico. Persons outside the United States who have come into possession of this prospectus must inform themselves about and observe restrictions relating to the offering of the ADSs and the distribution of this prospectus outside the United States.

Through and including  , 2025 (the 25^th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

In this prospectus, we use the term “Grupo Aeroméxico” to refer to Grupo Aeroméxico, S.A.B. de C.V., “Aeroméxico” to refer to Aerovías de México, S.A. de C.V. and “Aeroméxico Connect” to refer to Aerolitoral, S.A. de C.V. Unless otherwise indicated, or the context otherwise requires, the terms “our company,” “we,” “our,” “ours,” “us” or similar terms refer to Grupo Aeroméxico, together with Aeroméxico and Aeroméxico Connect, and the respective subsidiaries, properties and assets that we own or operate.

The Mexican offering is being made in Mexico pursuant to a prospectus in Spanish. The Mexican prospectus, which has been filed with, and reviewed by, the CNBV, and this prospectus contain substantially the same information, in all material respects, except that the Mexican prospectus includes other information required by Mexico law and regulation. This prospectus solely relates to the offering of ADSs by the selling shareholders. You should refer to the Mexican prospectus if you wish to purchase shares in the Mexican offering.

 

i

GLOSSARY OF AIRLINE AND INDUSTRY TERMS

Set forth below is a glossary of certain industry and other terms used in this prospectus:

“Aeroméxico Cargo” means Aerovías Empresa de Cargo, S.A. de C.V.

“Aeroméxico Connect” means Aerolitoral, S.A. de C.V.

“Aeroméxico Rewards” means the frequent flyer program managed and operated by PLM, formerly known as Club Premier.

“Aeroméxico Rewards Points” means the points that the members of our loyalty program, Aeroméxico Rewards, earn in connection with the purchase of air tickets and other goods and services.

“Aeroméxico Servicios” means Administradora Especializada en Negocios, S.A. de C.V., Estrategias Especializadas de Negocios, S.A. de C.V. and Sistemas Integrados de Soporte Terrestre en México, S.A. de C.V.

“Aeroméxico Sistemas Integrados” means Sistemas Integrados de Soporte Terrestre en México, S.A. de C.V.

“Aeromexpress” means Aeromexpress, S.A. de C.V.

“Aeronaves” means Aeronaves de México, S.A. de C.V.

“AFAC” means the Mexican Federal Civil Aviation Agency (Agencia Federal de Aviación Civil).

“Aimia” means Aimia Inc.

“Aircraft utilization rate” means the number of hours during which an aircraft was effectively flying per operation day.

“Airports Law” means the Mexican Airports Law (Ley de Aeropuertos).

“AM Formación” means AM Formación Interna, S.A. de C.V.

“AM BD” means AM BD GP JV, S. A. P. I. de C. V.

“ASA” means the Airport and Auxiliary Services (Aeropuertos y Servicios Auxiliares), a Mexican governmental agency.

“ASK” means Available Seat Kilometer, a unit used by airlines to measure capacity, which consists of the number of seats available for passengers, regardless of whether occupied, multiplied by the number of kilometers flown by the aircraft carrying those seats.

“ASPA” means the Aviation Pilots Union of Mexico (Asociación Sindical de Pilotos Aviadores de México).

“ASSA” means the Flight Attendant Union of Mexico (Asociación Sindical de Sobrecargos de Aviación de México).

“ATS Act” means the U.S. Aviation and Transportation Security Act.

“Average stage length” means the average distance the aircraft is flown.

“B737-700-NG” means the Boeing 737-700-NG aircraft.

“B737-800-NG” means the Boeing 737-800-NG aircraft.

 

ii

“B737-8 MAX” means the Boeing 737-8 MAX aircraft.

“B737-9 MAX” means the Boeing 737-9 MAX aircraft.

“B787-8” means the Boeing 787-8 aircraft.

“B787-9” means the Boeing 787-9 aircraft.

“BMV” or the “Mexican Stock Exchange” means the Bolsa Mexicana de Valores, S.A.B. de C.V.

“Boeing 737” means the Boeing 737 aircraft family, of which we have B737-700-NG, B737-800-NG, B737-8 MAX and B737-9 MAX in our fleet.

“Boeing 737 MAX” means the Boeing 737 MAX aircraft, of which we have B737-8 MAX and B737-9 MAX in our fleet.

“Boeing 737-NG” means the Boeing 737-NG aircraft, of which we have B737-NG-700 and B737-NG-800 in our fleet.

“Boeing 787 Dreamliner” means the Boeing 787 aircraft family, of which we have B787-8 and B787-9 aircraft in our fleet.

“BSPO” means Baupost Group, LLC, Silver Point Capital, LP and Oaktree Capital Management, LP, collectively.

“CASK” means Cost per ASK, which consists of total operating expenses (excluding restructuring expenses, other income (loss) and share of loss (gain) on equity accounted investees) divided by ASK in respect of a certain period.

“CASK ex-fuel” means CASK excluding fuel cost.

“Club Premier” means our former frequent flyer program, currently known as Aeroméxico Rewards.

“CNBV” means the Mexican Banking and Securities Commission of Mexico (Comisión Nacional Bancaria y de Valores).

“Code sharing” refers to the relationship between two or more airlines pursuant to which one airline places its designator code on a flight operated by another airline and sells tickets for such flight, even though it is not the operator thereof.

“COFECE” means the Mexican Economic Federal Antitrust Commission (Comisión Federal de Competencia Económica).

“Completion factor” means the number of scheduled flights operated divided by the number of scheduled flights.

“CORSIA” means the Carbon Offsetting Reduction Scheme for International Aviation.

“Delta” means Delta Air Lines, Inc. (NYSE: DAL).

“DGIE” means the Mexican General Directorate of Foreign Investment (Dirección General de Inversión Extranjera).

“DGIE Regulatory Approval” means the official communication dated March 12, 2024, provided to the Company on March 22, 2024, pursuant to which the DGIE approved that the Company amend its bylaws to become a public variable capital company, registered with the RNV and listed with the BMV.

“DIP” means debtor in possession.

 

iii

“DOT” means the U.S. Department of Transportation.

“E190” means the Embraer 190 aircraft.

“EIA” means the U.S. Energy Information Administration.

“FAA” means the U.S. Federal Aviation Administration.

“FASK” means fuel expenses per ASK, which consists of jet fuel operating expenses divided by ASK in respect of a certain period.

“FSC” means full service carrier.

“GDS” means the global distribution system, which is used to manage and sell an airline’s available capacity inventory. The GDS may also be used to manage ancillary products.

“General Provisions” means the General Provisions Applicable to Issuers and Other Securities Market Participants (Disposiciones de Carácter General Aplicables a las Emisoras de Valores y a Otros Participantes del Mercado de Valores), issued by the CNBV.

“Hub” means a station or terminal that is the distribution center of passengers and coordinates the schedules of multiple flights and facilitates connections.

“IASA” means the International Aviation Safety Assessment.

“IATA” means the International Air Transportation Association.

“ICAO” means the International Civil Aviation Organization.

“IMF” means the International Monetary Fund.

“Independencia” means the Mexican Union of Airline, Transportation and Related Services Workers (Sindicato Nacional de Trabajadores al Servicio de las Líneas Aéreas, Transportes, Servicios, Similares y Conexos).

“Indeval” means S.D. Indeval Institución para el Depósito de Valores, S.A. de C.V.

“INEGI” means the Mexican Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía).

“INPC” means the National Consumer Price Index of Mexico (Índice Nacional de Precios al Consumidor).

“IOSA” means the IATA Operational Safety Audit.

“IRS” means the U.S. Internal Revenue Service.

“JCA” means the Joint Cooperation Agreement between Grupo Aeroméxico and Delta, dated as of March 27, 2015, and approved by COFECE and DOT in 2017, as amended.

“LATAM” means LATAM Airlines Group S.A., together with its subsidiaries.

“LCC” means low-cost carrier.

“LGSM” means the Mexican General Corporations Law (Ley General de Sociedades Mercantiles).

“LMV” means the Mexican Securities Market Law (Ley del Mercado de Valores).

“Load factor” means RPKs, as defined below, divided by ASKs and expressed as a percentage.

“Major European international FSCs” means International Airlines Group, Air France-KLM and Deutsche Lufthansa AG.

 

iv

“MEBC” means Mantenimiento y Equipo de Baja California, S.A. de C.V.

“MERCO” means Corporate Reputation Monitor (Monitor Empresarial de Reputación Corporativa).

“MEX” means the Benito Juárez Mexico City International Airport, which is under concession to Aeropuerto Internacional de la Ciudad de México, S.A. de C.V.

“Mexican Aeronautical Registry Regulation” means the rules and regulation of the Mexican Aeronautical Registry (Reglamento del Registro Aeronáutico Mexicano).

“Mexico” means the United Mexican States.

“MRO” means Maintenance, Repair and Overhaul.

“MRO Holdings” means MRO Holdings, Inc.

“MRO Mexico” means Mexico MRO Management, S. de R.L de C.V., a subsidiary of MRO Holdings.

“NLU” means the Felipe Ángeles International Airport, located in Mexico City.

“NPS” means Net Promoter Score. For clarification purposes, we calculate NPS through a bottom-up study, which consists of a personalized questionnaire to our customers about their experience in connection with our services, and a top-down study, which consists of a market analysis by an external consultant through blind and standardized surveys at MEX designed to identify our market position in relation to our competitors.

“PEMEX” means Petróleos Mexicanos and its subsidiaries.

“PLM” means PLM Premier, S.A.P.I. de C.V. (previously known as Premier Loyalty & Marketing, S.A.P.I. de C.V.), which is a subsidiary of Grupo Aeroméxico.

“PRASK” means Passenger Revenue per ASK, which consists of total passenger revenue divided by total ASKs during a certain period.

“PROFECO” means the Mexican Federal Consumer Protection Prosecution Office (Procuraduría Federal del Consumidor).

