Written by Kylie Maddrey
BUENOS AIRES (Reuters) – Argentine state airline Aerolineas Argentinas is downsizing in preparation for a potential sale, laying off 13% of its staff, reducing loss-making domestic flights and even removing snacks that were previously available to passengers, according to sources and documents seen by Reuters. . Reuters.
The cuts, many of the details of which have not been previously reported, are part of a backdoor attempt to ease the airline's burden on the state and attract private investment. The campaign is progressing, although Liberal President Javier Miley's plans to privatize the company have sparked opposition.
The aircraft carrier, in Argentina's blue and white colors, is a major test of Miley's pro-market reforms, which are pushing South America's second-largest economy in a very different direction after years of big government. It improved the country's finances, but hindered economic growth and pushed poverty higher.
Reuters spoke to 10 executives, officials, pilots, airline workers and union members, and viewed a memo on plans to simplify the airline for sale.
This drive has delivered impressive operating results for Aerolineas in 2024, a senior company source said before the airline releases full-year results next week. Part of that reflects the double-digit reduction in headcount targeted in the previous document seen by Reuters.
“Our mission is to regulate Aerolenias,” the senior source said, adding that the company aims to operate more like its private sector counterparts.
“This way, when the time comes and the government allows it to be sold, the company becomes more attractive.”
In July, Aerolineas turned a profit for the first time in seven years, data shared with Reuters showed.
Miley, a brash economist, took office in late 2023, vowing to turn around Argentina's subsidy-laden economy with “chainsaw” cuts.
He has faced opposition in Congress to fully privatizing Aerolineas, but is determined to move forward with his plans. His government threatened to close the airline if it was not privatized.
“It will either be closed to reduce the deficit, or it will be privatized, but it will not remain in the hands of the government,” Miley told local radio in November.
The administration claims the airline has drained government coffers by $8 billion since 2008 when it was returned to state hands after a previous privatization in the early 1990s under then-president Carlos Menem.
The Transport Secretariat deferred comment to Aerolineas, which did not respond to requests for comment.
“Work is our only weapon”
Six airline employees told Reuters that the company's simplification process includes cutting loss-making routes, freezing wages, introducing buyout programs and getting rid of contract workers. Even the modest food offering to passengers has faced the chopping block.
The airline has cut back on in-flight snack options, saving the company more than $500,000 a year, a senior airline source said, as the company took a cue from American Airlines (NASDAQ:) which famously cut an olive from every salad initially served. Class in the 1980s to cut costs.
The senior company source added that Aerolineas now offers only one candy bar in Executive Class and has cut out a piece of cereal for Economy Class passengers.
Unions and Milley's political opponents have fought back, with protests at major airports wreaking havoc on air travel in recent months, causing flight cancellations and delays. In December, the opposition governor of Buenos Aires province said he would oppose any attempt at privatization.
“Our work is the only weapon we have,” said veteran pilot Juan Pablo Maziri, who has the airline’s logo, an Andean condor, tattooed on his shoulder. “We don't like doing this, but it will cause delays and cancellations.”
Miley says the carrier needs to become more competitive. His administration sought to liberalize the sector, allowing low-cost airlines to ramp up operations and pushing an “open skies” policy to allow foreign competitors to enter the market.
Courting suitors
Miley called for Aerolineas to be sold all at once. In fact, the company's CEO, Fabian Lombardo, told local radio that several international airlines have expressed interest. The sources said that these talks have so far remained informal.
The only competitor to have publicly declared interest is holding company Abra Group, which controls Colombia's Avianca and Brazil's Gol.
Abra is still conducting due diligence, and it remains unclear what an Aerolineas acquisition will look like, Joe Mohan, Abra's chief commercial officer, said at an industry conference in Dallas in November.
Analysts have warned that a sale of Aerolineas could be difficult.
“It will be easier for someone to join with a percentage (stake),” the senior source at Aerolineas said, referring to plans by the German airline Lufthansa to acquire a 41% stake in the Italian state airline ITA.
However, Aerolineas has not yet engaged banks and advisers, according to the source, as it needs more clarity on the government's plan.
Milley's “Plan B” could be to sell the airline to its employees, relieving himself of the financial headache of the company and its workers, whom he views as fighters. Aerolineas says labor disputes have cost the company millions of dollars.
The company eliminated employee perks, such as pay for commute time, free rides, dollar-denominated bonuses, and extra vacations — all of which came “at the expense of poor Argentines,” according to the government.
However, many union leaders say the workers' takeover of the company did not get off to a successful start.
Unions say Aerolineas serves a social purpose that goes beyond its balance sheet, in a country five times the size of France that stretches from the Antarctic to the tropical jungle in the north. Its cities are remote and transportation links are limited.
The data shows that since the start of the cuts, which included government subsidies for airline tickets, domestic travel in Argentina has fallen by 9%.
“We are seeing almost half the number of flights we did a year ago,” said Marcelo Osti, an Aerolineas gate agent at Buenos Aires' Aeroparque Domestic Airport. “That's a huge difference.”
