Mexicana says will cut flights in face of cash crisis

One of Mexico's largest airlines will start cutting flights this week as a crippling financial crisis worsens leaving it strapped for cash, the company said in a statement on Sunday.

Mexicana de Aviacion, one of the country's two major airlines, said pressure from creditors has forced it to gradually eliminate flights in the coming days and passengers who had already started a journey will be given priority.

"Events of last week considerably weakened the cash flow that supports our operations," the company said in a prepared statement.

Mexicana, saddled with mounting debts and high employee costs, filed for creditor protection with Mexican and U.S. authorities last week after it failed to get employees to accept further wage cuts.

On Wednesday, Mexicana suspended ticket sales, raising questions about whether it could stave off bankruptcy - and how long it can continue to operate.

In its statement, the company painted a picture of worsening cash problems as creditors have turned their backs and employee costs remain burdensome.

Without fresh revenue from new ticket sales the company would have to rely on other financing but said those options were scarce.

"Other sources of revenue have either dried up or are being retained by financial institutions following the company's recent decision to file bankruptcy proceedings," the company said.

The carrier's problems are expected to prove a boon for U.S. airlines also flying to popular beach destinations like Cancun and Acapulco such as American, Delta and Continental which have exposure in Mexico.

But Mexico airport operators such as OMA, GAP and Asur could be hurt if Mexicana halts operations, since they depend on Mexicana and rival carrier AeroMexico for a sizable portion of their revenue.

Mexicana is a unit of Grupo Mexicana, which also owns regional airlines Click and Link. It belongs to the Oneworld alliance, which also has American, British Airways and Lan among its members.

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