Latin America’s largest passenger airline is struggling to weather what one analyst called a “perfect storm” of bad news.
The latest setback is part of what LATAM considers a campaign by Argentina’s government to undermine the company’s competitive advantages against money-losing state-owned Aerolineas Argentinas. That effort reached a critical stage Tuesday night with an eviction notice giving LATAM’s subsidiary, LAN Argentina, until month’s end to vacate its hangar at the downtown Buenos Aires airport.
“We understand that this isn’t an isolated action, but yet another in a growing number of actions taken against our company aimed at damaging our operations in Argentina,” LATAM Vice President Enrique Cueto said in a letter to Chile’s securities regulator.
He called the eviction notice “illegitimate” and said the company would pursue every available legal action in Argentina to re-establish its contract.
Also this week, LATAM announced a quarterly loss of $330 million due largely to currency fluctuations in Brazil, and it was fined $1 million by Canada in a price-fixing case involving South American cargo shipments.
“This has been a perfect storm because it’s all coming together to give the company poor results,” EuroAmerica brokerage analyst Jorge Sepulveda said Thursday.
LATAM shares plunged 10 percent before recovering some lost ground Thursday, but they still have lost more than half their value in the year since Chile’s LAN Airlines and Brazil’s TAM airlines merged. The company’s investment-grade debt ratings were lowered after the LAN takeover, taking away much of the robust financial position the company had before the merger, Sepulveda said.
Chile’s government plans to forcefully protest the eviction notice from Argentina’s airports regulator at a Cabinet-level meeting between the two governments in Chile’s capital Friday, Foreign Minister Alfredo Moreno said.
It’s a sore point for Chilean President Sebastian Pinera, a billionaire investor who was LAN’s chief executive before selling off his stake in the company to avoid conflicts of interest while in the presidency. His relationship with Argentine President Cristina Fernandez is cordial, but her government’s efforts to centrally control the Argentine economy has increasingly led to clashes with Chilean business interests.
As a private company, LATAM has proven a tough competitor for state-owned Aerolineas and its short-hopping subsidiary, Austral, in the years since Fernandez’s late husband and predecessor as president, Nestor Kirchner, invited LAN Argentina to establish a significant presence at the downtown airport and provide service to underserved cities around Argentina.
LAN now has 10 planes serving 14 Argentine cities. It says it will have to stop flying domestically in Argentina without the maintenance hangar. The company pays $20,000 a month in rent on the building under a contract that doesn’t expire for another decade.
Aerolineas also has expanded its service, but continues to bleed money despite government subsidies that keep most of its ticket prices below what LAN charges. Many passengers prefer LAN because it has a better on-time record and suffers fewer delays due to strikes and other labor problems.
Argentina’s airports regulator has pressured the company to move its domestic flights from the downtown airport to the international airport in the Buenos Aires suburb of Ezeiza. That would not only be costly but put LAN Argentina at a disadvantage, since the commute through Buenos Aires traffic would add hours to any round-trip flight for many passengers.
At least 1,500 LAN employees would lose their jobs if the eviction goes through, prompting their unions to complain the government is trying to give Aerolineas Argentinas an unfair advantage.
Aerolineas denied this Thursday. But said it makes sense to give the country’s flagship airline the most space at the capital’s downtown airport.
Any sovereign country would do this, the state-owned company said, because “Aerolineas Argentinas flies more frequently to more destinations (35 in the country, to which 21 aren’t reached by the competition) and thus needs a larger infrastructure.”
The Association of Airplane Pilots said all its members will strike if LAN employees are fired.
“We’re talking about a general strike that will halt the country’s aviation for an indefinite time, until we’re guaranteed that we’ll be able to peacefully work in our country,” union head Pablo Biro told radio Continental.
Associated Press writer Luis Andres Henao reported from this story Santiago, Chile, and Michael Warren reported in Buenos Aires.
Associated Press writer Debora Rey contributed to this report.
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