“PROFEPA” means the Mexican Federal Environmental Protection Office (Procuraduría Federal de Protección al Ambiente).

“RASK” means Revenue per ASK, which consists of total revenue divided by total ASKs during a certain period.

“Revenue premium” means the difference in unit revenue between the product offered by us and other Mexican airlines due to brand recognition, service quality and schedule options, among other product differentiators. Revenue premium can be measured by comparing RASK among carriers.

“RPK” means Revenue Passenger Kilometer, which consists of the number of transported passengers multiplied by the number of kilometers traveled by the passengers during a certain period.

“SAF” means sustainable aviation fuel.

“SEMARNAT” means the Mexican Ministry of Environmental and Natural Resources (Secretaría del Medio Ambiente y Recursos Naturales).

 

v

“SICT” means the Ministry of Infrastructure, Communications and Transportation of Mexico (Secretaría de Infraestructura, Comunicaciones y Transportes).

“SkyTeam” means the international global SkyTeam alliance, composed of 20 airlines, including Aeroméxico.

“Slot” means the landing and take-off time assigned by an airport’s management.

“SOFR” means the Secured Overnight Financing Rate.

“STIA” means the Aeronautics and Similar Services Union of Mexico (Sindicato de Trabajadores de la Industria Aeronáutica, Similares y Conexos de la República Mexicana).

“TechOps MX” means AM DL MRO JV, S. A. P. I. de C. V.

“TIIE” means the Mexican Interbank Equilibrium Interest Rate of Mexico (Tasa de Interés Interbancaria de Equilibrio).

“TSA” means the U.S. Transportation Security Administration.

“ULCC” means ultra low-cost carrier.

“Upgauging” means an airline industry technique to increase capacity by replacing smaller aircraft with larger aircraft.

“U.S. legacy carriers” means Delta, American Airlines Group Inc. and United Airlines Holdings, Inc.

“USMCA” means the United States-Mexico-Canada Agreement.

“VFR” means the visiting friends and relatives travel category.

“World Fuel” means World Fuel Services, Inc.

“Yield” means the average amount of revenue received per paying passenger flown one kilometer, which we calculate as total passenger revenue divided by RPK for the relevant period.

 

vi

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

This prospectus includes our unaudited condensed consolidated interim financial statements as of September 30, 2024 and December 31, 2023, and for the nine-month period ended September 30, 2024 and 2023, or the interim financial statements, which have been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting,” or IAS 34, and our historical audited consolidated financial statements as of December 31, 2023, 2022 and 2021, and for the years ended December 31, 2023, 2022 and 2021, and the respective notes thereto, included elsewhere in this prospectus, or the audited consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standard Board, or IAS Board, or IFRS.

Unless otherwise specified, all references to “U.S. dollars,” “dollars,” “U.S.$” or “$” are to U.S. dollars, the legal currency of the United States, and references to “pesos” or “Ps.” are to Mexican pesos, the legal currency of Mexico. Amounts converted to pesos are for the convenience of the reader and should not be construed as representations that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all. Amounts presented in this prospectus may not add up due to rounding.

Basis of Presentation

Our audited consolidated financial statements have been prepared in accordance with IFRS and our interim financial statements have been prepared in accordance with IAS 34. The designation IFRS includes all standards issued by the IAS Board and related interpretations issued by the International Financial Reporting Interpretations Committee. Under the General Provisions and our bylaws, our shareholders may modify the audited consolidated financial statements after they are issued. We changed our reporting currency from pesos to dollars as of January 1, 2021.

Currency and Rounding

We use the dollar as the presentation currency for our interim financial statements and audited consolidated financial statements, which is also our functional currency. We changed our reporting currency from the Mexican peso to the U.S. dollar as of January 1, 2021. Concerning our 2019 financial information presented in this prospectus, the 2019 audited consolidated financial statements were prepared originally in pesos and converted to dollars by applying the methodology set out in the International Accounting Standard 21 “The Effect of Changes in Foreign Exchange Rates,” or IAS 21.

We believe that the use of the dollar as our presentation currency facilitates the analysis of our results and financial condition by a wide range of users. Furthermore, we believe that use of the dollar as our presentation currency improves the comparability of our financial information with other international companies that commonly report in dollars.

All financial information presented in dollars has been rounded to the nearest million, except when otherwise indicated.

Due to rounding, numbers presented throughout this document may not add up precisely to the totals we provide, and percentages may not precisely reflect the absolute figures. The exchange rate of the peso against the U.S. dollar, as of September 30, 2024, was Ps.19.6921 per $1.00, according to the Central Bank of Mexico (Banco de México or Banxico), or the Mexican Central Bank.

***

Industry and Market Data

This prospectus includes estimates regarding market and industry data. Unless otherwise indicated, information concerning our industry and the markets in which we operate, including our general expectations, market position, market opportunity and market size, are based on our management’s knowledge and experience in the markets in which we operate, together with currently available information obtained from various sources.

 

vii

Certain information set forth in this prospectus is derived from independent industry publications, third-party studies and surveys, as set forth below:

 

•

2019 Federal Ground Motor Transportation Basic Statistics (Estadística Básica de Autotransporte Federal – Transporte Turístico por Tierra, 2019), published by SICT;

 

•

2019 Commercial Air Transportation Statistics Report (Resumen Estadístico Transporte Aéreo Comercial en Chile), issued on January 24, 2020, published by the Chilean Civil Aeronautics Board (Junta Aeronáutica Civil);

 

•

Aeroméxico Corporate Performance – Complete Corporate data, as of September 30 2024, published by PRISM Sales Information System, a third-party data provider owned by Sabre, or PRISM;

 

•

AFAC data is derived from:

 

•

AFAC’s Aviation Statistics by On-Flight Origin Destination, or OFOD, Scheduled Domestic Service (Estadística Operacional Origen-Destino en Servicio Regular Nacional), for September 30, 2024;

 

•

AFAC’s Aviation Statistics by OFOD Scheduled International Service (Estadística Operacional Origen-Destino en Servicio Regular Internacional), for September 30, 2024;

 

•

aviation market data, published by Cirium Diio MiTM, or Diio, as of September 30, 2024;

 

•

Canadian Air Transport Security Authority, or CATSA, screened passenger data, as of September 30, 2024;

 

•

“Crude oil prices increased in the first-half of 2022 and declined in second-half 2022” publication by the Energy Information Administration, or EIA, of January 4, 2023;

 

•

household income data from the Economist Intelligence Unit, as of December 2, 2024;

 

•

IMF data is derived from:

 

•

the IMF’s Financial Access Survey, or FAS, as of April 2024;

 

•

the IMF World Economic Outlook, inflation rate, average consumer prices data and estimates, as of April 2024;

 

•

the IMF World Economic Outlook, population data and estimates, as of April 2024; and

 

•

the IMF World Economic Outlook, real GDP growth, as of April 2024;

 

•

Mexican Central Bank data is derived from:

 

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the remittances (Ingresos por Remesas) database between January 1995 and January 2024, published by the Economic Information System (Sistema de Información Económica) of the Mexican Central Bank; and

 

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the exchange rate database (Portal del Mercado Cambiario), published by the Economic Information System (Sistema de Información Económica) of the Mexican Central Bank;

 

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the population and housing census (Censo de Población y Vivienda) for 2020; published by INEGI;

 

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TSA checkpoint travel numbers (current year versus prior year(s)/same weekday), as of September 30, 2024; and

 

•

World Bank data is derived from:

 

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the World Bank Open Data, World Development Indicators, Air transport, passengers carried, as of February 2024;

 

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the World Bank Open Data, World Development Indicators, GDP (current US$), as of December 2023; and

 

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the World Bank Open Data, World Development Indicators, Inflation, consumer prices (annual %), as of December 2023.

 

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Unless specified otherwise, information concerning population and demographics has been obtained from the World Bank Open Data, World Development Indicators, Population total, as of December 2023, or the World Bank population data; and information about CASK, CASK ex-fuel, RASK, number of loyalty program members and fleet age of other carriers has been obtained from public filings and publications of other airlines.

Although we believe that this data and information is reliable, we have not independently verified it. In presenting market share estimates in certain cases, we have estimated the size of the market on the basis of the published information. We believe this method is reasonable, but the results have not been verified by any independent source. Certain other information is based on management estimates, which have been derived from third-party sources, as well as data from our internal research, and are based on certain assumptions that we believe to be reasonable.

In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets in which we operate. While we believe the estimated market and industry data included in this prospectus are generally reliable, such information, which is derived in part from management’s estimates and beliefs, is inherently uncertain and imprecise, and you are cautioned not to give undue weight to such estimates. Market and industry data are subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical survey of such data.

In addition, projections, assumptions and estimates of the future performance of the markets in which we operate are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us. Accordingly, you are cautioned not to place undue reliance on such market and industry data or any other such estimates. We cannot guarantee the accuracy or completeness of this information; we have not independently verified any third-party information; and data from our internal research has not been verified by any independent source. The content of, or accessibility through, the sources and websites identified herein, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein, and any websites are an inactive textual reference only.

 

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RISK FACTORS

An investment in the ADSs involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, results of operations and financial condition could be materially and adversely affected by any of these risks. The trading price of the ADSs could decline due to any of these risks or other factors, and you may lose all or part of your investment.

The risks described below are those that we currently believe may adversely affect us or the value of the ADSs; however, other factors not described herein may also materially and adversely affect us and our financial condition. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including the risks facing our company or investments in Mexico described below and elsewhere in this prospectus. In general, investing in the securities of issuers in emerging market countries, such as Mexico, involves risks that are different from the risks associated with investing in the securities of U.S. companies and companies located in other countries with developed capital markets. Any of these risks could materially and adversely affect our business and results of operations.

Risks Related to Our Business

The airline industry is subject to external risks, including the outbreak of contagious diseases, security breaches, terrorism and natural disasters.

