army business

Militarization seems to be a phenomenon that is here to stay. This government did not initiate it, but it seems to have taken it to another level. One of the big differences, as the wonderful study by México Unidos Contra la Delincuencia shows, is that under the current administration the Armed Forces have been entrusted with tasks that go far beyond public security.

Among them, it seems that the military will be great businessmen. At the beginning of this year, the president announced the creation of the company “Olmeca-Maya-Mexica”, dependent on Sedena, which will manage the Santa Lucía Airport, the Mayan Train and the new airports of Tulum and Palenque. As if that were not enough, last week through Guacamaya Leaks, various media reported that Sedena seeks to create and operate its own airline. In all these announcements, the president has emphasized that the profits from these big businesses will be used to finance military pensions.

This all sounds very nice, but it will not fix the problem, it will make it worse. If the military believe that these companies are going to be a business, someone is deceiving them. And worse still, if they think that these are going to guarantee their pensions, they are living in a world of fantasy.

Let’s start with the Mayan Train. Beyond the exorbitant cost of the investment, which so far amounts to almost 300 billion pesos, once completed, it is most likely that it will lose money by the truckload. The initially presented cost-benefit study is a joke. The assumptions of this were that the train had a captureable demand of 325 thousand passengers per day, which implied that more than 50% of international tourists will take it. And these figures were happy when the train arrived at the center of Mérida and Campeche and had a station inside the Cancun airport, all assumptions that are not true today.

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The case of the airline is even worse. There is a famous saying by British businessman Richard Branson that the fastest way to become a millionaire in the airline business is to start out as a billionaire. If there is a business that has destroyed long-term value for its shareholders in recent decades, it is aviation. It is tremendously complex, cyclical and vulnerable to fuel prices (here the subsidy does not apply).

Lastly, airports might seem like good business. In Mexico, the different private airport groups have generated large profits for their shareholders. But it is a business where the most valuable assets – the busy airports – subsidize the rest of the assets that on their own would operate at a loss but are necessary to capture network effects. The problem is that none of the airports that the army will keep seems to be very attractive, only Tulum, which will have to compete with Cancun, perhaps the most modern and efficient airport in Mexico.

These businesses will undoubtedly create opportunities to extract rents and will be a source of corruption – the person in charge of a Mayan Train station will be able to charge craft vendors on the outskirts – but they will not be profitable in the long term and they will certainly not be able to finance pensions. Furthermore, these “businesses” will have to be subsidized year after year and will only aggravate the problem since military pensions are not going anywhere. Regardless of what one thinks about the role of the Armed Forces in public security, these pensions are earned and are a commitment of the Mexican State.