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The higher they fly
Buenos Aires Herald
August 23, 2008

Michael Soltys HERALD STAFF

The Lower House's passage of the Aerol neas Argentinas renationalization early yesterday morning should be seen as a triumph of politics over policy always drafted with an eye to the political competition facing the bill rather than the global competition facing the airline, it ended up being completely defined by its opponents, thus making for a government victory of a rather strange kind. The original bill was doomed from the start by its assumption of the airline's 890-million-dollar debt, which was rejected even by government backbenchers Article 2 incorporating this assumption vanished from the bill passed yesterday. At the same time Article 6 allowing for reprivatization was scrapped at the behest of trade unions anxious to guarantee jobs for life and replaced by a clause banning the state from accepting a private majority capital package. Other concessions designed to ensure yesterday morning's comfortable 167-79 Lower House majority included giving Congress the last word on the airline's pricing (instead of international arbitration, as in the original bill) and barring the government from reallocating any more funds for airline subsidies before the 2009 budget (after nearly half a billion pesos were diverted from housing earlier this month).

Indeed so many amendments were made in order to avoid any repetition of last month's defeat of the export duties bill that the opposition bill was left without any clear differences apart from making Transport Secretary Ricardo Jaime share the blame for the 890-million-dollar debt which is now being denied the outgoing Spanish Marsans owners. This bill (drafted by the Radical, Civic Coalition and centre-right PRO parties) also sought to circumvent the airline's debt in a rather more convoluted way than simply ignoring it, proposing the Swissair solution of saddling the old company with the debt and starting a new debt-free airline (an idea which overlooks the fact that Argentina is not Switzerland, quite apart from having to rebuild the fleet and retrain the pilots, a process requiring up to two years).

Yesterday's bill marks the beginning rather than the completion of the renationalization process, quite aside from Senate passage. It was already curious that the Lower House should approve a state acquisition ahead of knowing the price. And what happens if the negotiation deadline of September 15 arrives without agreement between Marsans and the Argentine state (hardly likely with legislation dictating that Marsans relinquish the airline and take over the debt at the same time unless the debt creeps back into the pricing)? Will the Spanish government go out to bat for Marsans (whose dodgy reputation was hardly enhanced last Wednesday when a Canary-bound airliner of Spanair, which was founded by Marsans in 1988 and remained in their hands until last year, crashed at Barajas Airport in Madrid with 153 dead)? And if there is an uproar, does Argentina have much to lose with its current international image? And is there a Plan B of expropriation if no price is agreed? And even if Argentina can welsh on the airline's debt without undue consequences, how long will the "savings" of 890 million dollars last with the subsidies required to maintain 9,300 jobs and basic standards of service and punctuality (not to mention the expansion needed to justify so many jobs or fixing up deficient radar and air control systems)? Last month's defeat of the bill to impose soy windfall taxation and yesterday's successful passage of Aerol neas renationalization might contrast politically but both could end up costing the Argentine state billions.