Fitch Ratings Affirms Senior Unsecured Ratings of Aeromexico.

MONTERREY, Mexico -- Fitch Ratings has affirmed the senior unsecured local currency and foreign currency ratings of Aerovias de Mexico, S.A. de C.V. (Aeromexico) at 'B+'. The Ratings Outlook is Stable.

The ratings are supported by the company's solid business position in both domestic and international routes, strong liquidity, and low refinancing risk. The ratings are constrained by high operating leverage and industry-related risks, including revenue volatility, high fixed costs, fuel price volatility, and competitive threats.

Aeromexico's revenues and profitability have recovered over the past several months as a result of increased traffic in international, as well as in domestic routes. Passenger load factors have improved despite capacity expansions. For the first six months of 2004, total revenues increased by 13.7%. Despite historically high fuel prices, costs increased only 3.5%. With fuel costs accounting for more than 20% of operating expenses, high jet fuel prices have offset part of the margin gains, but the company has handled a portion of the increased fuel costs through increased passenger fares and jet fuel surcharges.

For the first six months of 2004, EBITDA remained below breakeven levels as it has been over the past three calendar years. With expected continued increases in passenger demand for the second half of 2004, EBITDA should be at or slightly above breakeven levels for 2004. The ratio of EBITDAR to interest expense plus rents was 0.7 times (x) during the first six months of 2004, compared with 0.5 times (x) for 2003.

Aeromexico is in the process of modernizing its aircraft fleet. During 2004, the company has continued to replace its fleet of DC-9 aircraft, which has an average age of 25 years, with 15 new Boeing 737s financed with a combination of sale-leasebacks and operating leases. The aircraft renewal plan will help the company lower fuel consumption and will not affect on-balance-sheet debt levels. During 2004, capacity will increase by approximately 7% in international routes (driven by the introduction of new routes to Europe and South America) and in domestic routes by approximately 5%. The company's staggered lease expiration schedule provides flexibility to adjust capacity in the event of further demand shocks. Despite increases in capacity, profitability will improve in 2004, driven by continued operating costs-cuts, higher load factors, and fuel efficiency gains on new planes, which should allow Aeromexico to reach an EBITDAR to interest expense plus rents of 1 times (x) by the end of 2004.

Aeromexico's liquidity is solid relative to its peers, which provides a strong cushion against potential demand or fuel price shocks. The company had an unrestricted cash position of approximately US$125 million at June 30, 2004. This compares with on-balance sheet debt of US$120 million for the same period, comprising US$57 million of capital leases and US$63 million of bank loans, of which US$20 million are related to sales and leaseback transactions from fleet renewal. Refinancing needs over the next year are US$51 million. The company intends to repay US$20 million in short-term debt with proceeds from sale and leaseback transactions related to aircraft acquisition.

Aeromexico is a full service carrier and an operating subsidiary of Cintra, S.A. de C.V. (Cintra). Cintra, which is 88% owned by IPAB, a government institution, was formed in 1996 following the financial restructuring of Mexicana de Aviacion S.A. (Mexicana) and Aeromexico to consolidate the equity holdings of the two airlines. In the domestic passenger market, Aeromexico is the leader with a 38% market share, where it competes primarily with two other carries carriers. In international routes, Aeromexico has the second-largest market share, with 16% of the market after Mexicana. Aeromexico offers passenger service to 32 destinations within Mexico and 19 international destinations with a fleet of 70 aircraft. The company is a member of the SkyTeam alliance and maintains code-share agreements with several airlines including Delta Airlines, Continental Airlines, Air France, Alitalia, Northwest, and KLM.