December 17, 2008 / 7:24 PM / 10 years ago

UPDATE 2-Argentine Congress backs airline expropriation

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By Lucas Bergman

BUENOS AIRES, Dec 17 (Reuters) - The Argentine Senate on Wednesday backed a government plan to expropriate Argentina’s biggest airline after months of negotiations with the carrier’s Spanish owners broke down.

Senators gave final congressional approval to seize Aerolineas Argentinas from Spanish travel group Marsans in a move that has undermined investor confidence in South America’s No. 2 economy.

The company has said it will challenge the decision in international arbitration.

The state takeover is the latest by Argentina’s center-left government to increase government control or local investor participation in companies tied to key economic sectors that were largely privatized during the 1990s.

“This is a joyous day,” said Ariel Basteiro, a congressman and former airline union leader as dozens of Aerolineas workers celebrated the vote’s outcome.

Marsans agreed in July to sell Aerolineas and its Austral unit to the government, but talks over the company’s value collapsed after audits determined widely disparate values for the company.

The government has accused Marsans of mismanaging the airline, a charge the company denies.

Aerolineas has been plagued by labor disputes and flight cancellations for months, and the government says it has run up debts of nearly $900 million.

Aerolineas and Austral employ some 9,000 workers and operate about 80 percent of domestic flights in Argentina. The Argentine affiliate of Chile’s LAN Airlines LAN.SN LFL.N has the other 20 percent.

DEBT SADDLED AIRLINE

Senators who voted against the expropriation said they supported the nationalization of the airline, but argued the government should not assume responsibility for its debt.

“The road the government has chosen is the worst and most expensive for Argentines,” said Sen. Maria Estenssoro of the opposition Civic Coalition party.

Sen. Marcelo Guinle of the ruling Peronist party said the takeover was the “only way to ensure the airline keeps flying.”

The government has spent around $300 million to keep Aerolineas running since July, according to local media, and a national appraisals court estimated the company’s liabilities at $832 million.

Two senators said during Wednesday’s debate that Aerolineas was losing 27 million pesos ($7.8 million) a month. That could imply a fiscal cost for Argentina in 2009, when government tax revenue is seen shrinking due to an economic slowdown and lower prices for its commodities exports, such as soy and corn.

With a global economic downturn deepening, airline traffic is forecast to decline worldwide.

“There are some industries that are so essential and strategic that ... economic concerns move to the back-burner,” said Patricio Hernandez, an analyst with the Banchile brokerage in Santiago, Chile.

Hernandez said the expropriation did not necessarily create a riskier business environment for Chile’s dominant airline LAN LAN.SN LFL.N, which also has affiliates in Ecuador and Peru.

“The risk is very limited. Argentina has very good prospects and interesting routes that LAN can take advantage of,” he added.

The government’s decision to seize the airlines, followed by a move to nationalize Argentina’s private pension funds last month, have heightened worries about property rights in the country, analysts say.

Aerolineas was on the verge of bankruptcy in 2001 when Marsans bought it from a group controlled by the Spanish government. Once a state-owned carrier, it was privatized in the early 1990s.

($1 = 3.465 pesos)

(Additional reporting by Hilary Burke)

Writing by Kevin Gray, editing by Dave Zimmerman, Bernard Orr)

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