Aerolineas Argentinas approaches moment of truth

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Aerolineas Argentinas seems to be heading either for liquidation or a distress sale. SEPI, the Spanish holding company that owns 85% of the beleaguered carrier, wants to find a buyer swiftly. Failing that, SEPI warned it would abandon the airline. With no prospect for paying creditors, this would force the bankruptcy court that already has the airline under supervision to convert proceedings into a liquidation.

The rift between SEPI and the Aerolineas unions has deepened recently. All but one union reluctantly agreed in May to accept SEPI's reorganisation plan, but SEPI's insistence on agreement from all seven unions brought the stand-off to a head. SEPI has stopped paying all airline expenses, including salaries, and placed Aerolineas in bankruptcy for protection from creditors. Airline employees were told that SEPI was no longer willing to implement its reorganisation plan, even if the unions had a change of heart, and wants to find a buyer by mid-August.

While SEPI says seven potential suitors have emerged, only four have been named. None seems enthusiastic about taking over an airline that is a shadow of its former self, that is saddled with belligerent unions and is $950 million in debt. Argentina's peso crisis also makes this a poor time to buy Argentinean assets. Juan Carlos Pellegrini, president of Aerolineas 30 years ago, has several times met government officials to devise a plan that might attract Argentinean investors and save the airline.ÊSo far, none has emerged.

Eduardo Eurnekian, a prominent entrepreneur, says he wants to see Aerolineas back in local hands. He already has significant aviation ties as the principal in Airports Argentina 2000, which holds the concession for 32 national airports. Eurnekian also owns 30% of Southern Winds and recently bought control of LAPA, the country's number two airline. He has conferred with fellow investors about an Aerolineas bid, but has yet to make one.

Marsans, the Spanish group that owns Air Comet and its AirPlus subsidiaries, including AirPlus Argentina, is a third potential buyer. Marsans has met SEPI and is evaluating whether to bid, but has expressed strong reservations.

Peru's AeroContinente has started the bidding with an offer to buy SEPI's Aerolineas shares for $100 million. It asks for 10 years to pay that off and to retire Aerolineas' debts.

Because Aerolineas has negative equity, SEPI will probably accept the best offer it receives, rather than liquidate the airline and lose everything.