Our operations may be adversely affected by unforeseen events, including public health threats (such as COVID-19), terrorism, wars, national and international conflicts and natural disasters (including earthquakes, tsunamis, volcanic eruptions and hurricanes).

We have been significantly adversely affected by the public health threats posed by the COVID-19 pandemic, which significantly reduced the demand for our services. We may also be subject to negative effects of other health crises, such as dengue and zika epidemics and influenza outbreaks.

Security breaches, including but not limited to terrorist attacks, have adversely affected the airline industry by increasing insurance and safety procedure costs, causing airport closures, flight cancellations and flight delays; and decreasing the demand for airline travel (especially international travel). International conflicts in areas where we operate or involving the airspace through which we establish our routes may also affect our operations. For instance, as a result of the ongoing conflict between Russian and Ukraine, we terminated operations related to Russia. Specifically, because of the imposition of sanctions and flight restrictions through Russia, Aeroflot was suspended from the SkyTeam alliance. We suspended our code sharing agreement with this airline, as well as the reciprocity of our respective loyalty programs, which were our only operations in Russia. In addition, we suspended interline sales and any other agreements such as lounge sharing with Aeroflot. In addition, we discontinued our flights to Seoul, South Korea in 2022, as the direct flight route between Mexico and South Korea passed through Russian airspace. We resumed flights to South Korea in the third quarter of 2024 through a longer route that requires a layover and refueling but does not cross the Russian airspace. Security breaches at airports or on airplanes, including but not limited to terrorist attacks, or the fear of such breaches or attacks, could lead to a decrease in passenger load factors and yields, which could adversely affect our business and operating results.

In addition, natural disasters, such as earthquakes, severe storms and hurricanes, can lead to damage, interruptions or closures of the airport facilities where we operate, causing flight delays or cancellations or other interruptions of our operations, adversely affecting us. Many regions of Mexico are prone to earthquakes. An earthquake of sufficient severity could also lead to damage or closures at airports where we operate, causing us to suspend or delay operations, which would negatively impact our business, financial condition and results of operations.

 

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Our business was significantly adversely affected by the COVID-19 pandemic, and similar health threats in the future could have a further adverse effect on us.

The global COVID-19 pandemic and the measures and recommendations adopted by governments and private organizations to address it led the commercial aviation industry around the world to face unprecedented challenges. Measures such as lock-downs, quarantines, border closures, restrictions on or recommendations against international and domestic travel, limitations on public meetings, social distancing recommendations, remote work and closures of destinations and tourist attractions, as well as consumer perceptions regarding the safety of air travel, all contributed to a substantial drop in passenger demand for air travel.

The COVID-19 pandemic had an adverse and unprecedented negative impact on our business, operating results, financial condition and liquidity. The pandemic’s negative impact on our sales forced us to cancel flights and ground aircraft. These events culminated in our decision to file a voluntary request under Chapter 11 of the U.S. Bankruptcy Code on June 30, 2020. For further information about our Chapter 11 proceedings, see “Business—Our History—Chapter 11 Emergence.”

Although we have emerged from Chapter 11 and, in May 2023, the World Health Organization, or the WHO, declared that the COVID-19 pandemic is no longer a global health emergency, other pandemics and similar health threats may affect the demand for air travel in the future, which would impact our long-term financial and operational performance and liquidity. In addition, the spread of other diseases and other health threats may:

 

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cause a substantial negative impact on our costs, operations and sales;

 

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prevent us from implementing our growth strategy;

 

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negatively affect our operating capacity and force us to ground aircraft;

 

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require us to resort to sources of debt and equity financing even when market conditions are unfavorable;

 

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lead to a decline of our corporate and debt ratings, which could prevent us from refinancing our debt or make it difficult to refinance our debt under convenient terms; and

 

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require us to renegotiate agreements with third parties to maintain business and service continuity.

The airline industry is particularly sensitive to changes in economic conditions.

Economic conditions, including circumstances beyond our control, may affect the airline industry and our business. These circumstances include:

 

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changes and volatility in general economic conditions, including the severity and duration of any downturn in Mexico, the United States or global economy and financial markets;

 

•

changes in consumer preferences, perceptions, spending patterns or demographic trends, including any increased preference for low-fare carriers, during less favorable economic periods;

 

•

higher levels of unemployment and varying levels of disposable or discretionary income;

 

•

health emergencies, pandemics and concerns with safety;

 

•

conflicts affecting regions that are recipient of business or leisure travelers;

 

•

actual or perceived consumer confidence;

 

•

high inflation rates or interest rates; and

 

•

exchange rate volatility and high fuel prices.

These factors can adversely affect our results of operations and financial condition, our ability to obtain financing on acceptable terms and our liquidity generally. Current unfavorable general economic conditions may

 

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reduce spending for business, leisure and VFR business travel. For many travelers, air transportation is a discretionary purchase that they may eliminate in difficult economic times. Unfavorable economic conditions could not be offset by our ability to raise prices to counteract increased fuel, labor or other costs, which could result in a material adverse effect on our business, results of operations and financial condition.

We maintain our cash at financial institutions, often in balances that exceed federally insured limits. If financial institutions where we hold deposits were to fail or become affected by the recent banking failures, we could be exposed to a potential loss of deposits, and our ability to raise capital may be impacted by these events.

We maintain the majority of our cash and cash equivalents in accounts in Mexico and the United States with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions exceed insured limits in Mexico and the United States. While we do not have any deposits with failed institutions such as Silicon Valley Bank, Signature Bank or Silvergate Bank, market conditions can impact the viability of the institutions where we hold our deposits. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. In addition, weakness and volatility in capital markets caused by these bank failures, or any additional bank failures in the future, could adversely affect our ability to access capital on favorable terms in the future, or at all. Any inability to access funds we have deposited at financial institutions or any inability to raise capital when we require it could adversely affect our business and financial position.

The widespread adoption of teleconference and virtual meeting technologies may continue to reduce the demand for airline travel.

A considerable share of our clients use our travel services to attend in-person meetings and conferences. Due to the COVID-19 pandemic, teleconference and virtual meeting technologies have become significantly more popular and many businesses have adopted these technologies to replace part or all of their in-person meetings and conferences. Even as the spread of COVID-19 has been contained and travel and other restrictions have been lifted, we cannot predict whether businesses will continue using these technologies for part or all of their in-person meetings and conferences and whether employer and employee attitudes toward business travel will change in a lasting way. Should businesses choose to increase virtual meetings and conferences, and the preferences of our clients continue their shift away from in-person events, it would adversely affect our business, financial condition, results of operations and prospects.

In 2022, we emerged from bankruptcy, which could adversely affect our business and relationships.

Our having filed for bankruptcy, notwithstanding our emergence from the Chapter 11 proceedings, could adversely affect our business, the perception of our business and relationships with customers, vendors, royalty or working interest owners, contractors, employees or suppliers. Due to uncertainties, many risks relating to our recent Chapter 11 proceedings exist, including the following:

 

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the ability to attract, motivate, and/or retain key executives and employees may be adversely affected;

 

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our employees may be more easily attracted to other employment opportunities;

 

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competitors may take business away from us;

 

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our ability to obtain and retain customers may be negatively impacted, as many customers may prefer to travel with competitors that were not subject to restructuring;

 

•

our suppliers and lessors may be reluctant to negotiate with us, particularly because some of them may have participated in the Chapter 11 proceedings;

 

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certain creditors that participated in our Chapter 11 proceedings may be reluctant to provide new financing, which may limit our ability to finance our operations and growth;

 

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our cash flows may be negatively affected as our suppliers and lessors may offer less favorable terms and conditions following emergence; and

 

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our new financing agreements may be subject to less favorable covenants as compared to those that we were able to negotiate in the context of our Chapter 11 proceedings.

Future reorganization processes could adversely affect our business, the perception of our business and relationships with customers, vendors, royalty or working interest owners, contractors, employees or suppliers. The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation and we cannot assure you that having been subject to bankruptcy proceedings will not adversely affect our operations in the future.

We may not be able to achieve our stated goals and continue as a going concern.

Following the consummation of our Chapter 11 proceedings, the result of which improved significantly our financial condition, we continue to face a number of risks, including the continuing effects of COVID-19 on the travel industry and challenging economic conditions, such as rising inflation, high interest rates, instability in the banking sector, or otherwise.

In addition, although our indebtedness was reduced or discharged as a part of the implementation of our restructuring plan, we may need to raise additional funds in the future through public or private debt or equity financing or other means to fund our business. Our access to additional needed financing on favorable terms may be limited. Accordingly, we cannot guarantee that we will achieve our stated goals, effectively implement our strategy or continue as a going concern.

We have identified a material weakness in our internal controls over financial reporting and may identify additional material weaknesses in the future or fail to maintain an effective system of internal control over financial reporting, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet periodic reporting obligations.

Prior to the completion of this global offering, we have been a private company. As a private company, we were not required to have designed or maintained an effective control environment as that of a public company under the rules and regulations of the SEC. Although we are not yet subject to the certification or attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2022, or the SOX Act, we have identified a material weakness in our internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financing reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness relates to deficiencies in the authorization of journal entries in our Oracle ERP system, whereby there is no segregation of duties for creation and posting of such entries. This deficiency creates risks of overrides and may result in material errors going unnoticed or unauthorized transactions being processed.

We have begun implementation of a plan to remediate the material weaknesses described above. As part of the remediation, we are taking steps to design and implement automated protocols that would prevent any failure related to segregation of duties. While the design and implementation of these automated protocols is ongoing, we have implemented policies and procedures to revise the authorization chain and the respective attributions of certain specified senior accounting and management or executive officers. This authorization chain includes enhanced coordination by our accounting team to manually validate and formally document inputs received when registering transactions on our accounting records on a day-to-day basis and enhanced validations by senior accounting management at each monthly closing. The implementation of these automated protocols is expected to become effective once the new release of our Enterprise Resource Planning, or ERP, starts operating. Our

 

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current remediation plan also includes the implementation of automated system processes, pursuant to which our accounting director, with the assistance of our IT department, extracts the total journal entries in our current Oracle ERP system, which includes statistical samples, and reviews the origin, validity and authorization of such journal entries. These automated systems are designed to govern the process for seeking supervisory approval for transactions based on predetermined approval thresholds. We cannot assure you that these measures will improve or remediate the material weakness.

