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 Business News | July 2005 
Slim, Azcarraga to Invest in Mexican Startup Airline
 Bloomberg
| | Slim, 65, amassed a $23.8 billion fortune from telecommunications and banking to become the world's fourth-richest person and Mexico's No. 1, according to the Forbes magazine's list of billionaires. |
Mexican billionaires Carlos Slim and Emilio Azcarraga plan to start a low-fare domestic airline with two other partners to compete in Latin America's second-largest aviation market.
Slim's bank, Grupo Financiero Inbursa SA, and Azcarraga's Grupo Televisa SA, the world's largest Spanish-language broadcaster, each will own 25 percent of Vuela Compania de Aviacion SA, the companies told the Mexican stock exchange today. The four partners will invest a total $100 million and share control of the airline, Jose Heredia, Inbursa's chief executive for private equity, said in an interview.
The airline backed by Slim and Azcarraga may be the first low-fare carrier similar to New York-based JetBlue Airways Corp. to serve Latin America's largest economy. Mexico's market is dominated by state-owned airlines that will be sold to private investors this year.
"There are no low-cost airlines in Mexico and we see tremendous growth potential," Heredia said in a telephone interview from Mexico City. "How can it be that there are domestic flights in Mexico that are more expensive than going to Miami or other overseas destinations?"
Vuela may face as many as five competitors in Mexico, including Brazil's Gol Linhas Aereas Inteligentes SA, which has grown from a startup in 2001 to a $2.8 billion company on the local stock exchange. Sao Paulo-based Gol said on July 5 it plans to team up with Mexican businessman Fernando Chico Pardo to set up a budget airline.
Legacy Carriers
Also earlier this month, Mexicana re-branded one of its units as a low-fare carrier that charges about 30 percent less than legacy carriers and sells tickets online exclusively. Avolar Aerolineas also obtained government approval to operate a Mexican low-cost airline and another two companies are seeking concessions, said the government's head of civil aviation Gilberto Lopez in a telephone interview last week.
"We're seeing all this interest, but in the end maybe only two or three will get off the ground," Lopez said.
Mexico is the second-largest domestic civil aviation market in Latin America after Brazil with more than 30 million passengers a year. Its untapped potential can be illustrated by the small number of aircraft incumbent airlines have, Heredia said. Mexican airlines have about 250 aircraft today, compared with 174 planes owned by Alaska Airlines alone, he said.
Vuela, which was founded by private equity funds led by Pedro Aspe, a former finance minister and current Televisa board member, obtained a concession in May to operate low-fare flights from the international airport of Toluca, which is about 43 miles from the center of Mexico City.
Government Sale
El Salvador's Taca International Airlines will hold 25 percent of Vuela and operate the airline, Heredia said. The final 25 percent stake is held by private equity funds led by Aspe. Vuela will start operations next year.
Televisa's shares were unchanged at 35.87 pesos at 12:22 p.m. New York time on the Mexican stock exchange after rising as much as 25 centavos, or 0.7 percent, earlier. Inbursa fell 48 centavos, or 1.9 percent, to 24.30 pesos.
Slim, 65, amassed a $23.8 billion fortune from telecommunications and banking to become the world's fourth-richest person and Mexico's No. 1, according to the Forbes magazine's list of billionaires. Azcarraga, 37, is Mexico's 10th-richest man with a $1 billion net worth, according to Forbes.
The Mexican government plans to exit the airline business this year after the recession in 1995, the worst in six decades, forced it to rescue Aeromexico and Mexicana. They will be sold separately to meet antitrust regulations.
The government will announce on Aug. 9 the name of investors that are qualified to bid. Earlier today, the government extended the deadline for investors to enter the bidding process to July 29 from July 22. Credit Suisse Group is advising the government on the sale. |
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