David Knibb/SEATTLE

The restructuring plan for Aerolineas Argentinas is taking longer than expected, but details released so far by major shareholder, the Spanish holding company SEPI, are meeting a cool-to-hostile reception in Buenos Aires.

SEPI, which holds 60% of Aerolineas shares, is taking an extra 45 days to finish its plan. With help from Boston Consulting Group, it is forwarding parts of that plan to Argentina ahead of an expected completion by mid-May.

As predicted, SEPI is calling on all shareholders to follow its example and inject capital into the beleaguered airline, which some analysts say is already in "technical bankruptcy". Anticipating a need for drastic cost cuts, SEPI has also sketched out a controversial plan to offer franchises on many Aerolineas routes to other Argentine airlines.

Argentina's infrastructure minister Nicolás Gallo insists that if Buenos Aires decides to contribute anything, it will be no more than $12.5 million of the $250 million recapitalisation SEPI seeks. That corresponds to the government's 5% stake in Aerolineas.

Gallo argues that SEPI should pay proportionally more because it ran the airline or allowed American Airlines to run it when it accumulated its $800 million debts, while Argentina was only a passive investor. Gallo claims: "Spain should absorb the debt in which it has sunk Aerolíneas."

SEPI proposes that Aerolineas cancel the leases on two of its four Airbus A340s and concentrate on routes to Madrid, Rome, Miami and the transpolar route to New Zealand and Australia. SEPI proposes to franchise all other routes, including to New York, to Argentine airlines such as Southern Wind and AeroVip.

By franchising, SEPI proposes that Aerolineas retain 15% to 20% of the revenue on routes operated by these other airlines and they would keep the rest. It is not clear how long SEPI expects this arrangement to last, but it predicts it will take 10 years to clear all debts.

Aerolineas pilots are on the verge of revolt over the idea of farming routes out to other airlines. They have contacted the Inter-American Development Bank to seek funding to finance an employee buy-out similar to that of United Airlines. Their union calls SEPI's plan "recessive".

Source: Airline Business