The implementation of these remediation measures is in the early stages and will require validation and testing of the design and operating effectiveness of internal control over financial reporting over a sustained period of financial reporting. As a result, the timing of when we will be able to remediate the material weaknesses is uncertain, and we may not timely remediate this material weakness or at all.

If we are unable to successfully remediate the existing material weaknesses in our internal control over financial reporting or if we identify any new material weakness, the accuracy and timing of our financial reporting and the price of our ADSs may be adversely affected. Implementing any appropriate changes to our internal control over financial reporting may divert the attention of our management and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal control over financial reporting, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business.

Upon completion of this offering, we will be subject to Section 404 of the SOX Act, which requires that we include a report of management on our internal control over financial reporting in our second annual report on Form 20-F. In addition, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting in our second annual report on Form 20-F. If we identify any additional material weaknesses in our internal control over financial reporting in the future, or if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could result in the restatement of our financial statements and cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets and harm our results of operations. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from NYSE, regulatory investigations and civil or criminal sanctions.

Favorable lease amendments that we entered into in connection with our Chapter 11 proceedings are not expected to be renewed.

In connection with the COVID-19 pandemic and the Chapter 11 proceedings, we were able to negotiate agreements with our aircraft and engine lessors in 2020 to reduce lease rates and improve terms for the remainder of our fleet, resulting in significantly lower costs over the life of the leases. Because of low demand for air travel and the aviation market conditions during the COVID-19 pandemic, we were able to renegotiate favorable monthly fixed rates that will remain in effect until the expiration of the renegotiated lease agreements. All of our renegotiated lease agreements included a PBH period, which allowed us to temporarily adjust our rent payments according to the usage of the aircraft. However, the last of our PBH periods expired in December 2023.

In addition, we renegotiated lower monthly fixed rental rates that came into effect upon the termination of the relevant PBH period. The renegotiated leases expire gradually through 2034. On average, the renegotiated monthly fixed lease rates for our leased fleet of aircraft are approximately 35% less per month than the original lease rates. However, as the air travel market recovers from the consequences of the COVID-19 pandemic and once all renegotiated agreements expire, we may not be able to renew these agreements on terms that are as favorable to us.

Because of these extraordinary circumstances related to the COVID-19 pandemic, we were able to make favorable modifications to the agreements governing the lease of our main airport facilities. When the modified

 

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airport agreements expire, we do not expect that the renewed contracts will be on terms as favorable to us as compared to the terms that we currently enjoy. Due to the termination of these modified lease agreements, we expect the costs related to these agreements to increase significantly.

As a result of the foregoing, we expect that our costs relating to aircraft and airport facilities leases will increase significantly, which will have adverse effects on our business, financial condition and results of operations.

We are highly impacted by volatility in the price and availability of jet fuel.

Fuel cost volatility and high jet fuel prices due to issues with the international oil supply chain could adversely affect our business, financial condition and results of operations. Fuel costs represent the most substantial line item in our operating expenses. In the nine-month periods ended September 30, 2024, and 2023, our fuel costs represented 28.5% and 32.0% of our total operating expenses, respectively. In 2023 and 2022, our fuel costs represented 31.2% and 42.9% of our total operating expenses, respectively. Therefore, our operating results could be significantly affected by changes in jet fuel availability and cost.

Jet fuel availability and its cost are subject to numerous economic and political factors that we cannot accurately control or predict. As a result, we may not be able to limit our exposure to increases in fuel costs, and we may not be able to pass these costs to our passengers through increases in fares. Even if we pass through price increases to our customers, often delays exist between the timing of jet fuel price increases and the time at which the price increases or fuel surcharges take effect. Our price and fuel surcharge increases have not been uniform across our route structure, as competitive pressures on some routes lead to a decrease in flight occupancy.

In Mexico, jet fuel base prices are established in accordance with international market trends based on indicators such as the U.S. Gulf Coast Waterborne Fuel and operating and logistic costs. Private companies and state-owned entities that supply jet fuel have different price structures. Private companies set their differential, or distribution cost and profit, over a long period, between one and two years, which decreases volatility and increases price predictability. By contrast, state owned companies set their price on the short-term, and their prices higher volatility because of fluctuation of logistics costs related to fuel transportation to airports, which increases uncertainty. Because we have fuel supply agreements with ASA, which is a Mexican governmental agency, and World Fuel, which is a private company, we are subject to both price structures. The total price we pay for fuel also reflects the costs of transportation, storage, dispensing and discounts based on the amount of purchased fuel. For further information about our fuel supply agreements, see “Business—Jet Fuel.”

Availability of jet fuel in Mexico may be limited. As of the date of this prospectus, PEMEX, has seven refineries, four of which produce jet fuel (specifically turbosine and avgas). Only one turbosine pipeline supplies jet fuel directly to MEX, which comes from PEMEX’s refinery located in Tula. Due to Mexico’s low production of jet fuel, PEMEX has historically imported approximately 60% of the total domestic consumption. Low jet fuel production in any of these refineries or a reduction in jet fuel imports could diminish the availability of fuel supply to MEX or any airport in which we operate. High fuel transportation costs for our aircraft at such airports could also have a material adverse effect on our business, financial condition or results of operations.

Outside of Mexico, we obtain fuel from local suppliers at international airports at prices that are generally based on the Platt’s Oilgram Price Report for the respective region. Changes in oil prices under our fuel contracts vary according to the international price of oil, which has been highly volatile in recent years. Oil price fluctuations may be due to excess production, political and social unrest in countries such as Nigeria, Libya, Iran and other oil-producing countries, sanctions on supplies and other international events. For instance, as a result of Russia’s invasion of Ukraine, sanctions on exports of oil from Russia have caused volatility in petroleum prices and significant disruptions in the supply of petroleum derivatives, including fuel in the commercial aviation industry. Because Russia is one of the world’s largest oil exporters, recent global developments relating to Russia’s invasion of Ukraine, and resulting export restrictions, have caused a decrease in oil and gas global

 

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supply, particularly as the OPEC decided to reduce its supply production, which has led to high fuel prices. In addition, although we do not have any direct operations in Israel, Egypt, Iran, Jordan, Lebanon, Syria, the West Bank or Gaza, we may be affected by the broader consequences of the conflict in the Middle East. The potential implications include increased supply chain disruptions, reduced access to or higher prices of fuel and other effects on the global economy.

Due to the large proportion of fuel costs in our total operating cost base, even a relatively small increase in the price of fuel has had, and can in the future have, a significant negative impact on our operating costs and on our business, results of operations and financial condition. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors affecting our results of operations—Jet fuel prices.”

Fuel access at Mexican airports is primarily subject to the control of ASA.

In Mexico, the distribution of jet fuel is controlled by ASA, a Mexican governmental agency. Although Mexican law was amended in 2013 and 2014 to allow certain of ASA’s responsibilities (such as the transport, storage and marketing of jet fuel) to be performed by other market participants, ASA remains the leading distributor of jet fuel in Mexico and the number of alternative suppliers is limited. As of the date of this prospectus, we have fuel agreements with ASA and other suppliers that recently entered the Mexican market. These agreements establish payment terms, credit and guarantees, fuel quality requirements and procedures for determining the quantity and price of jet fuel.

Our current agreement with ASA expires on October 31, 2025. The agreement may be terminated by us or by ASA with 30 days prior written notice. We also have a jet fuel supply agreement with World Fuel for MEX airport, which expires on July 31, 2025, and may be terminated early by mutual agreement of the parties.

There can be no guarantee that we will be able to renew our fuel supply agreement with ASA, World Fuel or any other jet fuel supplier on favorable terms or at all. If we are unable to renew these agreements, or if ASA or any of our other fuel suppliers terminate their contracts with us, we would be required to identify alternatives to satisfy our fuel demands. There can be no assurance that we would be able to obtain the fuel needed to satisfy our needs on favorable terms or at all. For further details about our agreement with ASA, see “Business—Jet Fuel.”

We have significant fixed obligations, which may increase in the future.

We have significant fixed obligations. As a result of these obligations, we may be limited in our ability to, among other things:

 

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obtain additional financing for working capital and other purposes;

 

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address needs to adapt our operations to new conditions or continue to spend capital that is necessary for our continued operations;

 

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divert significant cash flows from our operations to the payment of our fixed liabilities under lease agreements and aircraft financing contracts;

 

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limit our exposure to interest rate increases if the interest rates applicable to our variable-interest debt increase;

 

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take advantage of investment opportunities related to our operations; and

 

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plan, or react to, changes in our business and in the airline industry and the prevailing economic conditions.

For example, we lease flight equipment and property, and these leases typically last between five to 12 years and are subject to renewal. As of September 30, 2024, we leased 126 aircraft, 123 of which were operational, and 37 engines, 36 of which were operational. As of December 31, 2023, we leased 139 aircraft, 136 of which were

 

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operational, and 39 engines, 33 out of which were operational. In connection with our Chapter 11 proceedings, we renegotiated the terms of our existing aircraft and engine leases and entered into new leasing agreements. Among these renegotiated leases, the last to expire will terminate in 2034. These leases are partially secured by cash deposits and subject to certain conditions, such as the obligation to maintain records, licenses and authorizations by aviation authorities, provide maintenance to leased equipment and provide certain financial information to the lessor, as well as insurance requirements, cross defaults and encumbrance limitations.

