December 21, 2018 / 11:05 PM / 2 months ago

UPDATE 2-Mexico president says alternative airport plan to begin in January

(Adds Fitch downgrade, paragraph 11)

By Daina Beth Solomon

MEXICO CITY, Dec 21 (Reuters) - Mexican President Andres Manuel Lopez Obrador said on Friday that construction to convert a military airstrip into a commercial airport will begin in January, setting into motion a controversial plan to replace a partly built hub he is scrapping.

The previous government began building a $13 billion airport to replace the existing hub, but Lopez Obrador said on Oct. 29 he would scrap it on the basis of straw poll, arguing the project was tainted by corruption and too expensive.

Instead, he proposed expanding a military airfield in Santa Lucia 29 miles (47 km) north of the Benito Juarez International Airport in Mexico City, and running it at the same time as the existing airport, helping to relieve overcrowding.

Work on Santa Lucia would begin in January, and construction on a third runway there in March, Lopez Obrador said, after studies determine where best to lay it down. The president wants the armed forces to carry out construction.

“It includes, immediately, the construction of a new runway. It includes the construction of the terminal and a connecting road from the current airport to Santa Lucia, as the three big pieces of the whole project,” Lopez Obrador told a news conference.

He also said that a dispute over a buyback offer for bonds backing the new Mexico City airport had been resolved.

Earlier this month, Mexico offered to repurchase $1.8 billion of $6 billion worth of bonds issued for the project, but one investor group initially resisted the terms of the offer.

Gerardo Ferrando, director of Mexico City’s airport group, told a radio program that he had signed off on the payout for the buyback of $1.8 billion in bonds.

Ratings agency Moody’s changed the bond rating outlook to “stable” from “under review,” it said on Friday, citing lower leverage and improved financial metrics for the Mexico City Airport Trust that issued the bonds.

However, Fitch Ratings on Friday said it downgraded its rating outlook to “negative,” saying that cancelling the new Mexico City airport could reduce revenue while increasing costs at the current site.

Some business leaders argue that Santa Lucia’s distance from the capital will deter tourism and could complicate travel for connecting flights from Mexico City.

In addition, engineering experts have said Santa Lucia may not be able to operate at the same time as the current hub because of conflicting flight paths. The new government rejects this. (Reporting by Daina Solomon and Dave Graham; editing by Chizu Nomiyama and Grant McCool)

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