The perils of investing in paradise

A road sign points the way to Tenacatita Bay in Jalisco state, where a titling dispute jeopardizes the investments of at least 40 foreign property owners. The owners bought deeds over the past five years that had been issued by the federal government and validated by the president of Mexico. But a Guadalajara-area businessman recently won a court injunction saying his company holds a valid deed to the same area - which was purchased in 1991 from the widow of a former Jalisco state governor and upheld in 1977 by the Mexican Supreme Court. 

State police now block access to the land the foreigners purchased along with the beach at Tenacatita, which had been popular with working-class Mexican sunseekers. The businessman, Andrés Villalobos, told reporters last week he would not offer the foreigners any compensation since, he said, they were most likely deceived in making their purchases. He promised, however, to help prosecute anyone tricking them into purchasing land that he said was always private property and not for the federal government to title and sell.


The foreign buyers insist they did their due diligence and hold titles validated by one of either President Felipe Calderón or former president Vicente Fox. At least one buyer put her title into a bank trust, suggesting her purchase was considered proper by some institutions.

I recently travelled to the Jalisco coast to write on the issue for Postmedia News. Click here to read it.

Mexicana suspends ticket sales

SECOND UPDATE: Mexicana suspended all flights Aug. 28, including domestic runs flown by its subsidiaries, Mexicana Click and Mexicana Link. The new owners, Tenedora K, failed to adequately slash costs, which it reportedly tried to do by firing the unionized flight attendants and pilots and then rehiring some of the staff at reduced salaries. The federal government rejected the plan and refused to bail out Mexicana, which was privatized in 2005 and run up more than $1 billion in debt.

What becomes of Mexicana remains uncertain. I always preferred Mexicana to its domestic competitor AeroMéxico, which, in my experience, hired less-friendly and less-resourceful staff who were always anxious to pass the buck and neglect customer service problems. Other airlines such as Interjet, Volaris and Vivaaerobus - all of which are less than five years old and have lower cost structures than Mexicana - will fill some of the void on domestic runs and AeroMéxico and other competitors will no doubt add international flights. I'll definitely miss the direct runs back to Canada, though. It's possible some airlines such as Air Canada or Westjet will expand service, but the Canadian government's visa requirement for Mexican travelers dampened enthusiasm for flights to Canada and AeroMéxico abandoned its Canadian runs earlier this year due to a lack of demand.

UPDATE:

Mexicana has stopped selling tickets effective 6 p.m. Aug. 4 for travel on its mainline carrier, which flys international runs and many of the high-volume domestic routes such as Mexico City-Monterrey, Mexico City-Cancún and Mexico City-Tijuana. The company said in a statement that it will continue selling tickets for domestic travel on its subsidiaries Mexicana Click and Mexicana Link as the operations of those airlines is unaffected by the financial and labour woes of Compañía Mexicana de Aviación.

Mexicana employees about to get a haircut

Compañia Mexicana de Aviación has filed for bankruptcy protection in both Mexico and the United States, in a move the Wall Street Journey said in a cheeky headline, "Wards off the repo man."

Mexicana de Aviación wants its pilots and flight attendants to take pay cuts of roughly 40 percent in order to keep the company from going broke. The Mexicana employees rejected the proposed paycuts on Aug. 2 - along with an offer to buy the mainline part of the airline for just 1 peso.

Financial problems and subsequent labour unrest are just the latest patches of turbulence for Mexicana, an 87-year-old airline that company officials say has lost more than four billion pesos since being re-privatized in 2005.

The airline on Aug. 2 canceled service on three runs, reduced frequencies on others and altered routing on many flights, which will now make a stop in Mexico City. Creditors had its planes held in Calgary, Montreal and Chicago. Mexicana says its operations will carry on as scheduled and its employees' unions say their members won't stop working.

Mexicana management says cuts need to made immediately for the carrier to survive. It's subsidiaries Mexicana Click, which operates many domestic runs, and Mexicana Link - a commuter-jet airline - are unaffected by the turbulence.

Pilots at Mexicana earn US $216,000 per year, while flight attendants earn US $52,000 per year. Under the management plan, pilots would earn US $127,000 per year. Flight attendants would earn $32,000 per year.

The company outlined plans to slash its labour force by 40 percent, too. The pilots' union said the company was distributing "inexact" statistics. It also said, "It's a shame they value it for one peso."

The federal government has declined to become involved in Mexicana's problems.

Is Mexicana de Aviación about to go broke?

A jet from the defunct carrier Avolar sits by the terminal at the Oaxaca airport

Airline pilots and staff marched through Terminal 1 of the Mexico City airport on Sunday, demanding that money-losing carrier Mexicana de Aviación leave its employees' generous salary and benefit packages intact and stating emphatically that they're not to blame for the company's problems.

In short, Mexicana is going broke and is asking pilots and flight attendants to take cuts to their salaries and benefits. The airline also proposed job cuts and asked that its pilots buy the airline for one peso (less than 10 cents.) The pilots rejected those offers.

The pilots and flight attendants at Mexicana are very well paid - and their salaries are among the most lavish in the industry. The Mural newspaper reported Mexicana pilots earn more than $220,000 per year - far more than their counterparts in the U.S., who earn an average of $150,000 per year. Mexicana is asking its pilots to take a 41 percent pay cut. Flight attendants were asked to take a similar pay cut from their wages of $52,000 per year.

Mexicana is deeply in debt and a Canadian creditor recently had two Mexican carriers planes ordered held while at airports in Calgary and Montreal, forcing the cancellation of flights. Any problems at Mexican only impact the mainline operations, which is responsible foreign flights and many of the runs between Mexico City and the destinations of Tijuana, Monterrey and Cancún. Domestic operations on Mexicana subsidiaries Mexicana Click and Mexicana Link are unaffected and employee costs on those fleets are substantially less than on the mainline carrier.

All of the Mexicana action comes as the FAA downgrades Mexico's air safety rating. It launched the review following the November 2008 crash of a private jet in the swank Lomas de Chaputepec neighbourhood that claimed the life of the then interior minister Juan Camilo Mouriño.

The Mexican aviation has long been financially troubled as Mexicana and rival AeroMéxico were government-owned, but operated as separate units, from the mid 1990s - following the peso crisis - until Mexicana was sold in 2005. AeroMéxico was sold in 2007. Other airlines to go bust in recent years include AeroCalifornia - famed for flying old planes and providing tardy service - Aerolineas Azteca, Aviacsa, Alma de México and Avolar.

Two lower-cost airlines have flourished, however: Interjet and Volaris - both of whose costs are much lower than those at Mexicana or AeroMéxico. Carlos Slim recently sold his share of Volaris, prompting questions about the state of the industry. (Slim's not known to abandon a good investment.)

Or perhaps aviation is just too competitive. Slim, of course, has become fabulously wealthy operating in the competition free - at least it was for decades - domestic telecommunications market. (Slim likes to boast how his companies face stiff competition in other markets and is facing growing competition in Mexico.) But while the government abides businessmen like Slim and monopolistic companies in sectors such as broadcasting, brewing and cement, it steadfastly refuses to allow consolidation in the aviation sector and permit the creation of a flag carrier.

With Interjet and Volaris on the scene, the new flag carrier would face at least some competition from companies being operated much more efficiently than either AeroMéxico or Mexicana. But for mysterious reasons, aviation remains the one industry in which the government refuses to allow consolidation.