In addition, on November 14, 2024, we issued the 2029 Notes and 2031 Notes in the aggregate principal amount of $1.1 billion. The indenture for these notes imposes numerous obligations on us. The 2029 Notes and the 2031 Notes have customary covenants that limit our ability to merge with or into another entity; undergo a change of control; incur additional indebtedness and liens; make asset sales; enter into sale leaseback transactions; and make investments, dividend and similar payments and prepayments of certain junior lien and unsecured indebtedness. We are also obligated under the terms of the notes to maintain the collateral securing the notes and comply with reporting requirements in connection with our financial and operational results.

Our ability to make scheduled payments on our fixed liabilities relies on our operating performance and cash flow generation, which depend on factors beyond our control. These factors include economic, political, financial, competition, regulatory, public health, climate, social, business and other conditions. We cannot guarantee that we will be able to generate sufficient cash flow for our operations to pay due fixed liabilities. Moreover, if we are unable to make payments on our fixed liabilities, we may need to renegotiate existing liabilities or obtain additional capital or debt financing. If we elect to finance our activities with additional debt, we may be subject to financial agreements that may restrict our ability to conduct our business. We cannot guarantee that any such renegotiation efforts will be successful or timely or that we can refinance our liabilities on acceptable terms or at all.

We cannot guarantee that we will be able to comply with all covenants and contractual provisions set forth in our fixed obligations or that these obligations will not limit our ability to finance our future operations or capital needs. Failure to comply with these covenants may result in contractual breach, acceleration of our indebtedness (including through cross-default provisions) and ultimately recovery of possession of the relevant aircraft or engine, as well as the obligation to pay in full all amounts due under our aircraft and engine leases arrangements. For further information about our lease agreements, see “Business—Our Fleet—Aircraft lease agreements” and for further information about our financing agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Indebtedness.”

We depend on our key personnel and we may be unable to attract and retain qualified employees with the necessary skills to operate our business.

Our success depends on the efforts and abilities of our executive officers and key financial, commercial, operating and maintenance personnel, including our pilots, cabin crew and ground personnel. In particular, we rely on the services of our executive officers, who have considerable expertise in the airline industry. As such, the loss of our key personnel or the inability to attract or develop a new generation of key personnel could adversely affect our business, financial condition and operating results.

An essential part of our human resources strategy is attracting, recruiting and retaining highly-qualified personnel with the skill to fly our aircraft or conduct sales, marketing, operations and administrative tasks. The competition for such qualified personnel is high. If we are unable to attract and retain such skilled personnel at a reasonable cost, our business, financial condition and operational results may be adversely affected.

We may face a shortage of pilots, air traffic controllers and certain other professionals.

The airline industry in the United States and elsewhere is experiencing a pilot shortage. As a result, Mexican airline pilots and other professionals may have attractive opportunities offered to them by airlines operating

 

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outside of Mexico. In the United States, for instance, commercial airline pilots approaching the FAA’s mandatory retirement age of 65 or otherwise have opted for early retirement programs made available during the COVID-19 pandemic. In addition, commercial airline pilots are subject to rigorous certification standards and must adhere to flight time and rest requirements. Commencing in 2013, the minimum flight hour requirement to achieve a commercial pilot’s license in the United States increased from 250 to 1,500 hours, thereby significantly increasing the time and cost commitment required to become licensed to fly a commercial aircraft.

In addition, in light of the ongoing staffing shortage of air traffic controllers in the United States, there could be additional safety concerns around air travel. The FAA’s recent decision to increase the amount of rest time required between shifts could also create further congestion in air traffic and airports.

As a result, United States airlines may try to attract skilled pilots and other required professionals, particularly mechanics, from other markets, including Mexico, by offering attractive job opportunities, which would thereby increase the competition that we face for pilots in Mexico.

Furthermore, under Mexican law, only Mexican-born nationals can obtain the required license to become commercial pilots in the country. As such, we lack the ability to hire non-Mexican nationals to operate our flights.

These factors may lead to a shortage of qualified, entry-level and experienced pilots and may increase our compensation costs. If a shortage of pilots materializes, we may be unable to hire adequate numbers of pilots to meet our needs, resulting in a reduction in the number of flights offered, disruptions, increased costs of operations, financial difficulties and other adverse effects on our business, financial condition and results of operations.

The growth of our operations in the United States has been, and may in the future be, curtailed by FAA country safety assessments.

The FAA periodically audits the aviation regulatory authorities of other countries and attributes each country an IASA rating. In May 2021, the FAA downgraded Mexico’s IASA rating from Category 1, which means that a country’s civil aviation authority complies with ICAO standards, to Category 2, which means the country either lacks laws or regulations necessary to oversee air carriers in accordance with minimum international standards for safety matters, such as technical expertise, trained personnel, record-keeping or inspections procedures. A Category 2 rating permits carriers from a particular country to continue providing services to the United States, but they are not allowed to establish new routes.

On May 3, 2023, the Mexican government published amendments to the Mexican Aviation Law (Ley de Aviación Civil) and the Airports Law in the Mexican Federal Official Gazette (Diario Oficial de la Federación). These amendments incorporate into law the ICAO standards needed to comply with the IASA requirements for a Category 1 FAA country. The SICT announced through AFAC requested a final audit by IASA and announced that it would implement any measures requested by IASA to recover Mexico’s Category 1 FAA country status. The audit was completed on June 2, 2023. On September 14, 2023, the FAA upgraded Mexico to Category 1 status again.

Because of the downgrade, we were temporarily not allowed to add new services and routes to the United States or incorporate new aircraft registered in the United States into our fleet. This downgrade had negatively affected our business strategy, as it prevented us from expanding our operations, including in connection with our JCA with Delta.

We cannot assure you that the Mexican government and the AFAC or the aviation authorities in the countries in which we operate will continue to meet international safety standards. We have no direct control over their compliance with IASA guidelines. If the FAA makes downgrades to Mexico’s IASA rating in the future, it could restrict our ability to maintain or increase service to the United States and incorporate aircraft registered in the United States into our fleet, which would in turn adversely affect our business, results of operations and financial condition.

 

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Our reputation and business may be adversely affected in the event of an emergency, accident or similar incident involving our aircraft.

We are exposed to potential significant losses and material adverse effects on our business in the event that any of our aircraft experiences an emergency, accident or other similar incident, and significant costs related to passenger claims, repairs or replacement of a damaged aircraft and its temporary or permanent loss from service. For instance, on July 31, 2018, during a domestic flight from Durango, Mexico, to Mexico City, as a result of exceptionally adverse weather conditions, one of our E190 aircraft went off the runway and was consumed by a post-impact fire. Of the 99 passengers, 87 suffered injuries and the accident resulted in numerous legal actions initiated in United States and Mexico, some of which remain ongoing. We believe that our reputation suffered as a result of this accident, and we became subject to significant related costs.

In addition, any future aircraft emergency, accident or similar incident, even if fully covered by insurance or even if it does not involve our airline, may create a public perception that our airline or the equipment we fly is less safe or reliable than other transportation alternatives, which could have an adverse impact on our reputation and could have a material adverse effect on our business, results of operations and financial condition.

Our operations involve inherent risks that may not be covered by our insurance or that may be difficult to insure on commercially acceptable terms.

There are certain business risks that cannot be insured or that, in line with industry practice, we may leave uninsured, including business disruption, loss of profits or revenue, maintenance and consequential losses arising from mechanical breakdown or losses related to non-compliance by suppliers or repair shops. To the extent that the actual losses we incur arise from these uninsured risks, we will have to assume substantial losses, which may have a material adverse effect on our business, financial condition and operating results. Moreover, the aviation insurance industry has been severely affected from time to time by catastrophic events, aviation accidents and terrorist attacks. As a result, insurance companies may increase premiums and reduce or limit certain amounts of coverage based on the exposure of each airline.

In the future, airline insurance coverage could be more costly, not be available or only be available for reduced amounts or with respect to limited events that would be insufficient to meet the coverage levels required by our aircraft lessors, financial lessors or the applicable government regulations or that we believe to be desirable. Inability to obtain insurance on commercially acceptable terms for our general operations or our specific assets could adversely affect our business, financial condition and operating results and may force us to ground our aircraft or lose possession of aircraft we lease or that are subject to collateral in warranty interest on behalf of aircraft lenders.

In addition, we cannot guarantee that our existing coverage will be sufficient to protect against all potential losses; that we may maintain our existing coverage in the future or that premiums will not increase substantially, all of which could have an adverse material effect on our business, operating results or financial condition.

Our fleet consists entirely of aircraft manufactured by Boeing and Embraer, and we are susceptible to issues that affect these suppliers.

As of September 30, 2024 and December 31, 2023, 75.2% and 72.6%, respectively, of our operating fleet was manufactured and assembled by Boeing and 24.8% and 27.4%, respectively by Embraer. In addition, we rely on a small number of engine suppliers given that we operate aircraft produced by only these two manufacturers. As a result of this high level of concentration, we are susceptible to issues that affect these suppliers, including their inability to comply with contractual obligations, their financial situation and solvency, delays in deliveries of aircraft or components for aircraft maintenance, safety issues and reputational problems and regulatory orders grounding aircraft as a result of design, manufacturing or maintenance issues. Problems with our suppliers may cause delays in our operations and may lead to our inability to fly aircraft due to lack of equipment or our

 

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difficulty in training staff to operate new aircraft on a timely basis. For these reasons, supplier issues could lead to additional costs, which could have an adverse impact on our business, operating results and financial condition. Our operations would also be substantially affected by the failure or inability of either Boeing or Embraer to provide sufficient spare parts or related support services in a timely manner.

