For once the European Commission is to be congratulated on its political juggling over the Spanish request to recapitalise struggling Iberia, although the carrier's continued control of two Latin American carriers has raised a few eyebrows.

Avoiding the minefield of the 'one time, last time' tenet of state aid regulations, transport commissioner Neil Kinnock decided that a rational investor would have injected Pts87 billion ($719 million) into Iberia and that therefore it should not be considered state aid.

Although no state aid normally means no conditions, the Commission based its decision on the fact that the investment would only have been made if Ladeco and Aerolineas Argentinas were removed from Iberia's portfolio. Unlike the Air France state aid decision in 1994, the Commission's investigation of the Spanish request took most of 1995, included an independent analyst's report, and resulted in the Commiss- ion's rejection of the initial request for Pts130 billion.

With British Airways' case against the Commission on the Air France decision due to have its first European Court hearing in March, the Commission was well aware of the threat of an appeal against its Iberia ruling. '[Iberia] will be well argued and we will not run the risk of a legal appeal,' says a Commission source. 'We will try to make this a watertight decision.'

Iberia's 53 per cent stake in Aerolineas Argentinas through Interinvest and its 30 per cent direct holding, minus a minority stake to be retained by Iberia, are being sold to a consortium. Bankers Trust and Merrill Lynch will hold 40 per cent of the new company and Teneo, Iberia's Spanish parent company, will own the other 60 per cent. At presstime Iberia's 37.5 per cent stake in Ladeco was also due to be sold to the consortium.

The Spanish flag carrier will remain in managerial control of Aerolineas, and will have an option to buy back its shares in Aerolineas within two years. The Spanish government has promised the Commission this will happen only if Iberia's equity is at least 30 per cent of its capitalisation, and if a private investor also purchases a significant amount of the shares.

However, Iberia may be permitted to receive a further Pts20 billion in 1997. And the Commission's definition of the rational private investor may be questionable, as it was assumed the capital would have to earn a 30 per cent rate of return between 1996-9 to be worth the risk. The Commission's official ruling was expected to be announced in late January.

British Airways has yet to decide whether it will challenge the decision but one aviation lawyer says while he gives BA good odds on the Air France appeal, he would not rate its chances against the Iberia decision.

Sara Guild

Source: Airline Business