VZCZCXYZ0000
RR RUEHWEB

DE RUEHLP #0567/01 0622034
ZNR UUUUU ZZH
R 032034Z MAR 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 8286
INFO RUEHAC/AMEMBASSY ASUNCION 5638
RUEHBO/AMEMBASSY BOGOTA 2905
RUEHBR/AMEMBASSY BRASILIA 6776
RUEHBU/AMEMBASSY BUENOS AIRES 3997
RUEHCV/AMEMBASSY CARACAS 1343
RUEHPE/AMEMBASSY LIMA 1248
RUEHME/AMEMBASSY MEXICO 1662
RUEHMN/AMEMBASSY MONTEVIDEO 3594
RUEHQT/AMEMBASSY QUITO 3978
RUEHSG/AMEMBASSY SANTIAGO 8499
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEAYVF/FAA MIAMI ARTCC MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS LA PAZ 000567 
 
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: BOLIVIAN NATIONAL AIRLINE FIGHTS FOR SURVIVAL 
 
REF: LA PAZ 351 
 
¶1. (U) Summary: Since the end of an early February pilots' 
strike (reftel), Lloyd Aero Boliviano has encountered a 
string of difficulties.  Two U.S.-based firms, Aviation 
Capital Group and Pegasus Aviation, have repossessed or are 
in the process of repossessing leased aircraft, and the GOB 
has made it clear it will not provide financial assistance, 
instead authorizing a comprehensive audit to determine the 
extent of Lloyd's financial problems.  While ticket sales 
continue to fall, Lloyd limps along, with employees and 
outside observers uncertain about its future but expecting 
the worst.  End summary. 
 
¶2. (SBU) Since the GOB intervened February 9 to end an 
eight-day pilots' strike (reftel), Lloyd Aero Boliviano, 
Bolivia's flag carrier, has encountered a string of 
difficulties.  On February 24, the company returned one of 
two leased Boeing 727-200 jets to U.S.-based Aviation Capital 
Group, whose executive vice president told Econoff that Lloyd 
was significantly behind in its lease payments.  The two 
firms agreed to a revised payment scheme a week before the 
pilots' strike, but the flight disruptions and subsequent 
loss of revenue made it impossible for Lloyd to fulfill its 
obligations.  The loss of the aircraft reduced Lloyd's fleet 
of operating planes to five and placed new limits on its 
ability to provide service to Brazil, Argentina, and Mexico. 
Aviation Capital Group executives said they would repossess 
the firm's remaining aircraft as soon as Lloyd completes 
routine airbody maintenance work, which representatives 
expect the week of March 13. 
 
¶3. (SBU) Another U.S.-based firm, Pegasus Aviation, is in the 
process of repossessing all four Boeing jets Lloyd leases 
from the company.  The firm's deputy general counsel told 
Econoff that Lloyd returned two planes several months ago but 
owes significant amounts of money on both leases and is well 
behind on lease payments for the remaining aircraft.  Pegasus 
Aviation's local counsel has filed aircraft deregistration 
requests with the Bolivian Civil Aviation Authority and is 
awaiting a response; if the requests are approved, the 
company will move ahead with the repossessions.  According to 
company executives, Pegasus Aviation will also consider 
filing suit in U.S. courts to recover Lloyd's outstanding 
debts. 
 
¶4. (U) Meanwhile, the GOB has made it clear it will not 
provide financial assistance, instead authorizing a 
comprehensive audit to determine the extent of Lloyd's 
financial problems.  The company has not issued financial 
reports since 2003, so asset value and insurance and pension 
fund debts (estimated by some observers at almost $30 
million) are unknown.  Lloyd's cash flow has been undercut by 
dwindling passenger loads and limited flight schedules, 
further undermining its accounts and forcing the 
GOB-appointed controller to try to reschedule debt payments 
and pursue special arrangements with the few suppliers still 
willing to work with the airline. 
 
¶5. (SBU) Comment: Customers' confidence in Lloyd, long 
undermined by its reputation for unreliability, has fallen 
still further, with ticket sales down as much as 50 percent. 
Unable to fill its seats, Lloyd limps along, with employees 
and outside observers uncertain about its future but 
expecting the worst.  The carrier's financial health and 
ability to maintain its aircraft and operate normally are in 
doubt, and many believe the airline will fail unless it 
receives a significant capital injection from the GOB or 
company shareholders, which is highly unlikely.  If Lloyd 
does fail, American Airlines will be the sole carrier serving 
Miami, leaving travelers and exporters to compete for seats 
and cargo space.  With angry creditors, a detached 
government, and a skeptical public, Lloyd's future is shaky 
 
at best.  End comment. 
GREENLEE