Page last updated at 12:09 GMT, Tuesday, 22 July 2008 13:09 UK

Argentine airline set for bumpy ride

By Robert Plummer
Business reporter, BBC News

Argentina's national airline is a lot like Argentina itself: it has a romantic past, a troubled history and difficult problems ahead.

Airbus aircraft in Aerolineas Argentinas colours
Aerolineas Argentinas has been struggling with financial woes

The decision to renationalise Aerolineas Argentinas brings the company full circle, since it was founded as a state concern in December 1950.

The move brought together various existing local services under the terms of an executive decree issued by the government of Gen Juan Peron.

However, the airline's official history traces its origins back as far as 1929, when Argentina took its first steps into the world of aviation by setting up an airmail service, Aeroposta.

Among the fledgling carrier's first pilots was French novelist Antoine de Saint-Exupery, who wrote one of his best-known books, Night Flight, based on his experiences working for Aeroposta.

From those humble beginnings, Aerolineas Argentinas expanded rapidly during the 1960s and 1970s, extending its international services to the US and Europe.

But the airline that came into being as part of the original Peronist political programme was transformed, for better or worse, by the man who radically redesigned the movement in later years - Carlos Menem.

Spanish acquisition

During Mr Menem's decade as president from 1989 to 1999, he pursued policies that were completely at odds with his party's initial corporatist vision.

As New Peronism replaced Old Peronism, Mr Menem liberalised huge swathes of the Argentine economy, privatising many sectors that had been taken into state hands under Peron.

Spain's Iberia acquired a majority stake in Aerolineas Argentinas, but the business failed to prosper and Iberia later reduced its holding.

President Cristina Fernandez de Kirchner applauds the handover of Aerolineas Argentinas airline company in Buenos Aires
This is the latest in a series of state takeovers in Argentina in recent years

Several complex attempts at restructuring ensued, but by the late 1990s, the airline was close to insolvency.

In 2001, Spanish travel conglomerate Grupo Marsans acquired more than 90% of Aerolineas Argentinas, but the company remained overstaffed and plagued by industrial disputes.

Mere months later, Argentina was plunged into economic chaos that left Mr Menem's free-market policies discredited, paving the way for a resurgence of back-to-the-roots populist Peronism.

Under Nestor Kirchner, elected as president in 2003, and his wife Cristina Fernandez, who succeeded him last year, many privatised firms have been renationalised, including postal and water services.

Frequent delays

Aerolineas Argentinas is the latest firm to return to state hands, but many questions about the deal remain unanswered.

For one thing, the price-tag is still a secret. The Argentine government has not said how much it is paying for the 99.4% of the airline it is acquiring, nor when it intends to buy the remaining 0.6% that is owned by the firm's employees.

It is also unclear how the government hopes to succeed where private enterprise has failed, by making the business viable and putting an end to the frequent delays and cancellations that have tarnished the airline's image.

With hindsight, Mr Menem's economic reforms clearly lacked durability.

Privatisations carried out by one government can easily be reversed by another, but whether in public or private hands, many firms remain uncompetitive.

Corruption and inefficiency are still major problems, while even the greatest achievement of the Menem years - the end of hyperinflation - is now under threat as the economy overheats.

And that's not the only headache facing Ms Fernandez's presidency.

The government now faces a yawning gap in its budget after an embarrassing defeat in the Senate for its controversial tax increases on agricultural exports, and energy prices are threatening to trigger a rise in inflation.

All in all, with political and financial turbulence looming again, Argentina's national airline and its economy are both flying into an uncertain future.

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