ARGENTINA MENDS AIRLINE DISPUTE; HESITATES ON

C O N F I D E N T I A L BUENOS AIRES 000660

SIPDIS

E.O. 12958: DECL: 05/16/2028
TAGS: PREL ECON EINV EAIR BEXP KNNP MNUC NPT PARM
AR
SUBJECT: ARGENTINA MENDS AIRLINE DISPUTE; HESITATES ON
GICNT

Classified By: Ambassador E. Anthony Wayne for reasons 1.4 (B) and (D).


1. (C) Summary: On May 16, Spanish Ambassador to Argentina
Estrella (protect strictly) told the Ambassador that the
Government of Argentina (GOA) and Spanish company Marsans
have reached agreement over how to handle ownership of
Aerolineas Argentinas and Austral Airlines. He said
agreement was driven by GoA desire to sort this out before
President Christina Fernandez de Kirchner (CFK) and Spanish
President Zapatero meet in Lima at the May 16-17 EU-Latin
America summit. He said that in general, a wide swath of GOA
ministers are very concerned about plummeting polls for CFK
and ex-President Nestor Kirchner (NK). He also indicated
that a top MFA official had confided to him that Foreign
Minister Taiana is hesitant to sign up for the Global
Initiative to Combat Nuclear Terrorism (Global Initiative)
because leftist activist Hebe de Bonafini had criticized this
initiative publicly as ""U.S. imperialism"" trying to involve
Argentina in the war on terror. Taiana is still weighing
whether to attend the June Madrid meeting on this initiative,
but he is being extra-cautious given criticism of him and the
MFA for a number of missteps. We may want to weigh in
quietly with Taiana and encourage other GICWT supporters to
do so. End Summary.

Left Criticizes U.S.-Russian Initiative on
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Combating Nuclear Terrorism
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2. (C) Ambassador contacted Spanish Ambassador Estrella May
16 to compare notes on recent events and to get an update on
possible Argentine participation in the June 16-18 meeting of
the U.S.-Russian inspired GICNT which Spain is hosting in
Madrid. On the latter item, Estrella said Spanish Foreign
Minister Moratinos had raised this with Foreign Minister
Taiana during Moratinos's recent visit to Buenos Aires.
Estrella reported that Taiana said he was sympathetic but
reluctant because it was not a UN initiative. He said he was
still considering attending the Madrid meeting, however.
Taiana,s cabinet chief explained privately to Estrella that
Taiana was particularly concerned that Argentine
participation could lead to leftist criticism of him, and he
did not need to confront that criticism right now, given
recent scandals in the Foreign Ministry and criticisms of its
actions. Specifically, leftist leader of the Mothers of the
Plaza de Mayo, Hebe de Bonafini, had criticized the
initiative publicly in early 2006 after then-U/S Burns had
mentioned it publicly and invited Argentina to join.
Apparently, she criticized the initiative as an effort by
"U.S. imperialism" to "drag" Argentina into its war on
terror. Estrella concluded that Taiana may still be
convinced to go, but he was clearly watching out for his
political standing; he is still recovering from a string of
missteps and rumors of his departure continue to appear in
the press. (Comment: Per Buenos Aires 0589, the Ambassador
raised the GICNT with Taiana on April 11, when Taiana said
the GOA was looking favorably at attending the Madrid
meeting, which would require an a priori GOA endorsement of
the GICNT. MFA officials have told us recently that they are
interested in ratifying the GICNT. We may want to encourage
the Russians and other GICNT supporters to quietly urge
Argentina to attend the Madrid meeting. End comment.)

Argentine Airline Agreements
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3. (SBU) Estrella noted that basic agreement had been
reached on a way forward in dealing with two Spanish-owned
Argentine airlines (Aerolineas Argentinas and Austral).
Estrella said that that agreement's timing was driven by GOA
concerns that local press stories would again focus on
alleged Spanish complaints about poor treatment of the
Spanish-owned airlines when CFK and Rodriguez Zapatero meet
in Lima on May 16-17. (See Buenos Aires 572 for background
on this dispute.) The Spanish Marsans Group, at present
majority owner of Aerolineas, has agreed with the GoA on a
procedure for the entry into ownership by other private
partners as well as the GOA and airline workers. Estrella
said that Marsans will preserve control and the largest share
of ownership. The prices for the purchase of Marsans shares
will be set by a third party (press reports have noted that
one to three outside auditors, such as Price Waterhouse, are
being retained to establish the fair market value of the
airline) based on an expected ten-year-value timeframe.

Appropriate clauses have been agreed that will allow Marsans
to sell its remaining shares at a fair price within three
years, if the GoA does not keep agreements it has made on
fare increases, fuel prices, plane/equipment purchases, and
other items. Estrella reported that the sale of shares in
Aerolineas' smaller sister carrier, Austral Airlines, will be
dealt with at the same time as Aerolineas Argentinas and at
the same price per share level. He confirmed that the two
airlines will be kept separate in an apparent GOA concession
to the powerful unions of both airlines. (Austral staff
conducted a wildcat strike May 10 to protest concerns that
Austral would be subsumed by Aerolineas; they are not
contesting a change in ownership but seek to remain a
separate entity). Estrella said that GoA state financing
will be available for private Argentine parties to buy shares
and to pay for additional shares if Marsans pulls out for
cause. Marsans will retain a 34% equity stake in Aerolineas.
Argentine businessman Juan Carlos Lopez Mena, owner of the
Buquebus ferry line, will purchase a 26% share, and 10% will
be purchased by other (presumably domestic) private
investors. In addition, 10% of Aerolineas shares will be
held by airline employees and the GoA's own stake will be
increased from 5% to 20%. (Local press reports, meanwhile,
indicate that Marsans's and Lopez Mena's share breakdowns
have not yet been specifically established.)

Government Popularity
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4. (SBU) Estrella said that he had talked privately with a
good number of several Argentine government ministers
recently, and they were uniformly very worried about the
government,s plummeting standing in the polls. CFK had
dropped 20% in four months and Nestor Kirchner was now also
dropping markedly, though he is still more popular than his
wife. Ministers also note that by contrast, Brazil has
received investment grade marks from international credit
rating agencies and is being courted by countries from around
the world.
WAYNE