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Argentina's nationalist folly?
Financial Times Latin America Agenda
August 31, 2008

Argentina's Senate is expected on Wednesday to approve the controversial re-nationalisation of floundering flag carrier Aerolineas Argentinas.

The government, which says it is rescuing the airline from mismanagement at the hands of its Spanish owners, Marsans, has a majority in the upper house and should have no difficulty getting the bill through.

But there are still serious grey areas which have not yet been clarified, and though the government has played down suggestions that it could expropriate the airline, that remains, technically an option.

As Argentina strives to rebuild its international image as a safe investment destination, it will need to tread carefully.

The biggest problem come down to cash: the government originally signed a deal with Marsans whereby both sides would value the company. That stipulation was stripped out in the Chamber of Deputies, and the bill as it stands foresees that an Argentine court whose job is to value assets which impact state accounts will set the price, subject to ratification by Congress.

The temporary director of Argentinas says the company is broke, with debts of 2.7bn pesos ($917m, E625m). Argentina wants to avoid taking on the airline's debt, but the deal agreed with Marsans has not been revoked, opening the potential for a messy legal challenge.

Argentina should take heed at what is happening in Italy, where the government is being forced to break up the long-struggling Alitalia and shed as many as 6,000 jobs as part of a plan to keep Alitalia alive.

Aerolineas is losing $1m a day and over the last month the government has already pumped $100m into the company. Opposition politicians are warning of other hidden losses and opponents say the government could have done more to avoid the chaotic situation.

The lower house of Congress also stripped out the government's original vow to reprivatise Aerolineas as soon as possible.

Argentina's rush to take on a debt-laden, cash-guzzling airline with a parlous reputation for efficiency and the prospect of legal and diplomatic turbulence ahead looks like a dangerous display of national pride.