The AFAC has the power to suspend or restrict the use of our aircraft in the event of actual or perceived problems, such as mechanical or design issues, while conducting its investigations. For instance, in 2019, following two fatal Boeing 737 MAX accidents, we were subject to production delays affecting the Boeing 737 MAX aircraft and the Boeing 787 Dreamliner aircraft and grounded six B737-8 MAX aircraft, which caused disruptions to our operations. In November 2020, the FAA lifted the orders to suspend operations of the Boeing 737 MAX, and, in early 2021, airlines around the globe began to clear the Boeing 737 MAX for flying. On January 6, 2024, the FAA ordered the temporary grounding of certain B737-9 MAX planes operated by U.S. airlines or in U.S. territory after an exit “plug” type passenger door was lost during an Alaska Airlines flight on January 5. As a result of the FAA order, we grounded 19 B737-9 MAX aircraft immediately and adjusted our flight schedule and operations. After inspections, all 19 B737-9 MAX aircraft in our fleet resumed operations. In April 2024 we reached a confidential agreement with Boeing on compensation related to estimated financial damages during the first quarter of 2024 due to the grounding of the Boeing 737 MAX. The terms of the Boeing settlement are confidential but are intended to provide for a substantial portion of our financial damages in the first quarter of 2024 associated with the Boeing 737 MAX grounding. The Boeing settlement came into effect during the second quarter of 2024. In addition, Boeing’s unionized machinists were on strike between September and November 2024. The machinist union is Boeing’s largest union, and the strike may have caused further production and aircraft assembly delays.

As of the date of this prospectus, the delivery of Boeing 737 MAX may be delayed due to the Boeing’s machinists’ strike, FAA’s supervision over the expansion of production of Boeing 737 MAX and other quality control measures. If we are unable to accept deliveries of new aircraft or integrate such new aircraft into our fleet as planned because of prolonged delays, we may face higher operating and maintenance costs, or be required to seek extensions of the terms for certain leased aircraft or otherwise delay the exit of other aircraft from our fleet. Furthermore, significant delays in the delivery of the scheduled B737-9 MAX aircraft could impact our plans to expand our fleet and our upgauging strategy, which could have a material adverse effect on our business, operating results and financial condition.

We expect to continue relying exclusively on Boeing and Embraer. We also expect to further increase the share of Boeing aircraft in our fleet in the future. If either manufacturer is unable to fulfill its contractual obligations or if we are unable to acquire or lease aircraft or obtain parts or other support for these aircraft on acceptable terms, we may need to find other aircraft suppliers, which would result in significant additional costs and delays in service. Moreover, if we were required to lease or purchase aircraft from another supplier, we would lose the benefits and economies of scale derived from the current composition of our fleet. We may also incur significant transition costs, including costs and delays associated with retraining our employees, replacing our manuals, and adapting our maintenance facilities and programs.

As our fleet ages, our maintenance costs increase.

Maintenance costs represent a significant operating expense and represented 5.5% and 5.5% of our total operating expenses in the nine-month period ended September 30, 2024 and the full year of 2023, respectively. As of September 30, 2024, the average age of our aircraft was approximately 8.5 years. As our fleet ages, it requires additional maintenance and our warranties expire, if we do not replace the aircraft. In addition, supply chain constraints, high workload and lack of available services may cause logistical challenges and difficulties finding adequate slots in third-party facilities because our aircraft require specialized maintenance and certain parts may only be available outside of Mexico. As a result, we may face delays and our maintenance costs are likely to increase, in both absolute terms and as a percentage of our operating expenses. Any significant increase in maintenance and repair costs could have an adverse effect on our business, financial position and operating results.

 

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We depend on high daily aircraft utilization rates to maintain our performance, which makes our business especially vulnerable to delays.

Our business strategy relies on high aircraft utilization rates in order to increase our revenue, and reductions of this measure may affect our operating performance. However, high aircraft utilization rates make us more susceptible to operational disruptions, as they limit our capacity to rapidly address flight delays and prevent chain reactions affecting subsequent flights and connections.

Flight delays may be caused by factors beyond our control, including inefficiencies in air traffic control, congestion in air traffic and airports (particularly in MEX, our main hub), technical and operational problems at airports, adverse weather conditions, social disruptions and delays by third-party fuel suppliers and ground management services.

Delays and cancellations reduce our aircraft utilization rate and, consequently, reduce our revenues and profitability. Significant delays and cancelled flights also reduce passenger satisfaction and damage our reputation, which adversely affects our business, financial condition and operating results.

Landing charges and other airport access fees may increase.

We pay fees to airport operators to use their facilities, and airport charges represent a significant operating cost for us. Under Mexican law, airport charges are established, and modified annually, by federal resolution applicable to all Mexican airports, in accordance with the Mexican Federal Rights Law (Ley Federal de Derechos). Accordingly, decisions by the Mexican federal government, which may be based on policy positions or political stances, directly impact the variations and increases to the fees that we are required to pay to airport operators. These decisions are beyond our control, and in the past we have observed a substantial increase in passenger taxes and airport charges. For further information about the setting of airport fees under Mexican law, see “Regulation—Regulation of the Mexican Airline Industry—Operational Regulation.”

We cannot guarantee that higher rates or other airport charges will not be imposed in the future, particularly if demand and traffic congestion increase. Increases in such airport charges and fees may in turn increase our operating costs and significantly affect our operating margins.

Our ability to charge fees for ancillary services is subject to regulation.

In addition to our passenger revenue, we depend on non-passenger revenue from air travel-related services, revenue from non-air-travel related services, and cargo services. Air travel-related services include but are not limited to fees charged for excess baggage, bookings through the call center or third-party agencies, advanced seat selection, itinerary changes, charters and passenger charges for no-show tickets. Revenue from non-passenger revenue include commissions charged to third parties for the sale of hotel rooms, trip insurance and rental cars. These services and their respective fares are subject to the provisions of consumer protection laws and regulations in the markets in which we operate.

For example, in April 2011, the DOT published rules relating to, among other things, how airlines interact with passengers through advertising, make reservations and address consumers at the airport and on board the aircraft. The rules require airlines to publish a full fare for a flight, including mandatory taxes and fees, and to enhance disclosure of the cost of optional products and services, including baggage charges. The rules restrict airlines from increasing ticket prices post-purchase (other than increases resulting from changes in government-imposed fees or taxes) and significantly increasing the amount and scope of compensation payable to passengers involuntarily denied boarding due to overbooking. More recently, the DOT proposed new rules on whether the DOT should require (i) air carriers and ticket agents to disclose information relating to certain consumers fees whenever fare and schedule information is provided for consumers for flights to, within, and from the United States, and (ii) carriers to provide useable, current, and accurate information regarding fees to ticket agents that

 

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sell or display the carrier’s fare and schedule information. In Mexico, in November 2021, the PROFECO published a press release requesting Mexican airlines to avoid charging extra fees for carry-on luggage, as the PROFECO considers these charges to be an abusive commercial practice in violation of the Mexican Aviation Law (Ley de Aviación Civil). According to the PROFECO press release, airlines cannot charge additional fees for carry-on luggage to domestic air travel passengers, subject to weight and dimension restrictions, and the airlines’ luggage policy for international flights must comply with international treaty rules. The PROFECO, in accordance with a Mexican Supreme Court (Suprema Corte de Justicia de la Nación), or the SCJN, decision considers carry-on luggage to be an inherent component of airline service, as passengers need basic belongings to reach their destinations.

Failure to comply with these rules may lead to fines or other enforcement action, including requirements to modify our passenger reservations system, which could have a material adverse effect on our business. In addition, new taxes on non-passenger revenue, or other laws or regulations that make unbundling of services impermissible, cumbersome or expensive, may adversely affect our business, results of operations and financial condition. Government scrutiny may also change industry practice or public willingness to pay for ancillary services. Moreover, we cannot assure you that compliance with these new rules will not be costly or have a material adverse effect on our business.

We are, and may be in the future, involved in various legal, administrative and regulatory proceedings.

We conduct our business, activities and investments in highly regulated sectors. Mexican regulators and other authorities, including tax and consumer protection authorities, have increased their oversight and the frequency and amounts of fines and charges may increase significantly. We are, and may be in the future, involved in various legal, administrative and regulatory proceedings relating to claims of our failure to comply with consumer protection, labor, insurance, tax, aviation or antitrust regulations, or other matters.

For example, on October 16, 2023, we were notified by the CNBV that it had opened an administrative sanction proceeding against us, and, as a legal consequence, our chief executive officer, claiming that certain of our disclosures to the market about our restructuring process were omissive and, as such, violated the LMV. On July 9, 2024, the CNBV imposed against us and our chief executive officer the minimum fine established in the LMV for this type of violation, in an aggregate amount of Ps.7.2 million, or approximately $0.4 million. On August 1, 2024, we filed an administrative response with the CNBV challenging the fines and arguing that our disclosures to the market about our restructuring process were comprehensive and in compliance with the LMV requirements. On November 15, 2024, the CNBV notified us that the fines were upheld. We are vigorously defending against these fines, and we plan to file an appeal against such determination.

In addition, some of our subsidiaries have been notified of tax assessments by the Mexican Tax Authority (Servicio de Administración Tributaria), or SAT. The tax assessments relate to, among other things, allegedly improper deductions. As of the date of this prospectus, we are challenging these tax assessments in several administrative proceedings before the SAT.

The defense of legal, administrative and regulatory actions is, and may continue to be, both time-consuming and expensive. We cannot assure you that we will prevail in these legal proceedings or in any future legal proceedings and if such disputes were to result in an unfavorable outcome, it could result in reputational damage and have a material adverse effect on our business, financial condition and results of operations. In addition, claims, judgments or fines against us in legal and regulatory proceedings could result in the obligation to pay substantial amounts of money or for other relief or that might necessitate changes to our business or operations.

For a discussion of key legal and regulatory proceedings that we face, see “Business—Legal and Administrative Proceedings,” Note 33 to our audited consolidated financial statements and Note 23 to our interim financial statements.

 

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We may not be able to maintain the prices of our products and services at levels that meet our profitability expectations.

If the prices for our products and services drop to levels that do not meet our profitability expectations, our revenues, financial condition and results of operations could materially suffer. The rates we are able to charge for our services are affected by a number of factors, including:

 

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general economic and political conditions;

 

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the competitive environment of the airline industry;

 

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the demand for air travel and available income of our customers;

 

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our ability to accurately estimate, attain and sustain revenues, margins and cash flows, which includes our ability to estimate the impact of inflation and foreign exchange on our margins; and

 

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procurement practices of clients and their use of third-party advisors.

