Mexico's state-owned airline faces $841 million lawsuit in contract dispute

By Jonathan Stempel and Kylie Madry

NEW YORK, March 27 (Reuters) - Mexicana Airlines was sued on Wednesday for at least $841 million by a Texas company that accused Mexico's new state-run airline of several breaches of contract that undermined its ability to help the carrier get off the ground.

According to a complaint filed in Manhattan federal court, Mexico's government hired the plaintiff SAT Aero Holdings last year to provide an array of services to Mexicana, including obtaining aircraft and related insurance, and recruiting and training pilots and crew.

SAT said Mexicana reneged on its obligations almost from the start, including by not paying $5.5 million of aircraft lease deposits, refusing to sign documents, poaching its pilots and crews, and failing to obtain licenses needed to import planes to Mexico and operate them.

Mexicana's "material breaches and its unwillingness to work with SAT on solving the problems caused" left SAT "no choice" but to sue, the complaint said.

Mexico's defense ministry, which operates Mexicana, said it did not have any information about the case.

SAT, based in San Antonio, is seeking $838.5 million of damages representing the "full amount" of the contract, plus "out-of-pocket" costs that so far exceed $2.4 million.

Mexican President Andres Manuel Lopez Obrador last year launched Mexicana by reviving the brand of a bankrupt carrier.

The government has marketed Mexicana as a less-expensive alternative for travelers than the country's largest airlines like Aeromexico GRPAF.PK, with which Lopez Obrador has often clashed.

But Mexicana initially struggled to acquire aircraft, beginning operations with three Boeing BA.N planes from the military and two leased Embraer EMBR3.SA aircraft.

Lopez Obrador said this month that Mexicana would buy 20 aircraft by October.

SAT said it agreed with Mexicana that contract disputes could be addressed in New York courts under that state's law.

The case is SAT Aero Holdings Inc v Aerolinea del Estado Mexicano SA de CV, U.S. District Court, Southern District of New York, No. 24-02300.

(Reporting by Jonathan Stempel in New York and Kylie Madry in Mexico City; Additional reporting by Lizbeth Diaz in Mexico City; Editing by Jamie Freed)

((jon.stempel@thomsonreuters.com; +1 646 223 6317; Reuters Messaging: jon.stempel.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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