The rescue plan for Aerolineas Argentinas is in doubt.

SEPI, the Spanish holding company, was to present it to Argentina's government in late May, but initial efforts to win support for a rescue deal have already been scorned and the crisis at Aerolineas has deepened.

Aerolineas' liabilities total $850 million with assets of only $70 million. It expects to lose another $230 million this year. SEPI's plan calls for reducing the airline's 5,000 employees by 1,500, suspending all overseas routes except Miami, New York, Madrid, Rome (via Madrid) and the Caribbean, and franchising local airlines to fly domestic routes. It also asks for a $157 million capital injection from shareholders and their guarantee on remaining debts, a moratorium on tax debts, government limits on charters and foreign airlines, and relaxing rules on pilots and aircraft maintenance.

Unions took to Buenos Aires streets to protest in front of the Spanish embassy. Transport Secretary Jorge Kogan, explaining the plan to a congressional commission, warned: "Without a political solution, this airline is headed for bankruptcy. "Members of the commission were critical. Alberto Natale, commission head, denounced SEPI's plan as "the final failure of a bad privatisation". The only support could come from the government itself, but that looks unlikely, as the cabinet is divided. José Luis Machinea, minister for the economy, is most critical. "What SEPI requests is that we guarantee a gigantic reduction of personnel, guarantee them a monopoly, and that we absorb their debts to the State," he says.

Machinea prefers to forge ahead with an open skies deal with the USA, while infrastructure minister Nicolas Gallo favours protecting Aerolineas. The cabinet has appointed a five member commission, including Machinea and Gallo, to draw up an official response. The prevailing view in Argentina is that Spain should bail out Aerolineas on the grounds that this crisis stems from "10 years of bad management by Spanish officials and their partners, American Airlines".

Source: Airline Business