Iberia and the Venezuelan government were playing a game of brinksmanship at presstime after flag carrier Viasa ran out of cash and ceased operations on 23 January.

Both sides are believed to be willing to let the airline fold but, according to one source close to the negotiations, neither wants to be seen as 'the executioner'.

Iberia officials are concerned that the dispute will colour its attempts to secure permission from Brussels for a final Pta20 billion ($141 million) injection from the state. The airline has unveiled a new three-year restructuring plan and, though European Commission officials appear satisfied with its progress, they confirm that the airline's Latin American situation remains under review.

Iberia announced a net profit of Pta3.5 billion for 1996, its first profit since 1989, and expects to earn Pta11 billion this year. Iberia's president Xabier Irala aims to trim costs by 3 per cent a year over the next three years and improve productivity by 20 per cent, though the plan remains subject to union agreement.

Viasa stopped flying after pilots and cabin crew rejected a restructuring plan hammered out by Iberia and FIV, the state-owned holding company which controls 40 per cent of the airline. Since then flight crew have told the country's president that they would be willing to compromise to keep the airline viable.

Iberia has set a three-month deadline and insists it will not inject any more cash, but its plan calls for an $18 million injection from other shareholders. A Viasa board meeting on 8 February failed to reach any agreement and another was scheduled for 20 February.

The Venezuelan finance ministry has also refused to inject more cash in Viasa. 'The government has decided that Viasa should close but doesn't want to force the execution,' says one Viasa board member.

Caracas appointed independent consultants in late January to seek buyers for its stake but, despite targeting high-yield, high-risk emerging market funds, admits it has received little interest. The airline has few free assets bar its route authorities: Iberia holds mortgages over five aircraft worth $50 million, as part of the $160 million it is owed by Viasa. 'I don't see any added value as an airline, only intangibles,' says one financier. To protect its remaining investment, Iberia has asked the government to extend Viasa's international route franchise by an additional five years.

But Irala appears determined to sever links with Iberia's Latin American investments and this remains a strong factor in the European Commission's attitude towards further capital injections.

Irala's attitude has led to more players stepping into the ring to examine its remaining 20 per cent direct stake in Aerolineas Argentinas, as well as the 63.35 per cent it transferred to Andes Holding.

Iberia has first refusal on the Andes stake until the end of the year. American Airlines and Continental have already expressed interest while Vasp has signalled an offer of around $300 million in a mixture of cash and debt to take control of the carrier.

However, sources close to Vasp owner Wagner Canhedo say no technical assessment has been made and doubt if the group has the depth of management to absorb Aerolineas following its acquisition of Ecuatoriana and LAB. 'Canhedo will never enter into something without assuming control,' says the source. 'People in Vasp would be more comfortable if he joined as part of a consortium.'


Source: Airline Business