Argentina’s state airline cuts staff, routes and passenger benefits ahead of possible sale Reuters

By Kylie Madry

BUENOS AIRES (Reuters) – Argentina’s state airline, Aerolineas Argentinas, is downsizing for a potential sale, laying off 13% of its staff, cutting money-losing domestic routes and even cutting snacks previously available to passengers, according to sources and documents which Reuters had access to.

The cuts, many details of which have not been previously disclosed, are part of a veiled effort to reduce the airline’s burden on the state and attract private investment. The movement is making progress, although libertarian President Javier Milei’s plans to privatize the company have met with resistance.

The carrier, in Argentina’s blue and white colors, is a major test of Miley’s pro-market reforms, which are moving South America’s second-largest economy in a very different direction after years of big government. They improved state finances, but slowed economic growth and increased poverty.

Reuters spoke to 10 company executives, officials, pilots, airline workers and union members, and saw a memo about plans to streamline the airline for sale.

The move delivered top operating results for Aerolineas in 2024, a senior source at the company said ahead of full-year results next week. Part of that reflects double-digit staff cuts targeted in an earlier document seen by Reuters.

“Our job is to get (Aerolineas) in order,” the senior source said, adding that the carrier intends to operate more like its private counterparts.

“That way, when the time comes and the state enables its sale, the company is more attractive.”

In July, Aerolineas made a profit for the first time in seven years, according to data shared with Reuters.

Milei, a brash economist, took office in late 2023, promising to shake up Argentina’s subsidy-ridden economy with “chainsaw” cuts.

He has faced a refusal in Congress to fully privatize Aerolineas, but is determined to carry out his plans. His government threatened to shut down the airline if it could not be privatized.

“Either it will be closed, to reduce the deficit, or it will be privatized, but it will not remain in the hands of the government,” Milei told local radio in November.

The administration claims the airline has drained state coffers by $8 billion since 2008, when it was returned to state hands after a previous privatization in the early 1990s under Milea’s idol, then-President Carlos Menema.

The Department of Transportation deferred comment to Aerolineas, which did not respond to requests for comment.

‘WORK IS OUR ONLY WEAPON’

The company’s rationalization process includes cutting loss-making routes, freezing wages, offering buyout programs and laying off contract workers, six airline employees told Reuters. Even the modest offer of food for passengers was at risk.

The airline has scaled back its 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 that is served first. class in the 1980s to keep costs down.

Aerolineas now offers just one dessert in executive class and has cut cereal for economy class passengers, a senior company source added.

Unions and Mileia’s political opponents have hit back, with protests at major airports causing air traffic chaos 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 Aerolineas pilot Juan Pablo Mazzieri, who wears a tattoo of the airline’s logo, an Andean condor, on his shoulder. “We don’t like to do this, but we will cause delays and cancellations.”

Milei claims that the carrier must become more competitive. His administration sought to deregulate the sector, allowing low-cost carriers to ramp up operations and pushing “open skies” policies to allow foreign competitors to enter the market.

THE COURTSHIP OF A SUITOR

Milei advocated selling Aerolineas in one go. Indeed, the company’s CEO, Fabian Lombardo, told local radio that several international airlines had expressed interest. For now, the talks have remained unofficial, the sources said.

The only candidate that has publicly announced its interest is the 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 acquisition of Aerolineas would look like, Abra’s chief commercial officer, Joe Mohan, said at an industry conference in Dallas in November.

Aerolineas could be a tough sell, analysts warn.

“It would be easier for someone to join with a percentage (stake),” said a senior Aerolineas source, citing plans by German airline Lufthansa to take a 41 percent stake in Italian state carrier ITA.

However, Aerolineas is yet to bring in banks and advisers, according to the source, as it needs more clarity on the government’s plan.

Milei’s “plan B” could be to sell the airline to its employees, which would solve both the financial headache of the company and its workers, whom he considers combative. Aerolineas says the labor disputes have cost the carrier millions of dollars.

The company cut employee perks, such as paid commuting time, free flights, dollar bonuses and extra holidays — all of which came “at the expense of poor Argentines,” according to the government.

Several union leaders, however, say the workers who took over the company haven’t started.

Unions argue that Aerolineas serves a social purpose beyond its balance sheet, in a country five times the size of France that stretches from Antarctica to the tropical jungles of the north. Its cities are far away and transport links are limited.

Since the start of the cuts, which included government subsidies on plane tickets, domestic travel in Argentina has fallen by 9%, the data show.

“We’re seeing almost half the number of flights than a year ago,” said Marcelo Austi, Aerolineas’ access agent at the local Aeroparque airport in Buenos Aires. – That’s a huge difference.