The feud between Lloyd Aereo Boliviano (LAB) and Bolivia's current government is heading for a showdown. And while La Paz quarrels with its flag carrier, LanChile's plan to exercise fifth freedoms between Bolivia and Miami could set back relations with Chile.

LAB's privatisation in 1995, when Brazil's VASP bought half of LAB and assumed control, has irritated Bolivia's President Hugo Banzer Suarez ever since he replaced Gonzalo Sanchez de Losada. Officials have made it clear Banzer dislikes his predecessor's privatisation programme.

The dispute centres on LAB's five-year grant of exclusive international rights, awarded at the time of its privatisation. Pressure from Banzer's administration to cancel this monopoly is mounting.

At first the government's rationale stemmed from a legalistic dispute about whether VASP set up the correct corporate structure for LAB. Now La Paz is pointing to alleged safety violations and a dispute over who owes certain compensation to LAB's employees under a 1985 law. VASP claims this was the government's responsibility; the government counters that VASP assumed this liability when it bought LAB.

Bolivia's Supreme Court ruled in June that VASP was liable for this $19 million, but the dispute continues, with VASP arguing that holding foreign investors liable for this pre-privatisation debt contravenes a guarantee given by Bolivia's former president.

Minister of Justice Ana Maria Cortes has referred the question to a special commission consisting of herself and several other ministers to study and submit a report to President Banzer. At press time he had the report and was considering his decision.

While he ponders, a remarkable number of his ministers have started criticising LAB's safety measures. Following an incident in July on a domestic flight, Vice Minister of Transport Ramon Prada, suggested his ministry might suspend LAB's licence to fly within Bolivia. Jorge Pacheco, economic development minister, suggested a joint venture between Bolivia's domestic airline AeroSur and Continental Airlines would be safer.

Ulisses Canhedo, LAB president, says a campaign is underway to discredit LAB so La Paz can rescind its route monopoly. He says, 'The reported incidents are normal in an airline that completes 150 flight operations everyday.' Meanwhile, Bolivia's air force may start civilian flights on trunk routes between La Paz, Cochabamba and Santa Cruz; AeroSur says it would gladly launch regional flights if LAB were to lose its monopoly; and LanChile is proposing three weekly flights with fifth freedoms between Santa Cruz and Miami. LAB is protesting and urging the government to roll back a liberal 1996 air accord with Chile. It is unclear, however, how much support LAB still has in high places.

Source: Airline Business