The competitiveness of the airline industry affects our ability to obtain favorable pricing in different ways, all of which could have a material negative impact on our results of operations. If we fail to distinguish or demonstrate the added value of our products, services and solutions, our clients may disregard the additional benefits we offer and make decisions solely based on price. In addition, the introduction of new services or products by competitors could reduce our ability to maintain our prices at favorable levels. See also “—Risks Related to Our Business—The airline industry is highly competitive and we may face greater competition on a significant portion of our business and routes.”

Inadequate airport infrastructure or excessive airport restrictions and other Mexican governmental actions relating to the Mexican aviation industry may limit our access to desirable slots and otherwise negatively impact our operations.

Some airports at which we operate or plan to operate in the future are subject to capacity limitations and space restrictions. For example, MEX, the largest airport in Mexico, is capacity constrained. Many airports around the world, including those at which we operate, impose various restrictions on airlines, including limits on aircraft noise levels, limits on the average number of daily departures or arrivals and on the use of runways and slots. Certain airports also experience specific conditions from time to time that limit our ability to operate as fully as we would like to, or at all, at such airports. For example, we terminated plans to operate at the Pudong International Airport, in Shanghai, due to that airport’s lack of attractive available daily slots. Also, we faced operational difficulties at London’s Heathrow Airport and Amsterdam’s Schiphol Airport in 2022 due to the lack of airport personnel, labor strikes, delays and related operational disruptions. The authorities of Amsterdam’s Schiphol Airport have decided to reduce flight frequency to reduce noise pollution, and this measure may adversely affect our operations as well. We cannot guarantee that airports will not increase or adopt new restrictions. Also, airports that do not currently have capacity limits may have such limitations in the future and, as such, no assurance can be made that we will be able to have access to sufficient slots, gates and other facilities at airports.

Most relevant airlines concentrate their operations in major airports, including MEX. Consequently, airports in these cities, including where we have a significant presence, are often subject to extended interruptions or disruptions due to:

 

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air-traffic control delays;

 

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weather conditions;

 

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natural disasters;

 

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social disruptions;

 

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growth constraints;

 

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relations with third-party service providers;

 

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computer systems failure;

 

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public authority actions;

 

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facilities at key facilities used to manage airport operations;

 

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labor relations; and

 

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lack of power or fuel supply.

As a result of these disruptions, a significant portion of our flights in major airports may be delayed or cancelled, and we may be unable to maintain existing service or implement new service at commercially viable terms.

Also, we cannot guarantee that we will be able to use airport facilities and services at favorable rates. As aging airports are modernized or new airports are constructed, the costs of using airport infrastructure and facilities may lead to an increase in related costs such as landing charges.

More recently, the Mexican military was granted powers by the government to work in the administration of certain airports and the construction of new airports across the country. Since 2022, the Mexican government has allowed the Mexican National Defense Secretary (Secretaría de la Defensa Nacional), or SEDENA, to participate in the construction and administration of the NLU and in the administration of other airports, including in Uruapan, Palenque, Puebla, Ciudad Victoria, Campeche and Nogales. These new powers may affect how these airports operate and the competitive environment among airlines, including higher costs, which could adversely affect our operations.

The lack of desirable and reasonably priced slots may require us to modify our itineraries, change routes or reduce aircraft use, each of which may have a material adverse effect on our business, financial condition and results of operations.

In addition, on March 2, 2023, the Mexican Airspace Protection Law (Ley de Protección del Espacio Aéreo Mexicano) became effective. The law aims to preserve the sovereignty, independence and security of the Mexican airspace. The law authorizes the Ministry of National Defense to coordinate the involvement of competent authorities, such as the Ministry of Security and Civil Protection, the SICT, the Ministry of the Navy and the Ministry of the Interior, to protect and oversee Mexican airspace. On May 3, 2023, the government published amendments to the Mexican Civil Aviation Law in the Federal Official Gazette, authorizing the SICT to grant concessions to majority state-owned airlines, among other things. On May 18, 2023, the Mexican government authorized the operations of Aerolínea del Estado Mexicano, S.A. de C.V., also known as Mexicana de Aviación. Mexicana de Aviación started its new operations in December 2023 and is under control and supervision of the Ministry of National Defense.

Our operations are highly dependent on MEX.

Consistent with our hub-and-spoke operating model, our operations are highly dependent on MEX. In both the nine-month periods ended September 30, 2024 and 2023, 45% of our flights departed from MEX. To maintain high aircraft utilization rates, we depend on the on-time arrival of our flights to ensure that our passengers make their connections and our aircraft stay within their itineraries, and any issues at MEX that negatively impact operations overall at MEX may adversely affect us. In addition, factors beyond our control may cause delays or affect our service, including air traffic and runway congestion, force majeure events, strikes and other labor disputes, adverse weather conditions, increased security and changes in airport infrastructure. For instance, in April 2023, MEX imposed restrictions on flights outside the airport’s operating hours or the established take-off and landing schedules.

Also, MEX is subject to reductions in hourly operations and restrictions. In October 2022, an agreement among certain airlines and MEX resulted in a temporary reduction in hourly operations from 61 to 52 at MEX to permit the

 

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airport to make facilities related improvements. This reduction applied to international and Mexican carriers. A second temporary reduction in hourly operations from 52 to 43 came into effect on January 8, 2024. Pursuant to a statement issued by AFAC in August 2023, the second reduction in hourly operations that started in January 2024 applies only to domestic flights from and to MEX operated by Mexican carriers.

In addition, due to the significance of our investment in, and the importance of our operations at, MEX, our business may suffer to the extent that MEX’s position as the leading major airport in the Mexico City area diminishes. The Mexican government has granted a number of incentives to promote the construction and use of NLU, which is located in Mexico City. If airline operations shift, whether due to government incentives, passenger preferences, or terms offered to airlines, to NLU and away from MEX, our business, results of operations and financial condition may suffer.

The airline industry is highly competitive, and we may face greater competition on a significant portion of our business and routes.

The aviation industry is highly competitive. Airlines compete based on, among other things, price, availability and flight frequency, connectivity, service punctuality and frequent-flyer programs. The airline industry is particularly susceptible to price discounts, because airlines incur only marginal costs to provide service to passengers occupying seats that would not otherwise be sold.

Certain of our competitors may receive support from external sources, such as their national governments, which have the effect of subsidizing or otherwise providing financial support or tax benefits in relation to their operations. We do not benefit from this type of support, which places us at a competitive disadvantage as compared to some of our international competitors. For example, as a response to the COVID-19 pandemic, the U.S. Treasury Department provided payroll support worth billions of U.S. dollars to U.S.-based:

 

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passenger and cargo air carriers under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act;

 

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passenger air carriers under the Consolidated Appropriations Act; and

 

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passenger air carriers under the American Rescue Plan Act.

The Mexican government did not provide similar grants or relief to Mexican air transportation companies. Current or future governmental support provided to our competitors may have the effect of enhancing their competitive advantage as compared to us, thereby materially and adversely impacting our business, financial condition and results of operations.

In addition, the Mexican government has actively explored options to allow non-Mexican air carriers to operate on domestic Mexican routes in the past. Also, on March 2, 2023, the Mexican Airspace Protection Law (Ley de Protección del Espacio Aéreo Mexicano) became effective. The law authorizes the Ministry of National Defense to coordinate the involvement of competent authorities, such as the Ministry of Security and Civil Protection, the SICT, the Ministry of the Navy and the Ministry of the Interior, to protect and oversee Mexican airspace. On May 3, 2023, the government published amendments to the Mexican Civil Aviation Law in the Federal Official Gazette, authorizing the SICT to grant concessions to majority state-owned airlines, among other things. On May 18, 2023, the Mexican government authorized the operations of Mexicana de Aviación, which started its new operations in December 2023 and is under control and supervision of the Ministry of National Defense. This policy change could disrupt the Mexican domestic market by significantly increasing competition and reducing our market share.

We may not be able to enter into long-term leases or obtain financing to purchase new aircraft.

Certain contextual factors, including macroeconomic or regulatory conditions in Mexico, may prevent us from obtaining long-term operating leases or financing to purchase new aircraft at all or in attractive terms and

 

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conditions. Mexico has adopted the “friendly for debtors” provision, or Alternative B of the Cape Town Convention, which favors debtors and allows local courts to determine if and when contractual breaches should be remedied and whether an aircraft should be returned to its owner or creditor. Uncertainties concerning creditors’ rights in Mexican insolvency proceedings and delays experienced in obtaining final judgments may prevent us from leasing or purchasing new aircraft at attractive terms or at all, which could have a significant adverse effect on our business, financial position and operating results.

We may also be unable to obtain financing or enter into long-term leasing agreements at favorable terms due to high interest rates, which may negatively affect our lessors, or risks related to Mexico and international events. As a result of the Russian invasion of Ukraine and corresponding sanctions, aircraft lessors have not been able to recover certain assets in Russia and have reconsidered expropriation risks and insurance costs in other emerging markets, including Mexico. Moreover, the recovery of certain large airlines, mainly in China and India, have lagged as a result of the effects of the COVID-19 pandemic and government responses in these countries. As these relevant airlines restore their operations to pre-pandemic levels, they have increased their aircraft purchases and demand for leased aircraft, which has affected aircraft availability in the global market and increased aircraft leasing and purchase costs.

In addition, if we are unable to obtain the necessary financing to purchase aircraft for which we have entered into binding purchase agreements and fail to cancel the order, we may breach these agreements and be liable for damages, which could adversely affect our financial condition and operating results.

If we fail to comply with sanctions on Russia as a result of the invasion of Ukraine, we could be subjected to penalties.

