Aerolíneas Argentinas S.A. - New Investors in the 1990s

New Investors in the 1990s

As costly as it proved to Iberia, AR still controlled one-third of South America's air traffic, making it a somewhat attractive investment to global competitors. Since Iberia needed government subsidies for its own survival, the European Commission mandated that it reduce its holdings in AR. Merrill Lynch and Bankers Trust bought into the company in 1996, and American Airlines parent AMR Corporation beat out Continental to take a 10 percent share of Interinvest, AR's holding company, in 1998.

The number-crunching methodology of American Airlines (AA) brought quite a culture change to the airline, accustomed to decidedly less formal decision-making. AA managers immediately set out to reduce short-term debt of about $700 million and slashed the payroll. They also used AA standards to improve customer service, starting out a process that could make AR eligible for membership in the OneWorld global alliance. Reducing the number of aircraft types was also a priority; still, the company ordered a dozen Airbus A340s, a type new to Latin America, for its long-haul needs.

AR faced stiff international competition from LAN Chile and VARIG. New open skies agreements cleared the way for Continental and Delta into the Argentine market as well. A recession at home compounded the carrier's difficulties in 1999, even as local cut-rate upstarts such as Southern Winds Líneas Aéreas plagued the airline. AR's owners had failed to find a buyer, or a way out, by the end of December. Interinvest, which then owned 85 percent of AR, was in turn 80 percent owned by the Spanish government via SEPI (Sociedad Estatal de Participaciones Industriales), 10 percent owned by Iberia, and 10 percent by AA. Employees owned 10 percent of AR and the Argentine government the remaining 5 percent. Nevertheless, company literature remained optimistic. Losses for 1999 reached $240 million as the Latin American aviation industry struggled through a recession.