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Mexico City Passengers at Risk, Outlook Negative, Fitch Says

(Bloomberg) -- The outlook on bonds tied to a failed airport project were revised to negative by Fitch Ratings Inc on the “fastened deterioration” seen at Mexico City’s Benito Juarez airport.

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The Mexico City Airport Trust bonds raised money in 2016 to build a new airport serving the nation’s capital, a project that President Andres Manuel Lopez Obrador canceled in 2018. Those securities continued to be backed by passenger fees from the existing Benito Juarez International airport, called TUAs.

Airports around the world tend to use those fees for maintenance and regular upkeep. But Mexico City’s main airport has had to do without them for years, leading to falling ceilings and flooded terminals, Fitch warned in its note. The credit rating company’s review reflects its “heightened concerns about the project’s ability to meet its substantial maintenance needs and passenger congestion without affecting the airport’s finances,” it said in a statement.

“While these issues are not new, they have recently aggravated and led to fastened deterioration of the facilities’ physical condition to a point at which customers and employers could be injured,” the statement read. A recent government decision to reduce hourly flights to 43 from 52 “has the potential to decrease revenue generation,” the agency said.

Read More: Bonds for Never-Built Mexico Airport Bring Investors 50% Gains

El Financiero newspaper on Tuesday reported Lopez Obrador canceled a planned renovation of parts of the airport. The Navy, which took control of the airport’s operations in early August, was set to fix Terminal 1, which is in the worst shape.

Lopez Obrador shelved those plans as he didn’t want to leave any unfinished works as he heads into his administration’s final year, the newspaper reported, citing vice admiral Carlos Velazquez, the airport’s director. The Navy’s work in the airport will now focus on security tasks rather than infrastructure, he said.

The situation can exacerbate the refinancing risk of notes due in 2026 and 2028 for a total amount of $1.4 billion, Fitch added.

The bonds have lost about 2.4% since the end of June, underperforming an index of peers that’s returned about 0.4% in the same period. The notes soared earlier in the summer as a senior official said the government was considering a complete buyback of the issuer’s bonds. They have since given up most of the gains on reports the plans have been shelved.

The bonds’ BBB- rating is still supported by the Benito Juarez airport being a strategic facility for the country and with practically no competition from other airports, Fitch said. That’s much to Lopez Obrador’s dismay, who has been pushing airlines to add flights out of the Felipe Angeles airport he built in nearby Mexico State.

Part of the ceiling in Terminal 1 detached as the building flooded last month, Fitch said, revealing “its poor condition and the pressing need for adequate maintenance.”

(Updates with canceled renovation plans in paragraph five and six)

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