Venezuela: Airlines Close to Deal with GBRV on Arrears

C O N F I D E N T I A L CARACAS 000143

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E.O. 12958: DECL: 2020/02/04
TAGS: EAIR ECON ETRD PREL SNAR VE BEXP EINT ETTC
SUBJECT: Venezuela: Airlines Close to Deal with GBRV on Arrears
Payments

REF: 10 CARACAS 27

CLASSIFIED BY: Steuart, Darnall, Economic Counselor, DOS, ECON;
REASON: 1.4(B),(D)


1. (C) SUMMARY: The International Air Transport Association
(IATA) reached an agreement with the Venezuelan Central Bank (BCV)
to use the new 2.6 bolivares fuertes (BsF) to $1 exchange rate to
liquidate foreign exchange requests pending with the GBRV from
international airlines prior to the January 8 announcement of a
devaluation which became effective on January 11. This was
subsequently confirmed in a regulation published in the Official
Gazette on January 27, 2010. The BCV also pledged to IATA that the
Venezuelan current exchange board (CADIVI) would process the
arrears owed to air carriers before the end of May 2010. U.S. air
carriers alone had requests of approximately $260 million pending
with CADIVI prior to the devaluation. Air services ticketed from
January 11 onwards will be priced at the 4.3 BsF/USD exchange rate.
U.S. airlines report that they are generally satisfied with the
agreement under which they will only take a 17 percent loss on
pending CADIVI requests. Certain other issues are still under
negotiation and Delta has specifically informed Post that it is
rejecting receipt of the 2.6 BsF/USD rate for payments authorized
immediately before the devaluation but not yet liquidated by the
BCV. The airlines said they considered requesting U.S. Government
advocacy, but did not due to the tense bilateral relationship with
the GBRV. End Summary




2. (U) The devaluation was announced by President Chavez on
January 8 and subsequently confirmed by publication in the Official
Gazette on January 11. The devaluation created two official
exchange rates (2.6 BsF/USD and 4.3 BsF/USD) and immediately caused
a clamor by sectors, including the aviation sector, about which
exchange rate would be used to liquidate requests pending before
CADIVI prior to January 8. (NOTE: The Official Gazette notice
announcing the devaluation indicated that any requests pending at
BCV on January 11 would be recognized at the 2.15 BsF/USD rate in
place at the time of the devaluation (reftel). Requests at CADIVI,
that authorizes the dollar payments which are then forwarded to the
BCV, were not mentioned in the announcement. END NOTE). Foreign
carriers had formerly been able to request CADIVI foreign exchange
approvals at the old 2.15 BsF/USD rate to move BsF out of country
and cover USD costs (NOTE: Domestic Venezuelan carriers were not
authorized access to CADIVI dollars. END NOTE). Under the new
foreign exchange rate system, airlines will use the second exchange
rate of 4.3 BsF/USD for all post-devaluation requests for dollars.





3. (C) Carriers did not know which exchange rate the BCV would use
to liquidate CADIVI requests that pre-dated the devaluation and
were concerned that they might take a 50 percent exchange loss.
IATA Country Manager for Venezuela Marisela Loaiza (protect) told
Econoffs on January 28 that IATA and the BCV had reached an
agreement to use the 2.6 BsF/USD rate for pending airline CADIVI
requests. This was confirmed in a regulation published by the
GBRV on January 27 which became public on the 28. The Official
Gazette announcement includes just those requests already pending
before CADIVI (for example, a request filed with CADIVI for
services provided by the airline in October 2009 and submitted to
CADIVI in December 2009). According to IATA data, U.S. carriers
have pending CADIVI dollar payments of around $260 million: $202
million for American Airlines for requests covering submissions
through October 2009; $17 million for Continental Airlines for
requests covering submissions through October 2009; $36 million for
Delta Airlines for requests covering submissions through September
2009; and, finally, $3.8 million for Federal Express for requests
covering submissions through June 2009. (NOTE: In cases of
devaluation, the government historically has not recognized the
previous exchange rate for pending payments. End Note)




4. (C) Loaiza also noted that the BCV had agreed to pay all
arrears through December 31, 2009 within the next four months; this
agreement has not been reflected in the Official Gazette yet. The
airlines had not submitted their dollar payment requests to CADIVI
for the last months of 2009 (apparently November -December in the
case of American and Continental; October-December for Delta; and
July-December for FEDEX). In addition, the airlines, through IATA,


are still negotiating with the BCV to recognize sales made through
January 11 at the 2.6 BsF/USD since air fares were sold at the 2.15
BsF/USD rate until the Official Gazette announcement of the
devaluation. Petitions have not yet been submitted for sales in
January.




5. (C) Although the 2.6 rate means an exchange rate loss of 17
percent on their pending 2009 requests, U.S. carrier
representatives in Caracas indicated to Econoff that it was much
better than if they received the 4.3 rate, or a 50 percent
reduction. Under Venezuelan law, airlines could charge passengers
the difference between the old exchange rate and the new one for
unused tickets purchased prior to the devaluation. At this time,
the airlines do not plan to do this because the loss is not as
significant as it would have been at the 4.3 rate. [NOTE: American
Airlines particularly took millions of dollars in exchange losses
due to actions taken by the BCV before and after a devaluation in

1995. It took the case to court and lost. END NOTE.]




6. (C) Juan Fermin (protect),Country Manager for Delta, told
Econoff on January 22 that Delta had rejected dollar payments for
January and February 2009 because the BCV would not recognize the
2.15 BsF/USD rate. Although the CADIVI payment authorization for
those months had been given the last week of December, the BCV had
informed Delta that it would liquidate at the 2.6 rate presumably
because the CADIVI authorization had not been forwarded to the BCV
before the devaluation was announced. Fermin said he is urging his
home office to accept the dollars at this rate. Fermin also
informed Econoff that the airlines had discussed the possibility of
involving Post in BCV talks. He remarked that they were ultimately
reluctant to do so due to the tense bilateral relationship between
the USG and the GBRV.




7. (C) COMMENT: IATA's breakthrough is a positive step for the
airlines but they will have to wait to see the money before
celebrating. The January 27 regulation which acknowledged that
pending airline requests would be honored at the more favorable 2.6
BsF/USD exchange rate listed a number of other sectors whose
pending requests would also be honored at the preferential rate. A
local analyst who follows the CADIVI process closely has published
a cautionary note to the affect that the GBRV is simply not
receiving enough dollars from its oil sales to satisfy the demand -
whether at 2.6, 4.3 or any other official exchange rate that might
be set in the coming months.
DUDDY