Vuela II

Environmental & Social Review Summary

This Environmental and Social Review Summary is prepared and distributed in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board of Director’s decision. Board dates are estimates only.
Any documentation which is attached to this Environmental and Social Review Summary has been prepared by the project sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content.

Project number	27395
Country	Mexico
Sector	Transportation and Warehousing
Department	Infrastructure
Company name	Vuela Compania de Aviacion, S.A. de C.V.
Environmental category	B
Status	Dropped

Date ESRS disclosed	February 18, 2009

View Summary of Proposed Investment (SPI), click here

Overview

Category & Applicable Standards

Key Issues & Mitigation

Community Engagements

Client's Documentation

Overview of IFC's scope of review

A two day site visit took place in February 2009. During the site visit IFC’s Washington-based environmental specialist toured Concesionaria Vuela Compañia de Aviación S.A. de C.V’s (the “Company”) facilities at the Toluca International Airport. Additionally, the IFC environmental specialist held meetings at the Company’s Corporate Offices in Mexico City and reviewed relevant documentation with representatives from Maintenance and Engineering, Operation, Safety, Quality Assurance (QA), Human Resources (HR), including the personnel in-charged of managing all aspects associated with labor, corporate social responsibility (CSR), environmental, industrial occupational health and safety, as well as flight safety and security issues.

Project description

IFC is considering an additional investment of up to $15 million to support the growth and liquidity requirements of Concesionaria Vuela Compañía de Aviación S.A. de C.V., a Mexican low cost carrier branded as Volaris (the “Company” or “Volaris”). In 2006, IFC supported the start-up of Volaris with an unsecured $10 million loan as well as a revolving credit line of $30 million to finance pre-delivery payments for Airbus aircraft. Volaris has taken delivery of aircraft and inaugurated new routes sooner than expected and is now pursuing a revised five-year business plan, which anticipates the establishment of new domestic routes as well as the commencement of routes to the U.S. in mid 2009 under an alliance with Southwest Airlines (the “Project”).

Identified applicable performance standards

While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards:

PS1: Social and Environmental Assessment and Management Systems.
PS2: Labor and Working Conditions.
PS3: Pollution Prevention and Abatement.

The following Performance Standards have not been triggered:

PS4: Community Health, Safety and Security. Volaris operates in compliance with the Mexican Civil Aviation Authority’s (DGAC) requirements, as well as with all internationally accepted standards of flight safety and security as established by relevant U.S. Federal Aviation Administration (FAA) and International Civil Aviation Organization (ICAO) standards. This Project does not involve a specific safety or security risk to a particular community or group.

PS5: Land Acquisition and Involuntary Resettlement. The Project does not involve land acquisition nor the physical or economic displacement of people.

PS6: Biodiversity Conservation and Sustainable Natural Resource Management. The Project’s direct and indirect influence areas are not likely to impact any ecologically sensitive area or natural habitat.

PS7: Indigenous Peoples. The Project’s direct and indirect influence areas are not likely to impact indigenous peoples or territories.

PS8: Cultural Heritage. The Project’s direct and indirect influence areas are not likely to impact any site of cultural or historical importance.

Environmental and social categorization and rationale

Volaris is an existing IFC client with a good track record managing environmental, social, and occupational health and safety aspects. Based on a review of technical and environmental information and the Annual Monitoring Reports of the existing loan, Volaris operates in compliance with applicable host country laws and regulations and in accordance with industry standards; furthermore Volaris has plans and procedures to continue to adequately address environmental, social, and health and safety impacts and risks associated to its operations. Therefore, given that this Project involves existing impacts and risks of a currently operating airline, and that the potential incremental environmental, social, and health and safety impacts and risk associated with the Project can be avoided or mitigated by adhering to generally recognized performance standards, guidelines, and/or design criteria, this Project has been categorized as a B operation.

