Iberia may repurchase its stake in Aerolineas Argentinas as early as June 1997 in a

move that could recreate its Latin American airline stable. However, the carrier remains

embroiled in a legal dispute in Chile over the future of Ladeco, in which it has a 35 per

cent stake, and faces a struggle to stem continuing losses at Viasa.

Iberia has a two-year option to repurchase the 83 per cent stake in Aerolineas sold to the Andes Holding group last June. Andes is controlled by Iberia's parent, Teneo, and

Merrill Lynch and Bankers Trust. The holding company was set up to separate Iberia

from Aerolineas and Ladeco as part of the European Commission's approval for its

initial US$685 million injection from Teneo.

But sources in Buenos Aires believes Iberia may buy back a minority stake as early as

mid-1997. Another 20 per cent is earmarked for an outside investor, with American

Airlines still the front-runner. Talks are continuing between the Argentine carrier and

American and at presstime a senior Aerolineas source said he believed an announcement

will be made 'before the end of the year', depending on the progress of the US carrier's

talks with British Airways.

Iberia has a four-year management contract with Aerolineas and is believed to be

negotiating a broader commercial deal, including codesharing and joint marketing.

Andes Holding had also planned to purchase Iberia's 35 per cent stake in Ladeco

despite a rival bid from the owners of LanChile, who had intended to merge the

international operations of the two Chilean airlines.

But when Iberia declined to sell earlier this year Ladeco's major creditors - also

LanChile's main shareholders - put the airline into bankruptcy protection with a view to

its sale as a going concern.

Iberia appealed against the move and its challenge is now with Chile's court of appeal

after being dismissed in November by a lower court. No decision is expected until the

second quarter of 1997.

Creditors appointed an interim administrative board with representatives of Ladeco

management, Bank of Miami and BHIF, a local bank. Ladeco has now ceased all

international services but is barred from cooperating with LanChile by the country's

anti-trust authorities.

Airline sources in Santiago suggest LanChile's owners had considered an official

complaint to the European Commission over Iberia's actions. Officials argued the

Spanish carrier may be breaching Brussels' approval for its restructuring plan, alleging

the Spanish carrier had been buying up Ladeco debt to influence the administrators.

The Commission is currently reviewing the progress of Iberia's plan with outside

consultants. The report is not expected to be completed before year end. In a stunning

admission one Commission official indicates that Iberia's re-establishment of links with

its Latin American partners was agreed as part of the capital approval process. 'In this

respect the Andes structure has worked out,' he says.

While Iberia had aimed to sell the Ladeco stake to Andes, it was allowed to keep its 45

per cent holding in Viasa. Iberia has outlined plans to restore profitability at the

Venezuelan carrier, including a 15-20 per cent cut in the 2,264 workforce at a cost of

$18 million. The Spanish carrier has asked Viasa's other main shareholder, state-owned

FIV, to share the costs, and offered to write off $21 million of the $140 million debt to



Source: Airline Business