Mexico’s New State Airline Sued in $800 Million Contract Dispute

A Mexicana office at Felipe Angeles International Airport in Zumpango, Mexico.

(Bloomberg) — Mexico’s new state-owned airline was sued by the company that the government hired to manage plane leases and hire crews, claiming the carrier’s lack of cooperation has put the entire enterprise in jeopardy.

SAT Aero Holdings Inc., which was formerly known as Petrus Aero Holdings, filed the lawsuit Wednesday in federal court in New York seeking damages in the full amount of its $838.5 million contract, plus $2.4 million in costs.

President Andres Manuel Lopez Obrador, known as AMLO, launched the new Mexicana airline in December after buying the name from a carrier that stopped flying in 2010. The government has marketed Mexicana as a new budget airline set to compete with local carriers Volaris and Viva Aerobus. The airline recorded 160 flights in January, according to government statistics.

AMLO said last year the government was looking to initially lease 10 Boeing 737 jets. But Mexicana now leases at least part of its aircraft from another regional airline, TAR Aerolineas.

SAT was hired by the Mexican Ministry of Defense to provide services including procuring aircraft and insurance, recruiting and training pilots and crew and arranging for maintenance of the aircraft, according to the complaint. The company said it was understood that it would buy airplanes for Mexicana, and that the government would ultimately bear the cost.

But SAT claims Mexicana broke their agreement by failing to pay more than $5.5 million in deposits so that SAT could lease the first two of 10 aircraft. The company says it “pushed forward” and tried to “do everything possible to sustain the important long-term business relationship,” while continuing to negotiate leases.

“Unfortunately, after SAT spent months negotiating the relevant financing and lease documents with the prospective bank and lessors, the airline balked at signing any documents with these institutions,” SAT said in the complaint. “SAT has endeavored to work with the Mexican Ministry of Defense to resolve these issues. But, instead of remedying these several breaches, Mexicana Airlines has, confoundingly, instead sought to impose financial penalties on SAT and hold it responsible for the failure to deliver any of the aircraft identified” in its agreement.

The Mexican Ministry of Defense didn’t immediately respond to a request for comment.

The case is SAT Aero Holdings Inc., 24-cv-2300, US District Court, Southern District of New York.

–With assistance from Andrea Navarro.

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