The problems at Aerolineas Argentinas are not over. Its Spanish managers are being forced to fund a bigger share of its $650 million recapitalisation, new rivals are coming, and Argentina's precarious economy offers scant hope of a boost.

Iberia has joined American Airlines in opting out of the recapitalisation agreed last October. Both carriers own 8.5% of Aerolineas' shares, but both have refused to assist with its rescue. SEPI, the Spanish holding company which manages the company, will probably pick up the difference, but that will dilute the Iberia and American shares down to 0.3% each and raise SEPI's control to 85%.

The Argentine Government has committed to contribute an amount equivalent to its 5% ownership, but it is still unclear if the airline's employees will inject the $65 million that corresponds to their 10% stake.

SEPI still hopes to restructure at least the most burdensome parts of the $875 million in Aerolineas debts. Argentina's privatised airports threatened recently to lock out the airline over unpaid airport fees. Rumours also persist that Aerolineas is attempting to negotiate an escape from its order for eight more Airbus A340s.

Buenos Aires, under pressure from Washington, has also agreed to increase frequencies between the USA and Argentina, even though the open skies bilateral signed over a year ago remains unratified by Argentina. The ink was barely dry on this new pact before the US Department of Transportation designated Delta Air Lines to launch daily Atlanta-Buenos Aires services in April, to be followed by Continental Airlines daily flights in December from Newark.

Thus, by year's end, Aerolineas will face competition from all four of the US carriers who serve Latin America. This new accord grants Argentina the same increase in frequencies as the North Americans. Aerolineas could face new competition from the north and from local rivals. The exclusivity on foreign routes it enjoyed for 10 years after privatisation expired last November. LAPA, Southern Winds and AirPlus all want US routes.

Source: Airline Business