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Mexicana’s future hangs in the balance

London, August 3, 2010… Talks between the managers and workers of troubled airline Mexicana reached an impasse on Monday, threatening the viability of the 89-year-old airline. Mexicana, with a debt of close to MXP10 billion pesos (USD$796 million), is at the centre of a fight between managers, who want to cut wages and staff to keep the company running, and workers who refuse to see their benefits shrink further. Mexicana chief executive Manuel Borja said management has asked pilots and flight attendants to agree to wage cuts of 41 percent and 39 percent, respectively, as a way to reduce costs. “The real alternative is to have competitive collective bargaining agreements,” Borja said during a press conference. He said payroll costs account for 20 percent of the company’s annual revenue, compared with 10 percent for its peers. Pilots and flight attendants are reluctant to accept a new round of pay cuts since they already gave up multiple benefits in 2006, saving Mexicana around USD$35 million per year. Route reductions are also part of Mexicana’s latest proposal to the unions. Workers have been granted the option to buy out Mexicana for one peso by assuming a big chunk of the debt and agreeing to drop the company brand name, Fernando Perfecto, head of the pilots union, told Radio Formula station earlier on Monday. Perfecto said this option would only be viable if Mexicana granted workers the right to use the brand, a long-standing asset the company’s management is not willing to give up. Borja and other board members want to keep the Mexicana brand for two regional airlines, Click and Link, that have avoided the financial troubles of Mexicana. All three companies belong to holding Grupo Mexicana. Mexicana, which is considering filing for creditor protection to ease its financial troubles, has not defaulted yet on any debt payments, Borja said. Mexicana failed to place a USD$250 million bond earlier this year after a government bank refused to provide a guarantee. The airline has a USD$123 million loan with Mexican bank Banorte and another USD$76 million credit with development bank Bancomext. (Reuters)