LLOYD LIMPS ALONG

UNCLAS LA PAZ 000816 SIPDIS SENSITIVE SIPDIS STATE FOR EB/TRA JHORWITZ AND EB/TRA/OTP BMATTINGLEY STATE ALSO FOR WHA/AND LPETRONI STATE PASS TO FAA MIAMI FOR LHART STATE PASS TO DOT FOR CCOLDREN COMMERCE FOR JANGLIN E.O. 12958: N/A TAGS: EAIR ECON PGOV BL SUBJECT: LLOYD LIMPS ALONG REF: LA PAZ 567 ¶1. (U) Summary: Mid-way through a 90-day government intervention, Bolivian national airline Lloyd Aero Boliviano is barely limping along. With its chief executive under attack, its finances increasingly shaky, and a U.S.-based company initiating legal proceedings to repossess the four aircraft Lloyd leases, survival is at best uncertain. End summary. ¶2. (U) Six weeks into a 90-day GOB-mandated intervention, Bolivian national carrier Lloyd Aero Boliviano is struggling to overcome a series of challenges. Government attorneys have accused its chief executive, Ernesto Asbun, of corruption and mismanagement, and local newspapers have suggested he could be indicted within a few weeks. Observers say Asbun should be prosecuted for failing to meet Lloyd's pension fund obligations, noting that he broke the law by diverting money meant for this purpose to other uses. ¶3. (U) Government-appointed controller Angel Zaballa publicly stated that Lloyd may owe as much as $149 million to pension funds, the Bolivian national treasury, employees, and aircraft leasing companies. The firm is undergoing a comprehensive audit to determine the extent of its debts and to fill a two-year gap in the publication of financial statements, but results are not expected anytime soon. The carrier's cash flow, meanwhile, has been undercut by declining passenger loads (industry contacts told Econoff March 20 that Lloyd is operating at less than 50 percent capacity) and limited flight schedules, making it increasingly difficult to pay for fuel and keep the company's few remaining planes in the air. ¶4. (SBU) Four of Lloyd's Boeing 727 and 767 jets may soon be repossessed by U.S.-based Pegasus Aviation, a leading aircraft leasing company. Pegasus' deputy general counsel told Econoff March 23 that the firm initiated legal proceedings in U.S. District Court in Miami, with a judge issuing an order entitling Pegasus to repossess its aircraft upon arrival in Miami. Pegasus has formally terminated its lease agreements and filed aircraft deregistration requests with the Bolivian Civil Aviation Authority (reftel),making Lloyd's continued operation of Pegasus planes illegal. ¶5. (SBU) Comment: Pegasus representatives told Econoff they may be willing to renegotiate their lease agreements, but only if Lloyd secures GOB backing. Government officials recently said they were considering a $10 million loan for Lloyd, but this would clearly be insufficient given the airline's reported liabilities. Other contacts have indicated the GOB may be drafting a decree assuming responsiblity for the carrier's debts. Lloyd is facing the potential loss of its chief executive, its income, and its aircraft, which severely weakens its chances of survival. Some say its chances are slim to none. End comment. GREENLEE