Key environmental and social issues and mitigation

PS1.- Social and Environmental Assessment and Management Systems:

- Environmental, Social and Health and Safety Impacts and Risks:

The main environmental, social, labor, and health and safety impacts and risks associated with this operation are those related to business continuity and any potential increases in accumulated operational impacts and risks associated with this investment.

The principal environmental, social, and health and safety impacts and risks associated with Volaris’ activities, are those generated by flight and ground operations of its aircraft fleet, including maintenance and training activities. These include:

- Flight operations safety and security;
- Maintenance-related hazardous materials, effluents, and waste management;
- Aircraft noise and emissions control (see PS3);
- Emergency preparedness and response (see PS3);
- Employee health and safety, including workplace exposure to chemicals (see PS2); and
- Labor / union related issues (see PS2).

Volaris does not have any underground fuel storage / liabilities, and it is not yet certified to handle dangerous cargo. All dangerous and hazardous goods are outsourced.

Volaris facilities are located at the Toluca International Airport in Mexico, in an area of approximately 4,100 m2. Of this area approximately 2,000 m2 are used for maintenance warehouse, engine storage, catering facilities, ramp office, and maintenance administrative offices; 1,500 m2 are used for uniform storage, on-board materials, brakes, wheels, and batteries shop; and 600 m2 used for technical and operations administrative offices.

- EHS Compliance and Management

The current environmental license includes a series of standard pollution prevention and control actions and measures associated with aircraft land operations and solid and hazardous waste management, among others, which are monitored by the Mexican environmental regulatory authority SEMARNAT.

Volaris operates in compliance with all applicable Mexican environmental, labor, and health and safety laws and regulations, as well as in compliance with DGAC requirements, and internationally accepted standards of flight safety and security as those established by the U.S. FAA and ICAO standards.

Even though, Volaris does not have an individual within the organization with responsibility and authority for all environmental, social, health and safety, and labor matters at the corporate level, these issues are dealt with by different groups within the organization.

For instance, the Human Resources Department named “Talent Management Department” has the overall responsibility for managing Occupational Health and Industrial Safety aspects of Volaris’ ground operations, and oversees the work accident prevention and industrial safety as well as all the training.

All other aspects associated with Operations, Maintenance and Engineering, Safety and Quality Assurance are managed by the Operations Department which has developed and assures application of the following plans and procedures:

- Quality Assurance Manual,
- Flight Safety Manual,
- Maintenance Procedures Manual,
- General Operations Manual,
- Flight Attendant Manual,
- Emergency Response Plan,
- Security Manual,
- Repair Station and Quality Control Manual, and
- Reliability Program Manual.

These procedures apply to Volaris operations and, as applicable, are also enforced with all contractors and suppliers. These manuals have plans and procedures that include: (a) teams and responsibilities, (b) training, (c) inspections and audits, (d) emergency prevention, preparedness and response (e.g. fire, spills), including evacuation drills, and (e) personal protection equipment use (PPE). Currently Volaris is working to achieve ISO 14001 certification of its environmental management system and procedures.

- Flight Operations Safety and Security

The Company has a written safety policy that demonstrates a high level of commitment in this area, and has developed a Flight Safety Manual (Manual de Seguridad de Vuelo, Cap 00.04.00). Volaris’ flight safety and accident prevention program complies with the DGAC’s requirements, as well as with relevant U.S. FAA and ICAO standards. Volaris obtained IOSA certification during August 2007. This program was recently revised by IOSA audit organization during October 2008, and no significant breaches or non-compliances were found. Recertification process takes place every two years. Crews and ground personnel receive extensive training in Flight Safety and Accident Prevention. Furthermore, all Volaris pilots undergo extensive training programs that meet or exceed FAA requirements. Required training is performed using simulators and flight instructors, and includes continuous and yearly recurrent Controlled Flight into Terrain and Approach and Landing Accident Reduction (CFIT-ALAR) and Crew Resource Management (CRM) and Flight Safety and Accident Prevention trainings, among others. Volaris does not practice non-essential or non-revenue generating flights for training or other activities.

