New Flight Plan For a Privatized Mexican Carrier : Airlines: Investors are putting up $3 billion so Mexicana can compete. Workers chip in too.

When Patricia Arreola became a flight attendant for government-owned Mexicana Airlines four years ago, her parents reluctantly resigned themselves to her odd hours and frequent absences from home.

But the past year has strained their tolerance. Since the Mexican government turned control of the airline’s parent company over to private investors, Arreola said, her parents “have thrown me out of the house three times because they say I’m never there.”

Like the rest of Mexicana’s 1,100 flight attendants, the 24-year-old Arreola spends 25% more time working than she used to. That’s to fill in for the 250 flight attendants laid off 12 months ago, when their union granted cost-cutting concessions to the airline’s new managers. Mexicana’s other two unions--representing pilots and ground crew members--also granted contract concessions soon after the airline’s new administration took control.

The employees are putting in longer hours, and an investor group is putting up money, planning to invest $3 billion in Mexicana over the next decade.

The amount of work and money that will be needed to make Mexicana a profitable, competitive airline after eight years of government control exemplifies the challenges facing the 800 government-owned companies--from sugar mills to hotels--that the Mexican government has turned over to private hands since 1983.

Businesses that existed on subsidies, price controls and a protected domestic market must now find their place in a new era of free enterprise and international competition.

In Mexicana’s case, competition has meant an “open skies” policy that has given competitors--from international charter companies to regional carriers--a slice of the pie that Mexican regulators once divided between the two government-owned airlines, Mexicana and Aeromexico. Aeromexico, itself recently privatized, has become another unexpected source of competition.

“Before, on flights within the country, there was no competition because Aeromexico was terrible,” a Mexican travel agent said. “Now, Aeromexico’s service is excellent.”

However, Aeromexico is experiencing privatization pains of its own. A long-anticipated stock offering has yet to materialize, the general director resigned last month and company Chairman Gerardo de Prevoisin has had to deny repeated rumors of squabbling among investors.

Subsidies for Aeromexico and Mexicana have stopped. The cost of gates, rentals and other services at government-owned airports nearly tripled last year in anticipation of privatization.

Only price controls have continued. The government has approved fare increases on domestic flights: 25% in March and 6% more this month. However, the cost of services and fuel that Mexicana buys at foreign destinations rises every day as the peso continues its gradual devaluation and as fuel prices rise in the wake of Iraq’s Aug. 2 invasion of Kuwait.

Recognizing how formidable the task of reviving Mexicana would be, the government did not actually sell the 69-year-old airline. Instead, in a complex transaction, it turned control over to private investors, who put up $140 million in working capital and presented a plan for raising the rest of the $3 billion.

The investors--including Chase Manhattan Bank, British financier Sir James Goldsmith, Drexel Burnham Lambert’s Americas Fund, Mexican hoteliers Pablo and Israel Brener and impresario Carlos Abedrop--have options to buy out the government over the next three years at about $2 a share, well above the current market price of about $1. (About half the company’s stock is traded on the Mexican Stock Exchange).

The government, facing more critical problems, such as health care and education, had no money to invest in the airline in the eight years after it bought Mexicana from former Chairman Crescencio Ballesteros. But officials have insisted that the new private investors make up for the neglect.

Most of the money will go for expanding and modernizing the airline’s 48-jet fleet, adding to the list of 28 Mexican and 16 foreign cities the airline serves, computerizing and diversifying into other travel and aeronautical businesses.

“Mexicana was a giant that had spent years taking a siesta,” said Guillermo Martinez Garcia, the general director brought in by the new managers. “What we’re doing is waking up the giant.”

The awakening has meant developing a strategic plan that will allow the airline to become more cost-competitive while dealing with its most immediate needs: buying and renovating equipment and boosting the morale of its 12,500 employees.

A year after Mexicana was pushed out of the government nest, the airline is still flying. But it isn’t soaring. Losses for the first six months of the year were $3 million on revenue of $427 million. That compares to an $11-million profit on revenue of $757 million in all of 1989, a year when rival Aeromexico was grounded eight months by bankruptcy proceedings.

Mexicana still dominates the Mexican market, carrying 8 million passengers a year, including nearly two-thirds of Mexico’s domestic passengers and more than a third of its international visitors.

“They are sure trying to improve,” said the travel agent, who requested anonymity. “Those of us who call the reservations number 10 times a day have noticed more courtesy and that the reservations agents know more. And what they don’t know, they go ask.”

Martinez Garcia, who describes himself as a turnaround expert, said: “We are a lot different than we were in January. By next January, I expect us to be at an acceptable level.”

An acceptable level for Martinez Garcia means all equipment in good order, high employee enthusiasm, an effective marketing program in place and the company’s strategic diversification plan under way.

When he arrived at Mexicana, he recalled, “there were a lot of people--too many--very demoralized and with little interest in giving service to the passenger. The land support equipment--forklifts, ladders, power plants--was in bad shape. The offices, warehouses and repair shops, neglected also.”

However, he added, “the airplanes were in excellent condition. I suppose that someone decided, and rightly so, that if there was not enough money for everything, what money there was should be concentrated on the basics: the airplanes, which should be safe.”

