State-owned airline Aerolíneas Argentina is downsizing for a potential sale. To do this, it is cutting its staff by 13%, closing loss-making domestic routes and even eliminating snacks available to passengers, according to sources and documents seen by Reuters.
The cuts, much of which had not been previously reported, are part of an attempt to ease the airline’s burden on the state’s back and attract investment.
The plan is moving forward, despite the criticism that libertarian President Javier Milei’s plan to privatize Aerolíneas Argentinas has brought.
The airline, which wears the blue and white colors of Argentina, is a paradigmatic case for Milei’s reforms, which are redirecting South America’s second economy towards a very different path after years of a strong presence of the State in the economy and life of Argentines.
These changes have improved the country’s finances, but they have also limited growth and increased poverty.
Reuters spoke to 10 company executives, officials, pilots, airline workers and union members, and had access to a memo about plans to downsize the airline for sale.
The decision translated into strong operating results for Aerolíneas in 2024, a senior company source said ahead of the publication of annual results next week. Part of these results reflect the objective of reducing personnel by double digits noted in the document previously seen by Reuters.
“Our goal is to put it (Aerolíneas Argentinas) in order,” a senior company source told Reuters, adding that the airline was looking to operate more like its private peers.
Thus, “when the time comes, whether the government decided and politically enabled its sale, the company would be in a state to be attractive to the market,” he explained.
In July Aerolíneas posted profits for the first time in seven years, according to data shared with Reuters. Milei, an enraged economist, took office at the end of 2023, vowing to destroy Argentina’s heavily regulated and taxed economy with “chainsaw” cuts.
His plan to privatize Aerolíneas Argentinas has encountered resistance in Congress, but the libertarian politician is determined to meet his goal. His government has threatened to directly close the company if it cannot pass into private hands.
“Either it is closed, to cut the deficit, or it is privatized, but it will not remain in the hands of the government,” Milei said on local radio in November.
The ruling libertarian party maintains that the airline has consumed public funds of $8 billion since 2008, when it returned to state hands after a previous privatization in the 1990s under the government of Carlos Menem, a Milei political leader.
The Ministry of Transportation referred the comment to Airlines, which did not respond to requests for information from Reuters.
“Work is our only weapon”
The process of beautifying the company involves abandoning loss-making routes, freezing salaries, voluntary retirement programs and cutting the number of contract positions, six Aerolíneas employees told Reuters. Even the snack cart has come under the executives’ sights.
Following a famous example of American Airlines, which removed an olive from every salad served in first class in the 1980s to reduce costs, Airlines has limited its in-flight snack options, saving more than $500,000 per year, according to the senior source. of the company.
The Argentine company now only offers one dessert in business class and eliminated a cereal bar from the tourist class menu, the source detailed.
Airports have been hotbeds of resistance for unions and Milei opponents, where protests have caused major disruptions to air traffic in recent months. In December, the opposition governor of Buenos Aires province said he would oppose any privatization attempt.
“The only weapon we have is our work,” said veteran Aerolíneas pilot Juan Pablo Mazzieri, who has a tattoo of the company’s logo, an Andean condor, engraved on his shoulder.
Milei maintains that the airline needs to become more competitive. His administration has been seeking to deregulate the sector, allowing air operators to increase their activity, and push for an “open skies” policy that allows foreign competitors to enter the market.
Courting suitors
Milei has proposed selling Aerolíneas Argentinas in one fell swoop. In fact, the company’s executive president, Fabián Lombardo, told local radio that several international airlines had shown interest. For the moment those claims have remained informal, sources said.
The only one to declare a public interest has been Abra Group, which controls the Colombian Avianca and the Brazilian Gol.
However, Abra is still analyzing the operation and it remains uncertain what an Aerolíneas purchase would look like, Abra commercial director Joe Mohan said at an industry conference in Dallas in November.
Analysts have warned that the sale of Airlines is not necessarily a simple operation.
“It will probably be easier for someone to enter with a percentage,” said the high-level Aerolíneas source, exemplifying the plans of the German Lufthansa to acquire 41% of the share package of the Italian ITA.
However, Aerolíneas needs to bring the presence of banks and advisors to the table because it needs more clarity regarding the Government’s plans, according to the source.
Milei’s “Plan B” could be to sell the company to its employees, getting rid of both the company’s financial complexities and its workers, whom he considers combative, in one fell swoop. Airlines says labor disputes have cost it millions of dollars.
The company has canceled employee benefits such as payments for travel time to work, free flights, dollar-based bonuses and additional time off, which the Government said came “at the expense of poor Argentines.”
However, several union leaders have said that worker control of the company was not a bargaining chip.
Unions maintain that the flag line serves a social purpose, beyond the balance sheet, in a country five times the size of France, linking points as distant as Antarctica and tropical forests in the north, with cities far away. each other and with limited transportation options.
Since the start of the cuts, which included a government subsidy on air tickets, domestic flight usage has fallen 9% in Argentina.
“For what we are used to here at Aeroparque, it is almost half of what we handled before,” said Marcelo Austi, an Aerolíneas Argentinas employee at the metropolitan airport in the city of Buenos Aires. “It’s a very strong impact.”
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