VZCZCXRO5258
RR RUEHMT
DE RUEHBU #1409/01 2881336
ZNR UUUUU ZZH
R 141336Z OCT 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2234
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC//AWH-10//
RHMCSUU/FAA MIAMI SO IFO23 MIAMI FL
RHMFIUU/FAA MIAMI ARTCC MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE
RUEHMD/AMEMBASSY MADRID 2146
RUEHMT/AMCONSUL MONTREAL 0060

UNCLAS SECTION 01 OF 04 BUENOS AIRES 001409 
 
SIPDIS 
SENSITIVE 
 
STATE EEB FOR TERRI ROBL, KRISTIN GUSTAVSON 
TRANSPORTATION FOR BRIAN HEDBERG 
FAA FOR BONNIE AHUMADA, ANNA SABELLA, KRISTA BERQUIST 
FAA MIAMI FOR JAY RODRIGUEZ 
BRAZILIA FOR SHARON WALLOOPPILLAI 
MONTREAL PASS USMISSION TO ICAO 
 
E.O. 12958: N/A 
TAGS: EAIR ECON PGOV ELAB UY AR
SUBJECT: Argentina: Civair Tour d'Horizon 
 
This cable contains sensitive information - not for internet 
distribution. 
 
Reftel:  (A) Buenos Aires 1277 
         (B) Buenos Aires 241 
 
¶1. (SBU) Summary.  Argentine civil aviation authorities are slowly 
working the transition from military to civilian control of 
Argentine civil aviation with support from ICAO and the Mitre 
Corporation, and the GoA hopes to sign a new technical assistance 
agreement soon with the FAA.  The profitability of U.S. air carriers 
serving Argentina is being squeezed by still-high fuel costs and 
slackening demand for travel, but American and Delta will 
nevertheless soon be adding direct flights between Argentina and New 
York.  Flag carrier Aerolineas Argentinas's financial and 
operational woes continue, and Ezeiza International Airport 
expansion plans are being delayed due to increased financial costs. 
End summary. 
 
¶2. (SBU) Econoff met September 25 with Alejandro Orchansky, Vice 
President of the GOA's airports regulator (ORSNA) and senior advisor 
to the civil aviation authority (ANAC - National Civil Aviation 
Administration).  Econoff met September 29 with the country managers 
of the four U.S. passenger carriers that operate in Argentina, 
American, Continental, Delta, and United.  Econoffs also met the 
U.S.-based Sabre computer reservations system representative on 
September 30, and the City of Buenos Aires Tourism minister Hernan 
Lombardi on October 7. 
 
--------------------------------------------- -------- 
Military to civilian transition: still needs more time 
--------------------------------------------- -------- 
 
¶3. (SBU) As reported Ref B, the GOA's full transition from military 
to civilian control of civil aviation continues at a very slow pace. 
 (The GOA created ANAC, the National Civil Aviation Agency, in March 
2007.)  Alejandro Orchansky told Emboff that ANAC is still a "shell 
of an organization," and a full transition is still "a few more 
years away."  ANAC still has "almost no budget" and little legal or 
operational authority.  Orchansky confirmed that the GOA Air Force's 
Air Regions Command (CRA) continues to exercise de facto control of 
most, and certainly the most important, areas of civil aviation. 
Orchansky said that one of the most contentious matters remains how 
to deal with the labor aspect of any transition.  Presently, about 
80% of CRA's 6000-odd employees are military personnel, generally 
with much lower salaries than any future ANAC civilian workers would 
get.  Unresolved questions include: will these CRA military 
personnel be hired by ANAC, and if so, at what salary?  Would they 
be retired from the military first, or be transfered to ANAC? 
Equally important, according to Orchansky: will civilian air traffic 
controllers be allowed to strike, something the current military 
controllers are not allowed to do (although they have exercised 
"slowdowns" in the past)? 
 
¶4. (SBU) Orchansky confirmed that the International Civil Aviation 
Organization (ICAO) is providing assistance to support the GOA's 
transition from military to civilian control of civil aviation.  He 
said that one task in particular that ICAO will help with is in 
identifying which CRA military workers are qualified to be hired by 
ANAC, and which are not.  Orchansky acknowledged that this will be a 
very sensitive task politically, and in the end will have to be a 
political decision made by ANAC.  Orchansky also confirmed that 
U.S.-based Mitre Corporation also continues to be involved in 
assisting the GOA in its transition efforts, but said that its role 
will be "further down in the transition process," but did not 
elaborate. 
 
--------------------------------------------- 
Proposed MOU with FAA on technical assistance 
--------------------------------------------- 
 
¶5. (SBU) The U.S. Federal Aviation Administration (FAA) and ANAC 
have been discussing the possibility of signing a new technical 
assistance agreement for FAA assistance with the GOA's transition 
 
BUENOS AIR 00001409  002 OF 004 
 
 
from military to civilian control of civil aviation, and aviation 
safety oversight.  After the FAA upgraded the GOA in 2005 to 
Category I under the International Aviation Safety Assessment 
Category (deeming GOA's civil aviation authority to license and 
oversee air carriers in accordance with ICAO aviation safety 
standards), the GOA engaged the services of the FAA to receive 
assistance in aviation safety oversight.  From 2002-2007, the CRA 
received FAA technical assistance in the areas of operations, 
airworthiness, and aviation safety oversight.  This contract was 
terminated in 2007. 
 