As part of its safety program, Volaris maintains a Reports and Incidences Database that stores all accidents and incidents that occur during ground and flight operations. The data include information on bird strikes, aircraft on ground damage, and any type of incident or event that could compromise flight safety and aircraft integrity, such as air turn-backs, etc. When a serious event occurs, the flight safety department investigates the cause and recommends corrective actions to prevent re-occurrence, such as to revise pilot training programs, aircraft maintenance and the like.
Other safety program components are:

The Company holds monthly meeting of two ad-hoc committees with the CEO and COO, Safety and Quality Assurance, which discuss any incidents or non-conformities associated with operations, environmental, and health and safety, and establish the corrective actions required to avoid recurrence.

Accident Investigation.

Flight Operation Quality Assurance (FOQA), through continuous monitoring of the data generated by the aircraft in its fleet to evaluate deviations and appropriate follow-up procedures by the pilots with the intention of detecting any trends, and identifies and corrects any of the causes that may be originating such deviations.

Immunity of Voluntary Reports. This policy assures that the identity of any informer will remain confidential to avoid potential retaliation or sanctions from affected parties, with the intention of having quality information to help accident prevention.

Maintenance-Related Hazardous Materials, Effluents, and Waste Management

Aeroman performs both heavy airframe and line maintenance activities for Volaris, at its primary maintenance facility in the San Salvador International Airport, El Salvador. It uses water-based external agent cleaner for aircrafts and brakes. For wheels and brakes non-water based paints are used. Aeroman operations have received all applicable and relevant environmental approvals and permissions required by the Salvadorian Environmental Authority, CEPA. Aeroman has established written procedures for the proper handling, segregation, storage, and disposal of chemicals and hazardous materials and waste in their facilities – warehouse, hangar maintenance, line maintenance, and shops.

Volaris performs its routine maintenance and minor check activities at its facilities in the Toluca International Airport, which generate hazardous material such as oil and jet fuel residuals, sealants, and solvents. Currently Volaris is not certified to handle Dangerous Goods or HAZMAT; therefore, Volaris out-sources HAZMAT handling and disposal. Hazardous materials, such as paints, fuels, lubricants, solvents, hydraulic fluids, and other specialized chemical products, are classified according to their hazard characteristics, and appropriately stored in buildings and/or containers per recommendations from the respective manufacturer’s material safety data sheet (MSDS). Waste oils and used batteries are collected and temporarily stored in leak-proof barrels prior to recycling offsite via a licensed commercial contractor. Other wastes – empty containers, metal scrap, dirty rags – are appropriately disposed and/or recycled at government-licensed facilities in compliance with Mexican laws and requirements. Engine overhauling and APU repair is subcontracted with a Certified Repair Station.

During the last three years, there have been no incidents or accidents involving releases of contaminants to the environment from air or ground operations.

PS2.- Labor and Working Condition

Volaris Human Resources is divided in 3 areas: Personnel Administration, Labor Relations, and Personnel Development. Volaris HR Policies and procedures are based on Mexican labor regulation (Ley Federal del Trabajo) and define aspects of recruitment, working hours and overtime, holidays, sick and annual leave, wages and benefits, employees’ and employers’ responsibilities, disciplinary practices, promotion, and a grievance mechanism, among others. The latter is called Padre-Abuelo, and clearly outlines procedures and levels at which different work-related complaints can be submitted, provides space for confidentiality, and articulates a non-retaliation policy. Furthermore, these policies and procedures include (a) diversity and equal employment opportunities, stating non-discriminatory practices in terms of socio-cultural aspects such as gender, age, race, religion, etc, and (b) disclosure practice requiring that all contracts clearly state terms of employment and working conditions. Even though Volaris does not have a formal Code of Ethics, it has many procedures on work-related appropriate behavior, such as “Working Together Manual” and “Induction Manual” (Manual Trabajando Juntos y Manual de Inducción).

