Though still fraught with difficulties, Argentine airline Aerolineas Argentinas' chances to avert bankruptcy are improving. During a pivotal meeting last week between Sociedad Estatal de Participaciones Industriales, the Spanish industry ministry's holding company that owns 85% of the airline, the Argentine government (which owns 5%) and the unions (who have a 10% stake), SEPI offered to grant a much needed $280 million injection of capital into the company.

The decision will keep the airline flying for at least two months until a resolution is reached on how to address its troubles. Late last year a company report detailed how existing financial difficulties had been exacerbated by a regional recession, mounting local competition and bad management.

The resulting bleak financial picture prompted downgrades of the airline's two securitization programs: Condor and Aerocard. Standard & Poor's downgraded the Aerocard notes from A-minus on the local scale to BB. Fitch downgraded them from A to a BBB-minus. Duff & Phelp's Credit Rating Co. downgraded the Condor notes from A-minus to BBB (ASRI 1/17/00 p.1)

To avert Aerolinas' imminent bankruptcy, SEPI proposed what is known as Plan Director. Under the plan the Spanish company would provide $600 million in financing for Aerolineas, which would in turn have to implement stringent restructuring measures, including heavy layoffs. Unsurprisingly, the unions refused to accept the plan and staged wide-ranging protests.

Now, the temporary arrangement extended the deadline for a final agreement between SEPI, the Argentine government and the unions to mid-September. "All sides are more ready to sit at the negotiations table and come to an agreement now than a month ago," said Juan Pablo de Mollein, analyst with S&P in Buenos Aires. "So the fact that they have additional time improves the chances of a joint solution."

Since the structured notes are backed by ticket sales, as long as the airline keeps flying, payments are not endangered. "The company has several mechanisms in place that will allow it to continue functioning," explained Mollein. "And so far there hasn't even been talk of debt restructuring. We'll have to wait and see how all of this ends."

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