President Milei pushes forward to privatise Aerolineas Argentinas: will it materialise?
Even before officially taking office in Dec-2023, Argentina's President Javier Milei expressed his desire to privatise some of the country's government-owned entities, including its flag carrier Aerolineas Argentinas.
Now Mr Milei is moving to speed up the process, but it's unclear if he'll be successful in his efforts, as the airline's unions demand higher pay and the country's legislators need to put their stamp of approval on the process.
More broadly, potential acquirers of Aerolineas Argentinas would need to conduct a careful risk-reward analysis.
Any acquisition would be rife with labour strife, and there is a distinct possibility that Argentina's political winds could quickly shift.
However, the airline is the largest operator in an emerging market, with significant opportunities to grow and stimulate traffic.
- Argentina’s President Javier Milei persists in his efforts to privatise Aerolineas Argentinas.
- In theory, it could be an opportunity for a would-be buyer.
- But a potential acquirer needs to weigh the significant risks alongside the rewards, including a potential for shifting political winds in Argentina.
- If Mr Milei is successful, it could usher in a new era for Aerolineas Argentinas – but success is far from certain.
- And investors may look for a less risky investment.
Argentina's president continues his quest to privatise Aerolineas Argentinas
Several news outlets covered a recent press conference held by Mr Milei's presidential spokesperson Manuel Adorni. The Buenos Aires Times quoted Mr Adorni explaining that the president "is going to sign a decree declaring the company Aerolíneas Argentinas subject to privatisation, as is enabled by Article Nine of Law 23696, known as the State Reform Law".
The publication stated Mr Adorni has noted that since Aerolineas Argentinas was nationalised in 2008, "contributions of the national state have exceeded USD8 billion".
Amid discussions over privatisation, pilots and flight attendants at the airline conducted a strike in Sep-2024, and there's little doubt that their appetite for disruption will ease.
Labour unions are demanding wage increases to compensate for the country's trip-digit inflation, according to the Financial Times.
Once Mr Miliei's decree is published in Argentina's Official Gazette, the Buenos Aires Times has reported that "it will have to go through" the country's congress.
How legislators will react to the proposal is anyone's guess.
Reuters noted that Argentina's Congress could override the decree, as has happened several times before. The publication noted that the president's libertarian party only had a small number of seats in the legislature, but Mr Milei had won over some allies from the main conservative bloc.
Perhaps what it more clear is that Mr Milei's persistence in attempting to forge a privatisation of the airline will continue.
On paper, Aerolineas Argentinas looks like a promising opportunity...
Any entity considering acquiring Aerolineas Argentinas needs to weigh carefully whether the benefits of the investment outweigh the risks.
The airline is Argentina's largest operator, holding 45% of the country's system seats.
Argentina: system seats per airline, as of early Oct-2024
Its domestic presence is far more significant, as Aerolineas Argentinas represents nearly 66% of the country's domestic seats.
Argentina: domestic seats by airline, as of early Oct-2024
Someone willing to take the risk could use it as an opportunity to create much more efficiency in the airline's operations, which could result in a more competitive landscape within the country.
Argentina's second and third largest airlines - Flybondi and JetSMART - are low cost operators, and better management of Aerolineas Argentinas could result in lower fares in a country where air trips per capita in 2023 were 0.61, according to IATA. That compares with a regional average of 0.65 in Latin America and 2.5 in the US and Canada.
Similarly to other Latin American countries, there's much potential within Argentina to switch passengers from buses to air travel, and given its lower than average trips per capita, an opportunity for airlines to stimulate traffic and achieve consistent profits, with the right cost base.
...but an acquisition carries inherent risks for any potential acquirer
But any would-be buyer also has to consider the distinct possibility of inheriting a hostile workforce, whose penchant for industrial action likely won't diminish under new ownership.
In parallel with his efforts to privatise Aerolineas Argentinas, earlier in 2024 Mr Milei issued a decree designed to encourage fare competition between operators and rate deregulation.
Some of the changes in policy include authorising foreign companies to provide internal or international air transportation.
The authorities considering those requests "may grant authorisations that include cabotage traffic rights, under conditions of strict reciprocity", the government said.
Additionally, "...companies may freely carry out agreements that involve a consolidation or merger of services and/or businesses, transfer of concessions and/or authorisations in everything related to their non-operational aero-commercial aspects", as long as it is not a practice prohibited by competition law. Authorities would have 15 days to approve or reject those proposals.
Those more liberal policies could also be attractive for acquirers considering Aerolineas Argentinas; however, given the capricious nature of Argentinian politics, all those reforms could be wiped out if another party assumes power after the next presidential election.
Additionally, the outcome of the next election creates a certain level of uncertainty for any would-be owners of Aerolineas Argentinas.
During his time as president from 2015-2019, Mauricio Macri adopted policies that created opportunities for the creation of low cost carriers in the country, and Flybondi, JetSMART and Norwegian Air Argentina. But JetSMART acquired Norwegian's operations in Argentina in 2019.
Mr Macri was defeated by Alberto Fernandez in 2019. His vice president was former President Cristina Fernández de Kirchner.
Most governments in Argentina before Mr Macri took office, including Ms Kirchner's, adopted protectionist policies to shield Aerolineas Argentinas from competition.
During Mr Macri's tenure there was never any discussion about privatising Aerolineas Argentinas, but the airline was forced to compete on a more equal footing in both the international and domestic markets.
Once Ms Fernández de Kirchner took the role as vice president, questions emerged regarding how the government would view low cost start-ups, but then the COVID-19 pandemic ensued, and despite Argentina's domestic market remaining closed longer than other markets, Flybondi and JetSMART persevered.
Reuters has reported that since taking office Mr Milei has cut billions in spending, in a tough austerity push. However, poverty rates have risen by more than 10 percentage points, to nearly 53%, the publication stated.
As is the case with most countries in the world, much can happen between now and the next time Argentinians cast their ballots for president, approximately three years from now.
But given inflation and poverty rates, voters could very well cast their allegiance elsewhere, particularly if conditions worsen.
The odds may be stacked too high for a successful privatisation of Aerolineas Argentinas
Argentina's aviation sector has been anything but dull over the past decade.
But Mr Milei's efforts to privatise the country's flag carrier, if successful, could usher in a new chapter in Argentina's aviation history.
Yet the reality is that there are a lot of hurdles to clear for the sell-off to become a reality, and with the political undertones inherent in the process, potential acquirers could opt for an investment less fraught with uncertainty.