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Argentina to buy back floundering state airline

Jul 20, 2008

Argentina is expected to seal a deal on Monday to renationalise Aerolineas Argentinas, its floundering flag carrier, whose Spanish owner, Marsans, has struggled to cope with soaring fuel bills and debts that have left more than half its fleet grounded.

The airline has spent nearly two decades under Spanish ownership. But the government and Marsans agreed on the sale last week, and it is expected to be finalised on Monday by Julio De Vido, the planning minister, and the outgoing owners.

The government will also send a bill to congress on Monday seeking approval for the buy-back.

Financial details are to be hammered out during a 60-day transition period, during which the carrier will be run by Julio Alak, formerly a representative for the state, which previously held 5 per cent.

Argentina sold Aerolineas to Iberia, the Spanish flag carrier, in 1991, and Marsans took over in 2001. However, unions and the government complain that financial promises were not kept.

By the end of May, the airline‚Äôs debt stood at $890m (‚ā¨561m, ¬£445m), and Cristina Fern√°ndez, Argentina‚Äôs president, has grumbled about the ‚Äúdeterioration of a service that has stopped providing a service‚ÄĚ. Marsans has not commented.

Jorge Pérez Tamayo, president of the Argentine pilots’ union, says Aerolineas is losing up to $1.5m a day. It is also, he says, $60m in arrears on fuel payments, while 60 per cent of its 57 airliners are grounded for lack of parts.

The result is that industry experts say Argentina will face a tough battle in turning round the state carrier‚Äôs fortunes. ‚ÄúIt‚Äôs going to be a lot more expensive than they think,‚ÄĚ said the president of another airline operating in the region.

Despite two recent 18 per cent fare rises, rising jet fuel costs, together with government pressure to keep prices down and unprofitable routes operating, have eroded the airline’s margins.

Mr P√©rez Tamayo estimated that the airline would need $150m immediately for maintenance and spare parts. ‚ÄúThat‚Äôs without the $890m debt, plus salaries and fuel,‚ÄĚ he said.

Aerolineas will become the seventh company to return to the state stable under the stewardship of Ms Fernández and her influential husband and presidential predecessor, Néstor Kirchner.

The procession of re-nationalisations has opened the government to criticism that it is not doing enough to find other private-sector buyers for ailing businesses. Dante Sica, a former industry secretary, said: ‚ÄúThe government should be opening the market much more to allow in more players. There‚Äôs no guarantee that, in state hands, things will go better.‚ÄĚ

Argentina to buy back floundering state airline

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