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General Motors veteran Isela Costantini is the new CEO of Aerolineas Argentinas. (Photo: General Motors)
Then-Economy Minuster Axel Kicillof with then-CEO Mariano Recalde during an event last year. (Photo: Aerolineas Argentinas)
Wednesday, January 27, 2016
Trade Talk

Argentina: A Safe Landing for Aerolineas?


Argentine President Macri revises questionable Aerolineas and infrastructure contracts.

BY LATINVEX STAFF

Solving the debt talks and inflation aren’t the only major challenges facing Argentina’s new government led by President Mauricio Macri.

Cleaning up the mess at money-losing flag carrier Aerolineas Argentinas and auditing questionable infrastructure contracts is also a key priority.

Aerolineas Argentinas, which depends on state subsidies of $1 million a day and loses some $500 million a year, has a serious problem of overstaffing (in line with former president Cristina Kirchner’s strategy of reducing unemployment by adding unqualified staff to various state entities) and inefficiency.

The airline now has 11,584 employees, up 28 percent since 2009 when Mariano Recalde became CEO. He was replaced on January 4 by Isela Costantini, a former General Motors executive who is expected to overhaul the airline through cost cuts and boosting efficiency.

“She will assume what was the management laboratory for La Campora and a company accused of being the most sought after agency for placing staff in Kirchnerist Argentina,” La Nacion, Argentina’s top newspaper, reports.

La Campora is a youth group led by Cristina Kirchner’s son Maximo Kirchner.  Campora loyalists control Aerolineas’ units  Optar (travel agency), JetPaq (air cargo) and Austral.

Costantini worked at General Motors for 17 years, most recently heading up the Argentina division. She was born in Brazil to Argentine parents.

Costantini has hired headhunter Egon Zehner to help find professional staff for key managerial positions.

In one of her first acts as CEO, Costantini ended a contract signed by Recalde, which entailed paying Sol Líneas Aéreas one million Argentine pesos a day as part of a “cooperation agreement.” The contract was signed in August and entered into force in September.

“The airline, which loses some $500 a year, pledged to pay the profit of a private company that was practically bankrupt before it signed the agreement,” La Nacion reports.

n addition to the structural challenges, the new Aerolineas CEO also has to deal with the agreement her predecessor signed with the airline’s seven unions for a 28 percent average annual salary rise, according to La Nacion.

But perhaps the great challenge will be the increased competition coming from Chilean airline LAN, which suffered from various restrictions  by Cristina Kirchner and which is expected to see a more normal business environment under Macri, La Nacion points out.

INFRASTRUCTURE CONTRACTS AUDITED

Meanwhile, on January 26, sources at the Ministry of the Interior said that the federal government was withholding money allocated for infrastructure projects in several provinces due to a lack of transparency on contracts signed by the previous government.

“The audit raises the risk that public works contracts can be revised if it turns out that public money was misused,” Carlos Caicedo Senior Principal Analyst on the country risk team of global consultancy IHS, writes in an analysis.

The audit follows an earlier review of the hiring of thousands of public employees in 2015 in the run up to the October presidential election, he points out. “The investigation showed that the previous government was employing thousands of state workers who earned a salary without doing any work; many of them have now been dismissed,” Caicedo says.

Regarding public works, government sources said they found an absence of documentation on the way many public works were awarded. Furthermore, they noted that for several projects up to 80 percent of payments had been released, despite the fact that only 10 percent of the work was done. According to a national media report, the auditing would affect major projects such as the Nestor Kirchner and Jorge Cepernic hydroelectric dams being built in the province of Santa Cruz, the political stronghold of Fernández. The two dams are being built by Chinese companies at estimated cost of $4.7 billion.

Argentinean daily La Nacion said that contracts particularly exposed were for road works, granted to engineering firm Austral Construcciones SA and owned by tycoon Lazaro Baez, a business partner of late president Néstor Kirchner.

“Delays due to auditing, rather than outright cancellation, will probably be most serious risk to Chinese projects,” Caicedo predicts. “China has significant leverage in Argentina, notably through currency swaps, used by Argentina to boost foreign reserves, as well as soy agreements. More broadly, President Mauricio Macri has promised to accelerate infrastructure projects in the provinces so auditing is likely to be expedited in order not to alienate the powerful provincial governors, whose support is crucial for the new federal government.”

 

 

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