SEPI Chief Placates Aerolineas Argentinas Rescue Plan Critics

World Airline News, July 7, 2000

Argentine Government and Unions Will Not Accept Job Losses

Pedro Ferreras, president of Aerolineas Argentinas' largest shareholder July 4 dropped plans to cut staff levels at the near bankrupt airline following weeks of government and union condemnation.

The head of Sociedad Estatal de Participaciones Industriales (SEPI), the Spanish government holding company, also retracted statements claiming that the airline's largest shareholder would allow the carrier to stumble into bankruptcy if demands in a June rescue package, including a substantial investment from other shareholders, were not met (WAN, June 16, 2000).

The moves follow weeks of political wrangling between Argentina's President Fernando de la Rua and ministers of Economy, Jose Luis Machinea, and Infrastructure, Nicholas Gallo and Spain's Vice President and Treasury Minister Rodrigo Short. The dispute has even drawn in Spain's King Juan Carlos I, who although lacking legislative power is revered for his diplomacy and political astuteness.

However, Ferreras' actions do not resolve Aerolineas' problems. The airline is still hemorrhaging cash, only staying afloat on a monthly handout of US$30 million from SEPI. Ferreras has yet to offer any new solutions to ending demands for employee cuts. SEPI predicted the reduction in staff, understood to be 1,500 from a total workforce of 6,000, would save the carrier US$30-US$45 million a year.

A source close to the proceedings told World Airline News that SEPI would withdraw from formal discussions until after the July 10 publication of union proposals for the reversal of Aerolineas' dismal history as a privately owned company.

The unions have played a significant role in the debate since SEPI announced its strategy to save Aerolineas, which included staff cuts. Public sector workers form a large part of the Argentine workforce, and about 1,000 formed a half-hour sit-in (or a strike depending on your political persuasion) July 5 in protest of SEPI's plans. "It is not worth the trouble to consider it," La Asociacion de Personal Aeronautico (APA) Secretary General Ariel Basteiro told La Nacion. Significantly, the main effect of the union action was a two hour delay of an Iberia Airlines flight-- SEPI was the major shareholder of Iberia during that airline's near bankruptcy in the early 1990s, and manufacturer of its revival, which involved large staff cuts.

The prospect of adding to Argentina's growing unemployment rates added to a request for US$650 million in new capital from airline shareholders (the state owns five percent) also brought waves of criticism from government officials.

But there is conflicting rhetoric coming from the Argentinean cabinet. Infrastructure Minister Gallo, the government minister directly involved in the airline, has repeatedly stated that the state is prepared to contribute to the survival of Aerolineas, although there is ambiguity as to whether this will be a cash injection or tax breaks. However, President de la Rua, and his newly appointed ambassador to Spain Ricardo Lafferriere (who this week broached the subject with King Juan during the ambassador's welcoming ceremony), have publicly stated that the future of the airline is solely Spain's responsibility, although this was softened later. And Treasury Minister Machinea, in a now common breach of cabinet collective responsibility, has openly said that he "would not give another dollar" to Aerolineas.

SEPI feels that the reaction to its rescue plan (explained further in the box) is a rejection of its generosity towards Aerolineas, said a source close to the government holding company. Figures released July 4 indicate that the Spanish government, first through Iberia and then SEPI, has invested US$1.2 billion in Aerolineas since 1991. Importantly, both governments thus week re- emphasized the importance of Spain's contribution to Argentina, at US$30,000 million a year (seven percent of gross domestic product) by far the largest foreign investor in the South American state. United States investment accounts for one percent of GDP.

Little is expected to be discussed until the end of July, when the Argentine government has had time to consider union proposals, said one insider. However, it is expected that SEPI will begin promoting other means of staff cuts, including early retirement (average staff age is about 47, according to airline statistics, although a spokesman said a large proportion are nearer the 65 retirement age -- 60 for pilots) and salary cuts for the bigger earners (of between six percent and 20 percent).

SEPI's Rescue Plan

Objectives

1. To avoid the closing of the company and to guarantee its future viability laying the foundations of competitiveness for a profitable growth.

2. To reinforce its leadership in the domestic market and the international destinies.

3. To improve the quality of the service to the client and to define a new design of routes.

4. To implant a new system of management that allows to gain competitiveness to each one of its areas of business.