Mexico to halt construction of massive new airport

Following a controversial, four-day referendum, Mexican voters hastily elected to abandon a US $13.3 billion project that is currently underway to build a replacement airport for Mexico City International.

Instead of moving ahead with the new airport, voters favored an alternative option to supplement existing capacity at Mexico City International (MEX) by expanding commercial operations at Santa Lucía Airforce base (NLU), north of Mexico City. Plans call for the construction of a new terminal and two runways at NLU.

Although President-elect Andrés Manuel López Obrador touted the less ambitious proposal as a cheaper option that would save the government around $5 billion, it would make waste of all prior work on the new airport. The new airport project is already about one-third complete, meaning that cancellation of the project will incur an estimated $5 billion.

Additionally, many aviation experts question the ability of Obrador’s alternative solution to meet future Mexico’s future demand for air travel, not to mention air cargo. The new airport project is widely recognized as the best long-term solution to address the capacity constraints at Mexico City’s current airport by several agencies, including the Center for Advanced Aviation System Development, and the United Nations’ International Civil Aviation Organization. Last year, the city’s existing airport handled 44 million passengers, a number far beyond the airport’s theoretical capacity.

Although the existing airport could operate alongside Santa Lucía, the number of flights would be limited by airspace restrictions, both organizations said.

Besides challenges to physical operations, business leaders said that canceling the project midway sends a bad signal to investors about the government’s ability to respect contracts. This has been a sensitive issue since the delay of a high-speed train project awarded to a Chinese state-owned company in 2015.

“There is a question mark about doing business with the government and the seriousness of the contracts that are attached to projects,” Jorge Mariscal, emerging-markets chief investment officer, UBS Global Wealth Management said in an interview with the Wall Street Journal.

Mr. López Obrador said his government, which comes into power on Dec. 1, will guarantee contracts and investments and will address any claims from companies and investors. He said also that the $6 billion in bonds issued to finance the project are secured by airport taxes, and that there is enough money to back up those bonds.

The international community, however, seems unconvinced, as the peso fell on Monday to its weakest level since the July elections and the benchmark Iplayco Corporation Ltd. (IPC) stock also index fell 4.2 percent.