Argentine Senate Approves Takeover of Airline

By THE ASSOCIATED PRESS
Published: December 17, 2008
Filed at 7:43 p.m. ET
BUENOS AIRES, Argentina (AP) -- Argentina's Senate approved the state takeover of financially troubled Aerolineas Argentinas SA on Wednesday, a measure that was challenged by the airline's Spanish owner.
Supporters of the expropriation, which is backed by President Cristina Fernandez, say the state will improve service by tackling the constant flight cancellations and delays that have plagued Argentina's indebted flagship airline for years.
But critics warn that further intervention in Argentina's private sector by the leftist government will squeeze credit and scare away investors in South America's second-largest economy.
Fernandez will sign the bill into law before the end of the year following Wednesday's 42-20 Senate vote, said Transportation Secretary Ricardo Jaime.
''It's the only way to ensure these two companies keep flying,'' Jaime told local news agency Diarios y Noticias, referring also to Aerolineas Argentinas' subsidiary, Austral airlines.
Aerolineas Argentinas' owner, Madrid-based Grupo Marsans, is challenging the measure before a World Bank arbitration body since it considers the takeover ''arbitrary and illegitimate,'' the company said Wednesday night in a news release.
The company will seek compensation, although it didn't specify the amount.
In the past it has said the air carrier and its subsidiary Austral are worth $440 million.
Argentina's Planning Ministry says they are $833 million in debt, and the most the government will pay is a symbolic 1 peso -- about 30 U.S. cents.
Marsans partially blames the heavy debt load on the government, pointing to tariff freezes and a lack of subsidies amid soaring oil prices. The government also has ''facilitated and allowed'' union disputes to disrupt service, Marsans said.
''The Argentine state, after contributing by its acts and omissions to the crisis in Aerolineas and Austral, is using this situation to justify the confiscation of the companies,'' the company said.
Riordan Roett, director of the Latin American Studies Program at SAIS-Johns Hopkins University in Washington, DC., said that if Argentina continues to violate agreements ''investors will go the other way.''
''If investors can choose between Brazil versus Argentina or Chile versus Argentina, they're going to chose Brazil and Chile'' due to their reputation as more market-friendly countries, he said.
The government signed a contract with Marsans in July, agreeing to seek a third-party evaluation if no price agreement was reached. Marsans says the government breached that contract by proceeding with the vote in Congress.
Marsans has controlled the air carriers since 2001.
Argentina's government already has taken over $23 billion in private pension funds amid a regional backlash against rigorous free-market policies that led to a wave of privatizations in Latin America in the 1990s.