In response to Russia’s February 2022 invasion of Ukraine, the United States, the European Union, or the EU, the United Kingdom and other countries have imposed broad, far-reaching sanctions against Russia, certain Russian persons and certain activities involving Russia or Russian persons. For example, in September 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, issued preliminary guidance on the implementation of a maritime services policy that will ban the provision of services related to the maritime transportation of Russian-origin crude oil and petroleum products, with exceptions for shipments of seaborne Russian oil purchased at or below a specified price cap. The policy took effect on December 5, 2022, with respect to crude oil, and on February 5, 2023 with respect to petroleum products. Due to the imposition of sanctions and flight restrictions relating to Russia, Aeroflot was suspended from the SkyTeam alliance. We suspended our code sharing agreement with this airline and the reciprocity of our respective loyalty programs, which were our only operations in Russia. In addition, we suspended interline sales and other agreements, such as lounge sharing with Aeroflot, and we discontinued our flights to Seoul, South Korea, in 2022, as the direct flight route between Mexico and South Korea passed through Russian airspace. In the third quarter of 2024, we resumed flights between Mexico and Seoul through a longer route that requires a layover and refueling but does not cross the Russian airspace.

Although we have economic sanctions and export controls compliance policies and procedures, we cannot assure you that such safeguards will function in all cases to prevent violations of sanctions and other similar laws or regulations currently existing or enacted in the future. If we violate any such sanctions or other laws, we may experience negative impacts on our business, including by increasing the fuel costs or costs required to remain in compliance with such regulations, or incoming penalties for failing to comply with such sanctions.

In addition, the airline industry is heavily influenced by the price and availability of aircraft fuel. Sanctions on exports of oil from Russia have caused volatility in petroleum prices and significant disruptions in the supply of petroleum derivatives, including fuel in the commercial aviation industry, and could, in the future, adversely affect the company’s business, results of operations and financial condition.

 

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We may incur significant costs related to the renewal of aircraft.

Under our lease agreements, we are required to return leased aircraft timely. However, we may be unable to quickly purchase new aircraft or obtain new leases at favorable terms and may violate the timing requirements of our old lease agreements. These delays may lead to substantial additional costs. We may also be unable to return leased aircraft and engines on reasonable terms due to the rigorous pre-return inspections, which can lead to lengthy and costly negotiations. In this case, we may be required to continue making lease payments for equipment that is not being used. In certain circumstances, we have failed to return the aircraft on time or fulfill the conditions of our lease agreements and faced contractual sanctions or forced extension of the old lease agreement. Failure to integrate new aircraft into our fleet as planned may require us to extend our leases, which may not be favorable to us.

We may not be able to improve liquidity.

Certain factors may adversely affect our liquidity, including expected increases in our lease payments under new financial leases, increased pricing for our financings as a result of our recent Chapter 11 emergence, volatility in fuel prices, volatility in the exchange rate, adverse economic conditions, demands from workers, pilots and labor unions, impacts on the global capital markets and catastrophic external events. Certain unexpected events may quickly change liquidity conditions and have substantial effects to our cash flows. The uncertainties in connection with the COVID-19 pandemic, for instance, had material implications to our operations in a short period, which drastically affected our liquidity. For further information about the effects of the COVID-19 pandemic to our operations and business results, see “Risk Factors—Risks Related to Our Business—Our business was significantly adversely affected by the COVID-19 pandemic, and similar health threats in the future could have a further adverse effect on us.”

The airline industry is generally characterized by low profit margins and high fixed costs. These fixed costs consist mainly of wages and salaries of crews and other personnel (which are substantial in several jurisdictions in which we operate), fuel costs and payments for aircraft and engine leases, as well as other financial costs related to aircraft equipment. The operating costs of flying an aircraft do not vary significantly with the number of passengers transported and cannot be quickly adjusted to respond to changes in revenue or to a deficit in projected revenue levels. For further information about fuel costs, one of our main expenses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Factors affecting our results of operation—Jet Fuel Prices.”

Revenue per flight depends mainly on the number of passengers we carry and fares, which can vary significantly due to several factors that may be beyond our control. These factors include economic and general political conditions, particularly in certain Mexican regions, weather and price strategies of our competitors, as well as the tolerance to operate at very low profit margin levels or losses.

If our liquidity is further limited, we may be unable to make timely lease payments or comply with our substantial contractual obligations. As a result, we may be subject to adverse consequences, including legal disputes with our equipment lessors and other creditors. In addition, low liquidity may limit our ability to implement our strategic initiatives, incur capital expenditures to maintain our competitive position, resist competitive pressures, and limit our flexibility to respond to business and economic conditions.

Our liquidity could be adversely impacted in the event one or more of our credit card processors were to impose material reserve requirements for payments due to us from credit card transactions.

Under certain of our international credit card processing agreements, the financial institutions in certain circumstances have the right to require us to maintain reserves equal to a portion of advance ticket sales that has been processed by that financial institution, but for which we have not yet provided the air transportation. Such financial institutions may require additional cash or other collateral reserves to be established or additional

 

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withholding of payments related to receivables collected if we do not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments. Refunds lower our liquidity and put us at risk of triggering liquidity covenants in these credit card processing agreements and, in doing so, could force us to post cash collateral with the credit card companies for advance ticket sales.

Our business is cyclical and seasonal. Consequently, our quarterly results may fluctuate substantially.

The airline industry is cyclical and seasonal, and our operating results may vary from one quarter to the next. The highest demand for air transport services occurs during the months of July and August (usually due to high demand for vacation travel), March and April (depending on the date of the Holy Week holiday each year) and December (as a result of the Christmas holidays), while demand has its lowest season in February, September and October. In addition to the seasonal demand effects on our load factor, revenue, operating income and earnings, other temporary circumstances may affect our market share each month. Because of the relevance of our fixed costs, seasonality affects our quarter-to-quarter profitability.

During leisure travel periods, such as the Christmas and Easter holidays, passengers favor low-cost fares offered by many of our competitors and prefer leisure destinations, which reduces cargo factors on other routes to business destinations. As a result, our domestic market share may decrease during these periods due to competition from low-cost carriers.

Prior and future acquisitions, strategic investments, partnerships and alliances may not be successful.

We have entered into acquisitions, strategic investments in complementary businesses, strategic partnerships and alliances with third parties and may enter into similar transactions in the future to enhance our business. For instance, we obtained control of PLM in 2022, the entity that manages our Aeroméxico Rewards, through a share purchase agreement with Aimia. Pursuant to the agreement, Aimia received $430.4 million in net cash proceeds and was entitled to an earn-out if PLM achieved certain targeted annual gross billings by 2023. On May 29, 2024, as PLM achieved the agreed performance targets, we paid Aimia the $24.1 million earn-out.

We may not be able to identify suitable business partners or to complete certain business transactions on commercially acceptable terms or at all. In addition, these types of transactions involve numerous risks, including:

 

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difficulties to integrate operations, technologies, accounting and personnel;

 

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difficulties to support and integrate new clients from our acquired companies or strategic partners;

 

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diversion of financial and management resources from existing operations;

 

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risks related to entrance in new markets;

 

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potential loss of key team members;

 

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inability to generate sufficient revenue to offset transaction costs; and

 

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unknown liabilities.

Our organizational structure could make it difficult to efficiently integrate acquired businesses or technologies into our ongoing operations or assimilate new employees to our culture and operations. Accordingly, we might fail to realize the expected benefits or strategic objectives of any acquisition we undertake. Any such failure could have a material adverse impact on our consolidated balance sheet and consolidated statements of income.

Also, our inability to identify suitable acquisition targets, strategic investments, partners or alliances, or our inability to complete such transactions, may negatively affect our competitiveness and growth prospects.

 

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Moreover, if we fail to properly evaluate acquisitions, alliances or investments, we may not achieve the anticipated benefits of any such transaction and we may incur excessive and unanticipated costs. We may be affected by damages and losses to assets or profitability that may not be fully offset by indemnification from sellers.

Future acquisitions financed with our own resources could deplete the cash and working capital available to adequately fund our operations. We may also finance future transactions through debt or equity offerings, existing cash, cash equivalents and investments. Acquisitions financed by equity offerings could dilute the ownership of our shareholders and adversely affect the market price of the ADSs. Acquisitions financed by debt offerings may require us to dedicate a substantial portion of our cash flow to principal and interest payments and could subject us to restrictive covenants.

Our operations are subject to local and international concessions, regulatory approvals and operating licenses.

The airline industry in Mexico is subject to extensive regulation. Passenger airline operations in Mexico require concessions from the Mexican federal government. We hold two concessions to operate, one for Aeroméxico and one for Aeroméxico Connect. These concessions were granted by the Mexican federal government through the SICT on March 16, 2000, and October 24, 2000, respectively, for initial periods of 30 years.

Under Mexican law, concessions may be renewed several times. However, each extension may not exceed 30 years and the concession holder much satisfy the following requirements:

 

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compliance with the concession agreement obligations;

 

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the renewal request must be made one year before the expiration of the concession terms;

 

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compliance with service quality improvement requirements during the concession period; and

 

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acceptance of new conditions established by the SICT.

Failure to renew our concessions would prevent us from continuing to conduct our business, which would have a material adverse effect on our business, results of operations, financial condition and prospects.

Government agencies and other authorities have the power to, among other things:

 

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terminate our airport utilization contracts;

 

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regulate international travel, including customs and immigration;

 

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increase taxes;

 

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change laws affecting services airlines can offer in certain markets and airports;

 

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restrict competitive practices;

 

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enact statutes or regulations that affect customer service standards, including safety and health standards; and

 

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terminate or unilaterally modify licenses or concessions to operate at airports.

For instance, on October 4, 2023, the AFAC unilaterally modified the fee structure established in the concession titles granted by the SICT to certain airports.

In addition, we are required under the terms of our concessions to comply with certain ongoing obligations. Failure to comply with these obligations could result in penalties against us. In addition, the Mexican government has the right to revoke our concessions and the permits we currently hold for various reasons, including:

 

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service interruptions, without authorization from the SICT, except in force majeure events;

 

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