In 2009, Volaris was ranked as one of the Best Companies to Work in Mexico, by the Mexican Great Places to Work Institute. Volaris has a total of 1,413 employees (as of February 3, 2009); Volaris outsources certain services, such as call center, ground operating services, and other administrative functions. Of the Company’s entire work force, approximately 37 % is female and 63% is male.

All employees are free to unionize and have the right to collective bargaining. In fact, Volaris currently has a collective agreement with the Sindicato de Trabajadores de la Industria Aeronáuntica, that encompasses all of Volaris operational employees (pilots, cabin crew, mechanics and ground staff). This agreement includes collective contract bargaining for salary negotiation every year and for benefit negotiation every two years. The Company’s last bargaining was on February 15, 2009. These negotiations have taken place without any major conflict since Volaris’s founding three years ago.
Volaris complies with host country local labor laws, and requires any of its subcontractors to do the same. Also for crew members and operational personnel, Volaris complies with all the licenses, training, duty times, and rests periods required by the Aeronautical law.

Employee Health and Safety
Volaris has an active occupational health and safety program, which is managed by the HR department, and has developed and implemented General Operations Manual, General Mmaintenance Manual (FAA approved) and General Maintenance Manual and Shop Procedures (DGAC approved) that include (a) Safety Practices, (b) Safety Policy, (c) Flight Line Emergencies, (d) Reporting Accidents, Hazards, and Injuries, (e) Fire Procedures, (f) Overheated Brakes / Brake Fire Procedures, (g) Dangerous Goods Procedures, (h) Material Safety Data Sheet, and (i) Safety Procedures for Ramp Personnel. Other areas covered include: (j) Civil Protection Program, (k) Training by Red Cross in order to have fire brigade, evacuation brigade and first aid, (l) Vaccination campaign, and (m) Work program for health, security and environment, among others.

PS3.- Pollution Prevention & Abatement
Based on the Guidance Material and Best Practices for Fuel and Environmental Management from IATA, Volaris has detected areas of improvement and implemented programs to reduce it’s environmental footprint, including: (a) offering transportation to clients from Mexico City to Toluca’s International Airport in fuel-efficient shuttles contributing to less car usage and fuel emissions, (b) use of state-of-the–art technology for landings which reduce the amount of emissions released by avoiding diversions to alternate airports during foggy conditions, (c) avoiding circuitry by using routes closer to the “Great Circle” distance, thereby avoiding excess fuel burn, and (d) using an aircraft fleet with the highest and newest technology which allows the company to have the least fuel and pollution emissions possible, among others. Furthermore, the location of Volaris operational base in the Toluca’s International Airport is an excellent choice from the environmental stand point, as it is close to Mexico’s Business Zone, but does not add any additional pollution to Mexico City’s already polluted air-shed. For all these good environmental practices and initiatives, Volaris has received a certificate as a Green Aviation Partner by IATA.

Pollution Prevention and Control associated with flight activities:

Aircraft:
Volaris operate the following aircraft models:
19 Airbus Industrie A319-132 Engine Type V2524-A5
2 Airbus Industrie A320-233 Engine Type V2527E-A5

All Volaris aircraft are delivered by the manufacturer with Engine Type Certificate Data Sheet (TCDS), French DGAC Noise Type Certificate N-180, and Certificat de Limitation de Nuisances, which state compliance with noise and emission levels required by the International Civil Aviation Organization (ICAO) applicable to their year of manufacture. Furthermore, measurements have been taken and the noise levels fully comply with stage 3 level established by the ICAO and FAA regulation noise requirements for all A319 and A320 aircraft. Furthermore three Volaris aircraft are also certified to comply with CFR (FAR) part 36 Stage 4 or ICAO annex 16 Chapter 4 noise requirements.

Volaris fleet complies with the emission control guidelines and standards established by FAA and by the Mexican DGAC. All engines are technically supported by Airbus, and the Company has copies of ICAO Engine Exhaust Emissions Data Banks for each of its aircrafts.

