Aerolineas Argentinas deal draws near

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Argentina's government and Spain's Grupo Marsans are on the brink of a deal to settle their differences over Aerolineas Argentinas. Officials from the Casa Rosada, the Buenos Aires office and residence of Argentine President Cristina Kirchner, say an announcement is imminent that will conclude the long-running battle over Argentina's nationalisation of Aerolineas.

Elements of this complex deal include Argentina's government taking over part of an Airbus order previously placed by Marsans, a payment to Marsans in exchange for dropping its legal challenge, and financing of the deal by a Spanish group.

Under this settlement, Argentina's government will take uncontested ownership and control of Aerolineas and its domestic airline Austral, assume $2 billion worth of a $7 billion aircraft order that Marsans holds with Airbus, and ensure under this partial assumption of the aircraft order that Airbus reimburses Marsans $150 million.

This amount represents what Marsans previously paid Airbus for this part of its order, and is in lieu of any other payment to Marsans for Aerolineas. Argentina's government has consistently maintained that Aerolineas has a negative value. 

In return for this $150 million reimbursement and its partial release from the Airbus order, Marsans will drop its claim over Argentina's nationalisation of Aerolineas. Marsans filed this claim with the World Bank's Center for International Adjustment of Investment Disputes immediately after the 17 December government decree expropriating Aerolineas.

The parties agreed in principle to these terms after a February visit to Madrid by President Kirchner, where she discussed this subject with Spain's Prime Minister José Luis Rodriguez Zapatero. The Spanish government has taken an interest in this dispute to ensure that Grupo Marsans is treated fairly.

Despite broad agreement, however, talks continued into March over the interrelated issues of exactly how much of the Airbus order Argentina's government would assume, and how it would finance its $2 billion part of this order. In the meantime, Aerolineas pilots began to complain that the pact would pay Marsans more than it deserved, and they would prefer to re-fleet with Boeing aircraft. Negotiations continued at the diplomatic level to persuade the Spanish government to intercede with Caixa, the Spanish financial group, to facilitate Argentina's credit for the deal, including necessary guarantees.

Announcement of the final package, according to Buenos Aires sources, is likely to confirm that Argentina's government will take over the Airbus order to the extent of 35 A320-family aircraft and Caixa will finance it.

As part of the same credit, Caixa is also expected to finance Argentina's purchase of 20 Embraer 170 regional jets. The Embraer order represents an offset from a second nationalisation by the Kirchner government - its takeover of the FMA aeronautical complex in Cordoba, which includes an Embraer plant. President Kirchner describes the FMA takeover as a need to "put together again the pieces of our dismantled [aviation industry]".

Other details of the Aerolineas-Marsans settlement will probably cover a new codeshare agreement between Aerolineas and Air Comet on flights between Buenos Aires and Madrid, plus flights behind and beyond both gateways, and an agreement on joint maintenance of the new aircraft that Aerolineas, Austral and Air Comet will acquire from Airbus. Deliveries of these aircraft are expected to start next year.

The Airbus order used in this settlement was initially placed by Grupo Marsans in October 2007 after what appeared at the time to be the end of a stand-off between Marsans, Argentina's government and the militant unions at Aerolineas over Marsans' commitment to the airline. Aircraft from this order were destined for Aerolineas, Austral, and Air Comet. But as rancor continued, especially with the airline unions, Marsans stopped paying wages and agreed last July to relinquish control of Aerolineas to the government.

Since then, the dispute has centred on what Argentina's government should pay Marsans for its 94% stake in Aerolineas and 97% stake in Austral. Marsans calls the settlement an "honourable and logical solution" to the dispute.