"Buenos Aires, Jan 3 (Reuters) - Argentina's state airline, Aerolineas Argentinas, is undergoing downsizing in preparation for a potential sale, which includes reducing staff by 13%, discontinuing unprofitable domestic routes, and eliminating snacks for passengers, as per sources and documents reviewed by Reuters.
These austerity measures, many undisclosed until now, are part of an indirect strategy to lessen the airline's reliance on the state and attract private investment. Despite resistance to the libertarian President Javier Milei's privatization intentions for the company, the reform efforts are advancing.
The airline, distinguishable by Argentina's blue and white emblem, stands out as a significant experiment for Milei's pro-market policies, steering South America's second-largest economy away from extensive governmental intervention. While these reforms have streamlined state finances, they have also slowed economic growth and increased poverty rates.
In discussions with ten industry sources, including company executives, officials, pilots, airline staff, and union members, Reuters obtained insights into plans to restructure the airline for a potential sale.
Aerolineas achieved remarkable operating results in 2024, as a senior company insider revealed prior to the release of the annual figures next week. A substantial portion of this success can be attributed to the double-digit workforce reduction outlined in an earlier document quoted by Reuters.
"Our objective is to put Aerolineas in order," stated the senior source, indicating the company's aspiration to align its operations more closely with private sector standards.
"This will enhance the company's appeal when the government authorizes its privatization."
In July, Aerolineas recorded its first profit in seven years, data shared with Reuters illustrated.
Since assuming office in late 2023, Milei, known for his assertive economic stance, has vowed to revolutionize Argentina's subsidy-heavy economy with radical cost-cutting measures.
Despite facing opposition in Congress regarding full privatization of Aerolineas, Milei is unwavering in his determination to enact his proposals. The government has issued a warning of potentially shutting down the airline if privatization efforts are unsuccessful.
"Either it shuts down to reduce the deficit, or it's privatized, but it won't remain under government control," Milei stated in a November interview with local radio.
According to the administration, Aerolineas has drained government funds by $8 billion since it returned to state ownership in 2008, following its prior privatization in the early 1990s under Milei's role model, the former President Carlos Menem.
The Transport Secretariat declined to comment, redirecting inquiries to Aerolineas, which did not respond to requests for statements.
To streamline the company, strategies include discontinuing unprofitable routes, salary freezes, offering voluntary departure programs, and releasing contract workers, as relayed by six airline employees to Reuters. Even the limited onboard food options have been revised.
In-flight snack choices have been trimmed, saving over $500,000 annually, as divulged by a senior airline source, taking inspiration from American Airlines' cost-saving approach in the 1980s when they removed an olive from salads served in first class.
Presently, Aerolineas offers a single dessert in executive class and has eliminated cereal bars for economy passengers, added the senior company source.
Union groups and Milei's political adversaries have voiced opposition, staging protests at major airports that disrupted air travel in recent months, leading to flight cancellations and delays. In December, the opposition governor of Buenos Aires province declared resistance to any privatization attempts.
"Our labor is our sole weapon," highlighted veteran Aerolineas pilot Juan Pablo Mazzieri, who proudly displays a tattoo of the airline's emblem, the Andean condor, on his shoulder. "We dislike causing disruptions, but we will result in delays and cancellations."
Milei contends that Aerolineas must enhance competitiveness. His administration is focused on sector deregulation, facilitating the expansion of low-cost carriers and advocating for an "open skies" policy to welcome foreign competitors into the market.
Milei advocates for selling off Aerolineas in one transaction. The CEO of the company, Fabian Lombardo, shared on local radio that various international airlines have shown interest. However, discussions have thus far remained informal, revealed industry insiders.
The lone publicly known contender expressing interest is the holding firm Abra Group, overseeing Colombia's Avianca and Brazil's Gol (GOLL4.SA).
Abra Group is currently conducting thorough evaluations, with uncertainties lingering on the details of a potential Aerolineas acquisition, as conveyed by Abra's Chief Commercial Officer, Joe Mohan, at a conference in Dallas in November.
Analysts foresee challenges in selling Aerolineas.
"Acquiring a partial ownership stake may be a more feasible option," noted the Aerolineas senior source, referencing Lufthansa's intentions to purchase a 41% stake in Italy's state carrier ITA.
Nonetheless, the company has yet to engage banks and consultants due to a need for clearer insights into the government's agenda.
Milei's backup plan might involve selling the airline to its workforce, relieving him of both financial burdens and what he perceives as confrontational employees. Aerolineas management asserts that labor disputes have incurred significant financial losses for the company.
Company perks, including compensation for commute time, complimentary flights, dollar-based bonuses, and extra vacation days, have been canceled, deemed detrimental to impoverished Argentines by the government.
Despite some union leaders' opposition, advocating for employee ownership of the company remains an untenable proposition.
Unions argue that Aerolineas serves a societal need beyond financial metrics in a vast country surpassing the expanse of France, stretching from the Antarctic to tropical jungles, where transportation infrastructure is limited.
Since implementing cost-cutting measures, including terminating a governmental subsidy on flight tickets, domestic air travel in Argentina has declined by 9%, data reveals.
"We are witnessing nearly half the volume of flights compared to a year ago," shared Marcelo Austi, an Aerolineas gate agent at Buenos Aires' local Aeroparque airport. "That's a significant drop."".