UPDATE 2-Marsans to sell Aerolineas to Argentina-source

Mon Jul 14, 2008 11:52am EDT

(Adds transport secretary's comments, background, byline)

By Cesar Illiano

BUENOS AIRES, July 14 (Reuters) - Spanish travel group Marsans has agreed to sell troubled Argentine airline Aerolineas Argentinas to the government of the South American country, a source close to the negotiations said on Monday.

Aerolineas is under pressure from trade unions and the center-left administration of President Cristina Fernandez, which asked a judge last week to appoint an administrator at the airline to guarantee flights and the payment of overdue wages.

Aerolineas, the country's biggest airline, has been plagued by strikes, complaints about poor service and it faces mounting debt under state-controlled fares despite subsidized jet fuel.

"Marsans is negotiating a negotiated exit from Aerolineas Argentinas with the Argentine government," said the source, who asked not to be identified, adding that a deal could be reached on Monday, or in the coming days.

Argentine daily La Nacion said Marsans had agreed to sell its 95 percent stake, but the price and the size of the airline's debt still needed to be agreed upon.

The government says the airline has a debt of $890 million, including long-term debt and airplane leasing commitments, as well as $240 million in short-term debt.

Transport Secretary Ricardo Jaime said the state would have to act to guarantee air travel in Latin America's third-largest economy.

DELAYS

Dozens of passengers booked with the flag carrier faced delays on Monday due to cancellations, a scene that has become increasingly common in recent months.

"On Friday, we talked to company authorities who have come here to look for a solution to this crisis ... We're going to take the legal channel and if they're not willing to make the necessary investments, they should tell us what they want to do from now onward," Jaime told local radio.

A judge was due to decide on Tuesday whether to appoint an administrator to assume operations of the airline.

Earlier this year, Marsans reached a preliminary agreement to cut its stake in Aerolineas to 35 percent, including selling sizable shares to the government and an Argentine businessman. The state currently holds 5 percent.

However, the deal did not advance.

Analysts say the government's moves on Aerolineas could signal another step toward what Argentine media dub the "Argentinization" of prominent public service companies.

In the past, foreign companies such as Brazil's Petrobras (PBR.N), Spain's Repsol (REP.MC) and France's Electricite de France, have sold their stakes in Argentine companies to business leaders seen as close to President Fernandez and her husband and predecessor, Nestor Kirchner.

During his administration, Kirchner nationalized the postal system, the country's largest water and sewage company, a train company and the administration of the airwaves.

Privately owned Marsans bought Aerolineas in 2001 when the company was bankrupt. Aerolineas has 80 percent of the domestic flights in the country, and its main competitor is Chile's LAN Airlines LAN.SN (LFL.N). (With additional reporting by Clara Vilar in Madrid; Writing by Helen Popper; Editing by Fiona Ortiz and Maureen Bavdek)

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