Sepi Set for Victory Over Aerolineas Argentinas

World Airline News, Oct 13, 2000

The Argentine government is on the brink of accepting Spanish proposals for the rejuvenation of Aerolineas Argentinas despite the likelihood of severe union reprisals, according to a senior government official.

The government's decision is understood to be on hold until after a reshuffle of departments is finalized. The reshuffle follows the dissolution of the Ministry of Infrastructure, which came after the unexpected resignation of its minister Nicholas Gallo -- a vocal supporter of a union proposal to save the near bankrupt airline -- Oct. 6 only hours before he was to leave for Spain to discuss the future of Aerolineas. It is not known if this will be completed by the rescheduled shareholders meeting on Oct. 15.

"There is little chance now that any proposal other than that from Sociedad Estatal de Participaciones Industriales (Sepi)will be accepted as valid," the source told World Airline News. Gallo's departure coincided with the presentation of a new union plan which proposed the buyout of Sepi's holding, only a partial recognition of the airline's near US$1 billion accumulated debt since privatization in 1990, and a partnership with a strategic partner. Delta Air Lines [DAL] was named as a candidate. Under this plan Sepi, which has ploughed US$30 million a month into Aerolineas to maintain operations, would walk away with US$500 million.

"The union proposals are a vain attempt to reverse the inevitable," said the source. "None have any real potential to work. They are only based on a wish to retain the current workforce." Sepi's plan recommends a reduction in staff levels from 6,500 to 5,000.

Union unrest has become a key factor in the Argentinian government stance. The source told WAN that the country's currently piecemeal privatization program is to be accelerated, and that confronting the state's costly support of unprofitable industries is to be addressed. The expected creation of a Works and Transport Ministry indicates how serious the government is.

Government officials appear to have accepted this inevitability. "Nothing is definite yet, but it would not be surprising to see the government back Sepi's plan," Jose Amiune, Argentina's International Affairs Coordinator of Transport told WAN.

However, this new confidence in Sepi is understood to have thwarted the Spanish government holding company's desire to offload Aerolineas. Spanish insiders have repeatedly told WAN that the airline is considered a liability within the company, and that only total compliance with its plan would entice Sepi to continue. This is somewhat tempered however by the Spanish Treasury's wish to maintain good relations with Argentina, a country in which it invests US$300 billion annually. The failure of Aerolineas would mark future investments.

And total compliance is what Sepi has. Other shareholders have diluted their holdings since Sepi began supporting Aerolineas in June (WAN, June 16, 2000) -- American Airlines [AMR], once a potential owner has even yielded board representation -- and the Argentine government has relaxed its stance on withhold funding to save the airline by agreeing to invest US$50 million, in line with Sepi's proposal.