Mexico to cancel new airport under construction: Update

Updates status of construction.

Mexico's incoming government will cancel construction of the Mexico City airport following an informal public referendum in favor of instead building two runways at the Santa Lucia military base, president-elect Andres Manuel Lopez Obrador said today.

"Our decision is to obey the people's mandate," said Lopez Obrador during a press conference.

An informal four-day public consultation, in which 1pc of the population voted, returned a 70pc vote yesterday in favor of cancelling the new airport under construction in Texcoco. The new option includes the two new runways in the former Santa Lucia military airport to the north of the city and improving the current airport and Toluca airport located in Mexico State.

When completed, the new airport in Texcoco would have been one of the biggest, more modern airports in the world with a 100mn/yr passenger capacity.

Contracts totaling Ps170bn ($8.5bn) have so far been awarded and works are currently 32pc complete, according to the majority state-owned Mexico City airport group (GACM). According to the team of Lopez Obrador, also known as AMLO, the current airport is 20pc complete and required Ps285bn ($14.3bn), of which close to Ps60bn have been invested.

GACM said today that work on the new airport will continue as usual until 30 November, unless they are otherwise advised.

The new projects to substitute the construction of the new airport will be ready in three years and will cost Ps70bn, an amount funded by existing airport taxes, Lopez Obrador said. That includes a new passenger train to Toluca and a special lane from the current airport, Benito Juarez, to the military base in Santa Lucia, as well as the two new airstrips.

Contracts with national and international contractors will be respected, Lopez Obrador said.

"If companies and businessmen want to present complaints or suits they are fully entitled to that," he said. "I think it is an exaggeration that companies will go to international courts, but they can."

Despite Lopez Obrador's assurances, legally there is no clarity on how the cancellation of the contracts will be handled.

International investors have been watching the development of this decision process as it might give several clues on how AMLO's administration will behave. The incoming administration takes power on 1 December.

"Given the large investment commitments that have already been sunk into Texcoco, abandoning this project at this stage would not only be extremely costly, it would also put all future investment at risk more generally," Swiss banking group UBS said.

Mexico's business chamber (CCE) has said cancelling the construction and building the two new strips in Santa Lucia has a Ps120bn ($6bn) cost.

Yet Lopez Obrador said that "the federal government will save — with this smart, wise decision — close to Ps100bn ($50bn)."

While aviation safety experts from MITRE, a US non-profit that advises the US government on airspace development, advised the current Mexican administration that simultaneous operations between the existing airport and Santa Lucia were not viable, AMLO said today that they are.

"The French government supports our decision," he said, without providing further details.

The peso rapidly depreciated against the dollar following the announcement, crossing the Ps20/$1 mark at 12pm ET, a level not seen since the election of US president Donald Trump. Lopez Obrador ruled out a link between the depreciation and the airport decision.

Juan Pablo Castanon, president of the CCE, said he regrets the decision as well as the form in which it was done.

"This was a consult done outside of the legal framework, clearly not representative," he said. "Many polls done by serious groups favored the Texcoco option. The major cost will be in investors' confidence."

The Mexican jet fuel industry is in the midst of a liberalization by opening the market to non-government suppliers.