Mexican airline Interjet is in “technical bankruptcy” and at risk of collapse, according to its finance chief, following an order to start paying off nearly $30 million in back taxes.

Interjet beat back an attempt by authorities to seize control of its bank accounts in an effort to collect nearly 550 million pesos ($27 million) in unpaid taxes dating to 2013. But a judge this month ordered the closely held carrier to deposit 10 percent of its monthly revenue as a guarantee until the debt is paid.

The tax collector is putting Interjet “in a serious predicament of economic viability, preventing it from continuing its normal operations,” Chief Financial Officer Raul Lopez said in a July court filing opposing the seizure attempt. “The company’s results from 2013 to 2018 clearly show accumulated losses that can be interpreted as the airline’s technical bankruptcy.”

That’s a phrase that in Mexico is typically used to describe a situation where liabilities outweigh assets, but Interjet hasn’t filed for protection from creditors. Still, Lopez’s 77-page filing, which hasn’t been released publicly, describes how weak investor appetite and a fleet of balky Russian jetliners have pushed the airline into financial distress.

Interjet — owned by the family of former Mexican President Miguel Aleman Valdes and operating since 2005 in the space between low-cost and full-service carriers — also has been forced to ground planes as it grapples with labor strife.

In a statement, Interjet said it was clarifying the exact amount of the tax bill since some amounts may be erroneous. The company declined to comment on its finances, citing the confidentiality of the court filings.

“This situation in no way affects passengers or the company’s operations,”’ Interjet said.

‘Losing Money’

The tax agency referred to a tweet earlier this month in which it said it was collecting a debt from an airline, without specifying the company name.

The carrier, formally known as ABC Aerolineas SA, posted 5.83 billion pesos in revenue for the first quarter, so it should take them only about three months to pay the taxes due. But Interjet logged an operating loss of 409 million pesos for the quarter.

“Their cash generation is negative and their operations are losing money,” said Bloomberg Intelligence analyst George Ferguson. “Taking away 10 percent of their revenues is definitely going to plunge them a bit deeper into negative cash flow, and it will be more difficult for them to pay their debts.”

Interjet’s net debt is around 11.5 times earnings, Ferguson estimated.

‘Cannibalized’ Jetliners

At least some of Interjet’s tax problems can be traced to its fleet of 22 Sukhoi Superjets, according to court filings.

Ever since Interjet began flying the 93-seat aircraft in 2012, the model “had supply issues with the maker, leading to grounded planes being ‘cannibalized,’” or used for spare parts to keep other aircraft flying, Interjet told the court.

Problems with the Sukhoi planes in 2017 gradually reduced the jets’ usefulness, leading to flight cancellations and hurting ticket sales as travelers lost confidence in the carrier, the Interjet CFO said.

Grounding the Russian planes reduced liquidity and “deeply affected” the carrier’s ability to pay some taxes already charged to passengers, Interjet said. The airline also had to halt flights of as many as eight larger Airbus SE A320 jets because of engine maintenance delays, according to Interjet’s filing.

Failed Bonds

Interjet’s efforts to raise capital have been unsuccessful, Lopez said in the filing. In 2017, the company couldn’t close the sale of 700 million to 1.2 billion pesos in domestic bonds called Cebures as a 3 billion-peso capital injection announced by the airline’s board was delayed.

When Interjet tried again last year, “the market was very restrictive” and the company’s “results complicated an offering,” according to the filing.

Interjet’s creditors include Grupo Financiero Inbursa SAB. It didn’t respond to a request for comment.

In July, the Aleman family agreed to buy Grupo Televisa SAB’s radio business for $66 million. But Interjet continued to face hurdles.

The carrier canceled dozens of flights the last week of July, as it contended with labor woes. The union representing Interjet’s air and ground workers has been pushing for pay raises and benefits.

“You just can’t keep losing money quarter after quarter, having negative cash flow and owing money to lessors,” said Ferguson, of Bloomberg Intelligence. “Sooner or later, the party is going to end.”

©2019 Bloomberg L.P.

This article was written by Andrea Navarro from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Photo Credit: Mexico's Interjet is in “technical bankruptcy” because of several bad bets. Pictured are the airline's jets. Bloomberg