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The Mexican government said on Tuesday it was close to accepting a USD$206 million bid by Citigroup and its partners for Aeromexico, but a rival group promised a new offer in a heated bidding war for the money-losing airline.

Mexico's Saba family and Citigroup raised their rival offers for Aeromexico earlier in the day, with the top bid coming from Citigroup at 2.2508 pesos per share.

The Saba family promised to raise its bid on Wednesday after offering 1.90 pesos per share, or USD$174 million for Aeromexico, the country's largest carrier.

«It's not over 'til it's over. The last minute has 60 seconds,» Antonio Franck, the Sabas' lawyer, told reporters.

Alternatively, Citigroup is offering USD$171 million in cash or 1.8686 pesos per share, plus warrants reflecting the future value of Aeromexico -- essentially a bet on whether the US bank and its Mexican partners can make the airline profitable.

The Mexican government said it would accept the Citigroup bid unless a better offer came in by Wednesday afternoon.

The government owns 62 percent of Aeromexico and its holding company, Consorcio Aeromexico, while the rest of the company is listed on the Mexican stock exchange.

An effort to sell the airline in 2005 failed to attract a suitable offer.

The government said in a statement that its goal was to win the highest price possible for the airline, which lost USD$63 million in the second quarter, in the shortest time.

Mexico's airline industry has taken off in recent years as low-cost airlines such as Interjet and Volaris offer flights at prices almost as low as bus fares.

Despite the market's growth, Aeromexico, which has continued to charge traditional prices, has lost ground.

Citigroup and its partners have promised to invest USD$240 million in Aeromexico to turn it around should their offer be accepted. The Saba family has also said it would invest heavily to improve the airline.

The Sabas started the bidding to buy 100 percent of Aeromexico in August with a USD$99 million offer.

Citigroup and its partners recently bid USD$160 million for Aeromexico, as well as warrants reflecting the carrier's potential higher value within three years of the acquisition, when Citigroup would re-list a small part of the airline on the stock market.

Aeromexico and Mexicana, the country's two main airlines, were brought under government control after they went bankrupt in the mid-1990s.

Early efforts to privatize the airlines were killed off by the industry-wide crisis that followed the September 11, 2001, attacks in the United States.

Mexicana was finally sold to Mexican hotelier Posadas.

(Reuters)