Longtime Mexicana employees agreed.

“For a while, we were short on money to buy the latest equipment, but Mexicana has never skimped even a cent on maintenance,” Manuel Herrera Rodriguez, planning and training manager, said during an interview. He proudly showed certificates from the U.S. Federal Aviation Administration and the corresponding Mexican agency indicating that the airline’s main repair station had passed biannual and annual inspections.

Maintenance was one of the first areas computerized when the airline bought $17 million worth of Unisys computer systems.

The average time for a routine servicing of an airliner (the aviation version of a car’s 30,000-mile checkup) has dropped to 12 days from 15--with half as many technicians doing the work.

Improved maintenance has been a major factor in mending Mexicana’s once-notorious reputation for tardiness. “It used to be that if you flew Mexicana, you were almost assured of arriving late,” said a stock analyst who travels frequently. By May, 90% of Mexicana’s flights were arriving on time.

Then there are the new European-made Airbus planes ordered to replace Mexicana’s 42 Boeing 727s. With an average age of 11 years, the 727 fleet is among the youngest in Latin America, but Mexicana’s managers believed that they would be shut out of lucrative U.S. markets unless they got quieter planes. The first of the European jets will arrive next year.

The airline’s workers have been as much of a concern as its equipment.

First, there were the employees’ expectations. Before the government took control is 1982, salaries and fringe benefits were generous.

“When the company became government-owned, there was a series of cutbacks in some of our fringe benefits, such as automobiles and bonuses,” said Carlos Larios, general secretary of the flight attendants’ union.

Based on that experience, employees had expected raises and improved benefits when the company went back to private control.

Instead, Mexicana’s new officials asked for more sacrifices, including laying off 500 employees, with more reductions anticipated as the company automates. “There is a lot that is done with pencil and paper that could be done more quickly and accurately on the computer and with fewer people,” Martinez Garcia said.

Employees are also working harder, he acknowledged.

One example of the heavier workload is that the number of flight attendants on the company’s 727s was trimmed to three from four and the number of hours each attendant spends in the air was raised 10%, to a range of 75 to 80 a month.

That is about the same as for U.S. airlines, said a spokeswoman for the International Federation of Flight Attendants, which represents TWA flight attendants. However, she added, “that’s a lot.” She noted that for every hour a flight attendant is in the air, he or she often spends two hours on the ground in layovers and flight preparation.

At the same time, Martinez Garcia has made service a priority. But flight attendants say they are too tired and too understaffed to provide the level of service they would like to offer.

Despite the sacrifices, the airline’s relations with its unions have remained cordial. Contract deadlines are Oct. 31, none of the unions has asked for an authorization to strike, as Mexican unions normally do when they begin negotiations.

“We believe that, as adults, in a new era, we can sit down and talk calmly and come to an agreement,” Larios said.

Martinez Garcia has tried to balance the sacrifices with management techniques that make employees feel part of the team. In January, the airline began a $500,000 remodeling of its airport offices, including employee lounges, dining rooms and locker areas. Employee magazines and newspapers have been expanded, and Martinez Garcia is holding a monthly breakfast for employees from different departments so they can talk to him directly.

“They listen to our opinions,” said Jorge Javier Macedo, who at 32 has been a Mexicana flight attendant for eight years. Pilots especially have noticed the change in attitude, said Homero Flores Gonzalez, general secretary of the Mexican pilots’ union.

“They give the pilots’ comments top priority,” he said. “They have even occasionally asked for our opinions, something that never happened before.”

Still, Flores Gonzalez characterized the relationship with the new managers as just off to a good start.

Pilots want a career path that will lead to the executive suite, he said. Although pilots are in charge of the company’s technical and safety operations, they want more opportunities to reach top levels at the company.

“Right now, the new administration is understandably more concerned about administration, more concerned about marketing, more concerned about operations,” Flores Gonzalez said. “But the time must come when they provide a path for pilots to participate in the top levels of the company.”

For the moment, managers are concentrating on aggressive, creative marketing and diversification.

Mexicana has gone after passengers at both ends of the economic scale. A business class costing about one-third more than regular fare was initiated this summer on the Monterrey-Mexico City route. If that program is successful, business class may be offered on other routes, Martinez Garcia said.

For economy-minded travelers, Mexicana offers prepaid package trips, with hotel and land transportation included, at a price barely above wholesale.

The company has sold 8,000 packages since it began offering them in late July. As a result, during August, Mexicana flights to resorts were booked solid, with few no-shows, while seats generally were available on rival Aeromexico.

Diversification has started with the purchase of Turborreactores, an airplane turbine repair company north of Mexico City, and of two regional airlines that will serve as feeders to Mexicana.

“We have started from the basis that what is important is not a beautiful facade,” Martinez Garcia said. “What we want is a solid foundation on which to construct a new building.”

That analogy, at least, has made its way to the union leaders. “Right now,” said Larios, “it is like a tower that is going to be 40 stories high, but all that is done is the foundation. It seems as if it will be beautiful, but we cannot see it yet.”