Operations:
Noise: Volaris has not implemented modifications on aircraft operations to use descent profiles such as “continuous descent approach” or “low power/low drag” (LPLD) procedures to fly the aircraft in a “clean” condition to minimize noise; however, when available it does implement “decelerating descent approach” profile which result in similar noise minimization. Volaris approach/descent procedures are subject to specific airport terminal area approach procedures and facilities. Noise-sensitive areas are avoided through the use of noise-preferential routes during flight planning, and noise restrictions are respected in accordance with relevant AIP (Airport Information Publications) and applicable/valid NOTAMs.
Fuel Use Efficiency: Volaris performed IATA Fuel Efficiency Gap Analysis (FEGA), and as a result has implemented several techniques, policies, and procedures to optimize fuel savings and efficiency, and identify opportunities to save fuel, such as one-engine taxi-in, use of ground electrical supplies instead of APU, use of idle reverse landing, or the use of configure flaps 3 approach, when permitted by airport and weather conditions.

Volaris does use departure procedures that allow the aircraft to reduce power after reaching an altitude of 800 feet, gradually resuming full thrust after reaching 3,000 feet.

As a part of the fuel efficiency program, Volaris has GPU (Ground Power Unit) utilization program instead of using the APU (Auxiliary Power Unit)

Volaris does not perform any intentional releases of non-combusted fuel.
GHG – Climate Change: Volaris’ existing fleet annual fuel -Jet Fuel Kerosene (Jet A-1)- consumption for 2008 was 56,195,387 gallons and for 2009 it is estimated to be approximately 67,204,831 gallons. The climate footprint of the whole fleet for 2008 was 489,076 TCO2 and for 2009 it is estimated to be 584,892 TCO2.

Pollution Prevention and Control associated with ground activities:
Air Emissions: Even though Volaris maintenance facilities are not equipped with special ventilation systems, maintenance and shop work is performed in an open environment, under a hangar roof, with enough natural and mechanical ventilation to maintain the concentrations of pollutants in work areas at safe levels for employees and the environment. Since Volaris does not perform any heavy maintenance activities, no acid-emissions and/or cadmium containing dust is expected.
Noise: The engine run-up is conducted in an area designated previously by the airport, located at the end of the runway with the previous authorization of the airport authorities. Noise levels are monitored and the HR accident prevention and operational safety group assures that any operational personnel subjected to noise level above 80dB[A] use ear protection. Frequent audits are performed and the use of headsets is constantly verified.

Solid Waste and Wastewater: Once Volaris personnel has cleaned the aircrafts and associated facilities, all generated solid waste is provided to the municipal waste collection and disposal company, AMAIT (Administradora Mexiquense del Aeropuerto Internacional de Toluca), which collects all of the airport’s solid waste in special containers, and takes them to the waste plant located inside the airport facilities. Aircraft wastewater is dispatched to a special airport truck and is taken to a wastewater treatment plant at the airport. The plant reduces the wastewater toxicity and the treated water is used for other purposes.

Hazardous materials, such as paints, fuels, solvent, lubricants, hydraulic fluid and other specialized chemical products, are classified according to the hazards characteristics, and appropriately stored in containers per recommendation from their respective manufacturer’s material safety data sheets (MSDS), in accordance with Section 10 GMM.

Emergency Preparedness and Response
Volaris has an Emergency Response Manual which identifies all the different potential emergency situations, such as fires, explosions, terrorist attacks, among others. This manual includes specific procedures and outlines clear responsibilities associated with the different types of emergencies.

Volaris’ Emergency Preparedness and Response Plan has a General Emergency Coordinator which is responsible for organizing the emergency response, providing instructions, and making the link with all the different Emergency Brigade Chiefs allocated to each area. Furthermore, besides the general emergency brigades, there are four additional “functional” brigades: Fire Prevention and Response Brigade, Evacuation Brigade, First Aid Brigade, and Hazmat Brigade. Volaris performs evacuation drills once a year, and maintains permanent lines of communication and collaboration with the fire department, police, Civil Defense, and other security forces.

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