Aerolineas Argentinas is a step closer to shutting down after SEPI, its Spanish owner and manager, decided to place the airline under court protection from its creditors.

SEPI has opted to seek legal safeguards for Aerolineas against its creditors after the Argentine Government gave the troubled carrier an ultimatum either to resume flying suspended overseas routes or see them go to rivals.

SEPI took the step because it was unwilling to keep paying operating costs without protection against bankruptcy, warning that it could mean "the end of the terminal phase" for the airline.

Court protection gives SEPI one last chance to renegotiate the airline's debts. This will mean the suspension of labour agreements under local laws, which could spark more union protests. They have already disrupted airport operations and caused some foreign carriers to suspend flights.

The Aerolineas crisis stems from an impasse between one union and SEPI. Seven unions own 10% of Aerolineas. Four of them agreed last October to SEPI's restructuring plan. Two more have since agreed, but the mechanics have refused to budge.

Buenos Aires has gone to great lengths to seek a solution, including payment of its own capital contribution for the 5% stake it owns, and convening a multitude of meetings and a Spanish "summit" between the unions and SEPI. It has urged SEPI to soften its position and threatened the mechanics with decertification. Other unions have also leant on the mechanics but to no avail.

Some fault the unions for clinging to privileges carried over from the days when Aerolineas was government-owned. The mechanics blame Argentina's former government for privatising Aerolineas, Spain for mismanaging it and the present government for not forcing the Spanish to bail the airline out.

"The plan is like one which converted Iberia into one of the world's most profitable airlines. Without restructuring, we know that we will lose every peso we put into the firm," SEPI says.

In a new twist, Peru's Aerocontinente has offered to buy SEPI's Aerolineas shares. SEPI has yet to respond.

Source: Airline Business