*

Aerolineas Argentinas cuts staff, routes to attract

private

investment

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Argentine President Milei faces opposition to

privatization

plans, threatens closure

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Unions protest, cite airline's social role in Argentina

By Kylie Madry

BUENOS AIRES, Jan 3 (Reuters) - Argentina's state

airline, Aerolineas Argentinas, is slimming down for a potential

sale, shedding 13% of its staff, cutting money-losing domestic

routes and even removing snacks formerly available to

passengers, according to sources and documents seen by Reuters.

The cutbacks, many of whose details were previously unreported,

are part of a backdoor attempt to trim the airline's burden on

the state and lure private investment. The drive is progressing,

even though libertarian President Javier Milei's plans to

privatize the firm have generated pushback.

The carrier, with Argentina's blue and white colors, is a major

test case of Milei's pro-market reforms, which are yanking South

America's second-largest economy in a sharply different

direction after years of big government. They have improved the

state's finances, but stunted economic growth and pushed up

poverty.

Reuters spoke to 10 company executives, officials, pilots,

airline workers and union members, and saw a memo on the plans

to streamline the airline for sale.

The drive brought in blockbuster operating results for

Aerolineas in 2024, a senior company source said ahead of the

airline's release of full-year results next week. Part of that

reflects the double-digit reduction in staff targeted in the

earlier document seen by Reuters.

"Our job is to get (Aerolineas) in order," the senior source

said, adding that the carrier aimed to operate more like its

private counterparts.

"That way, when the time comes and the government enables

its sale, the company is more attractive."

In July, Aerolineas turned a profit for the first time in

seven years, data shared with Reuters showed.

Milei, a brash economist, took office in late 2023, pledging to

shake up Argentina's subsidy-heavy economy with "chainsaw" cuts.

He has faced pushback in Congress from privatizing Aerolineas

outright, but is determined to push his plans through. His

government has threatened to close the airline if it cannot be

privatized.

"Either it is shut, to cut the deficit, or it is privatized,

but it will not remain in the hands of the government," Milei

told local radio in November.

The administration claims the airline has depleted government

coffers by $8 billion since 2008 when it was put back in the

hands of the state after a previous privatization in the early

1990s under Milei's idol, then-President Carlos Menem.

The transport secretariat deferred comment to Aerolineas,

which did not respond to requests for comment.

'LABOR IS OUR ONLY WEAPON'

The process to streamline the company involves cutting

loss-making routes, freezing wages, offering buyout programs and

shedding contract workers, six airline employees told Reuters.

Even a modest food offering for passengers faced the chopping

block.

The airline has trimmed its in-flight snack options, saving

the firm more than $500,000 a year, the senior airline source

said, as the company took a cue from American Airlines which

famously cut an olive from each salad served in first class in

the 1980s to reduce costs.

Aerolineas now offers just one dessert in executive class

and has cut a cereal bar for economy passengers, the senior

company source added.

Unions and Milei's political opponents have fought back,

with protests at major airports wreaking havoc on air travel in

recent months, causing flight cancellations and delays. In

December, Buenos Aires province's opposition governor said he

would oppose any attempt at privatization.

"Our labor is the only weapon we have," said veteran

Aerolineas pilot Juan Pablo Mazzieri, who sports a tattoo of the

airline's logo, an Andean condor, on his shoulder. "We don't

like doing it, but we're going to cause delays and

cancellations."

Milei argues that the carrier needs to become more competitive.

His administration looked to deregulate the sector, allowing

low-cost carriers to ramp up operations and push an "open skies"

policy to allow foreign competitors to enter the market.

COURTING SUITORS

Milei has advocated selling off Aerolineas in one go.

Indeed, the firm's CEO, Fabian Lombardo, told local radio that

several international airlines had expressed interest. So far

those talks have remained informal, sources said.

The only contender to publicly declare interest is 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, told an industry

conference in Dallas in November.

Aerolineas could be a tough sell, analysts cautioned.

"It would be easier for someone to join with a percentage

(stake)," the Aerolineas senior source said, citing the plans of

German airline Lufthansa to acquire a 41% stake in

Italian state carrier ITA.

Still, Aerolineas has yet to bring banks and advisers on

board, according to the source, because it needs more clarity on

the government's plan.

Milei's "Plan B" could be selling the airline to its

employees, ridding him of both the firm's financial headache and

its workers, whom he considers combative. Aerolineas says the

labor disputes have cost the carrier millions of dollars.

The company has cancelled employee perks, such as payment

for commuting time, free flights, dollar-based bonuses and extra

holidays - which were all coming "at the expense of poor

Argentines," according to the government.

Several union leaders, however, say workers taking over the

firm was a non-starter.

The unions argue Aerolineas serves a social purpose beyond

its balance sheet, in a country that is five times the size of

France and which stretches from the Antarctic to tropical jungle

in the north. Its cities are far-flung and transport links are

limited.

Since the beginning of the cuts, which included a government

subsidy on plane tickets, domestic travel in Argentina has

fallen 9%, data shows.

"We're seeing nearly half the number of flights we did a

year ago," said Marcelo Austi, an Aerolineas gate agent at

Buenos Aires' local Aeroparque airport. "That's an enormous

difference."