New Airport in Mexico City: The First Big Test for Lopez Obrador

Mexico's president elect has long been a foe of a new airport project, citing insider deals and political corruption.

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If the Mexican people reject Mexico City’s new airport in a referendum, AMLO will have a political and economic mess on his hands (EFE).

This week, from October 25 to 28, a national referendum will be held to determine whether or not to continue with construction of the airport project, that is partially built in Mexico City. It is shaping up as the first big test for president-elect Andrés Manuel López Obrador (AMLO).

Before the referendum, different sectors of the industry have publicized their views on the future of the New Mexico International Airport (NAIM) and to explain the impact of the project’s potential cancellation for Mexico.

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US Airlines, the Trade Union Association of Aviator Pilots of Mexico, and Citibanamex have tried to warn that the cancellation of the NAIM would mean depriving Mexico City of its only viable option to expand airport capacity.

Likewise, industry sectors pointed out that the cancellation of the airport would have a high cost, since the project is already an estimated 32% completed, and would entail dramatic consequences both for the capital already invested, and the funds which have been raised up to this point.

According to the newspaper El Financiero, canceling the project could require paying in advance the current debt that is composed of bonds, bank loans, and an additional cancellation penalty of 30%. In addition, the government would be on the hook for USD $10.4 billion, which would be equivalent to 0.88% of the country’s GDP.

However, this is not the only concern, since the referendum and the decision made by the government is a good indicator of how the next administration will work.

“If it is canceled there is a significant political cost to the markets and investors,” said Carlos Petersen, an analyst at Eurasia Group.

Public decisions would be subject to populist whims

Citibanamex explained that the way in which the decision is being made with regard to the airport work in the municipality of Texoco, some 25 kilometers north of Mexico City, generates uncertainty about how the AMLO administration would make decisions about private investment in the future.

“It would intensify the perception in the markets that the AMLO administration will make public decisions in a discretionary and populist way: private investment would face a more uncertain economic and legal environment in the future. Finally, the financial variables would be impacted,” the bank argued.

Likewise, Citibanamex warned that if the NAIM cancellation were to materialize, it would have to downgrade its macroeconomic perspective for Mexico; however, it noted that, after potential approval of the referendum, AMLO will announce that the popular majority decided to continue with the project.

“This would mean that AMLO is persuaded of the economic rationality of this option and/or that he is aware of the growing economic, financial, and political costs of suspending it.”

It is necessary to note that the public referendum that will take place this week is not legally binding, so the decision falls on López Obrador, who has assured that he will respect the result, which will be announced on Sunday, October 28.

The exercise is unprecedented in Mexico, since it will be carried out in more than 500 cities with a face-to-face survey, which represents more than 80% of the national population.

“If AMLO announces that the NAIM will be canceled as a result of the referendum, the story gets complicated,” writes Citibanamex.

Architect Norman Foster has received positive reviews for the airport’s bold and innovative design, but the USD $14 billion price tag has earned it critics, including AMLO, who has repeatedly disparaged the project.

What is certain is that Mexico City’s current Benito Juarez International is stretched to its breaking point…handling nearly 50% more annual passenger traffic than it was designed for: last year 46 million passengers passed through a space designed to accommodate 32 million. The new airport, with its striking X-shaped design, would be the largest airport in the Americas, and the third largest in the world, exceeding the size of even Chicago’s O’Hare and Atlanta’s Jackson-Hartfield.

AMLO has cited sweetheart insider deals and corruption as his main objections to the airport, and has proposed a less expensive option by augmenting the city’s capacity: maintaining Benito Juarez as is, while expanding the former Santa Lucía Airforce Base into another airport to supplement the city’s mainstay.

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