¶6. (SBU) FAA presented ANAC with a draft of a new agreement several 
months ago.  ANAC head Rodolfo Gabrielli and Alejandro Orchansky 
were in FAA/Washington and Miami in May 2008 where they discussed 
this MOU.  Orchansky said that ANAC is still "very interested" in 
FAA assistance in the transition from military to civilian control 
and aviation safety.  He cited the usual "very slow bureaucracy" of 
the GOA for the delay in the GOA signing the MOU, but said that he 
expected this to be signed soon. 
 
--------------------------------------------- --- 
U.S. carriers squeezed, but still adding flights 
--------------------------------------------- --- 
 
¶7. (SBU) U.S. air carrier reps said that, with fuel prices still 
historically high (albeit lower in recent weeks), local inflation 
running at over 20%, and slowing economies in Argentina and the 
United States affecting ticket sales, most of them are feeling the 
strain in recent months.  At the same time, American and Delta reps 
confirmed they are taking a long-term view of market development and 
are planning to add new direct flights to New York-JFK Airport in 
December.  American already flies to JFK daily, and will add five 
more flights per week.  Delta will fly five new flights to JFK, in 
addition to their daily flights to Atlanta.  In early September, 
American terminated its daily direct flight to Chicago, which had 
begun in December 2007 amidst great fanfare, due to high fuel 
prices. 
 
----------------------------------- 
Aerolineas Argentinas woes continue 
----------------------------------- 
 
¶8. (SBU) Argentine aviation players contend that the financial and 
operational problems of newly renationalized Aerolineas Argentinas 
(AR) and Austral continue - and will likely worsen (ref A).  In the 
wake of the July 17 renationalization of the carriers, initial 
estimates foresaw monthly losses of around $50 million (or $600 
million annually, roughly 1% of 2008 primary expenditures).  GOA 
officials, media reports, and U.S. carrier reps now estimate that 
losses could increase further, in the range of $1 billion annually, 
and with no corresponding improvement in service.  (Buenos Aires 
Tourism Minister Lombardi told Embassy Econ and Commercial officers 
that he believes AR will go bankrupt within the next year.)  Of the 
estimated $900 million debt that AR is carrying, Embassy contacts 
indicate that AR owes around $200 million to private airports 
operator AA2000, $17 million to U.S.-based Sabre for its computer 
reservations system, and undisclosed amounts to the Amadeus e-travel 
management company and to GE Commercial Aviation Services for 
aircraft leases.  Delta said that his company had suspended its 
aircraft maintenance agreement with AR pending resolution of 
outstanding payments.  American said that they will no longer assist 
AR to carry its passengers on overbooked flights unless they pay 
cash.  American said that due to non-payment of dues, AR several 
years ago lost the use of the International Air Transport 
Association (IATA) clearing house, used by the world's airlines and 
airline-associated companies to settle their inter-company billings. 
 They noted that this limits the ability of some Argentine carriers 
and hotels to book additional tourism-related business.  Septel will 
analyze the ongoing AR and Austral renationalization process in 
light of recently-released (and widely divergent) assessed values of 
the companies by the GOA's Valuation Tribunal and Credit Suisse, the 
latter hired by AR's owners. 
 
--------------------------------------------- 
 
BUENOS AIR 00001409  003 OF 004 
 
 
Ezeiza Airport no match for regional airports 
--------------------------------------------- 
 
¶9. (SBU) U.S. carrier reps told Emboff that they were "extremely 
impressed" with the quality of the new airport in Lima, and that 
Santiago and Lima have the "best airports in Latin America."  They 
compared them with the "pitiful" quality of Argentina's Ezeiza 
airport, which they said was among the "worst" in Latin America - 
congested, poorly run, and poorly built.  They also noted again how 
short-staffed the airport's police and immigration staffs are, which 
negatively affect their passengers' arrival and departure waits. 
 
------------------------------- 
Problems with airports operator 
------------------------------- 
 
¶10. (SBU) Carrier reps again complained of the high costs, poor 
service, and arbitrary decisions of Argentina's airports operator 
AA2000.  These reps also said that AA2000's highly publicized, $500 
million Ezeiza airport expansion plans are now on hold, or at least 
will be delayed, due to the worsening financial outlook.  They said 
that local banks had recently increased the interest rates on the 
U.S. dollar loans for the project.  These reps said that the airport 
expansion delay will affect them as well: given Ezeiza's already 
congested status, and with plans of American, Delta, Lufthansa, and 
South African Air, among others, to increase flights into and out of 
Buenos Aires, congestion will likely worsen. 
 
--------------------------------------------- ------- 
U.S. carriers disappointed by recent GOA court ruling 
--------------------------------------------- ------- 
 
¶11. (SBU) On August 25, the GOA Supreme Court upheld a controversial 
lower court ruling that mandated carriers to pay higher rates for 
airport services for international flights.  U.S. reps told EconOff 
that they were "extremely disappointed" with the court ruling. 
 
¶12. (SBU) In early 2002, in the wake of Argentina's economic crisis 
and ending its one-to-one peso-dollar link, the GOA Congress passed 
a law requiring that public service tariffs formerly denominated in 
dollars, including airport user fees, be paid in depreciated pesos, 
which in effect decreased these charges by about one-third. 
Following this action, President Duhalde issued a decree which 
superseded that law and required that airport user charges for 
international flights -- for landing, parking, and air traffic 
control at Ezeiza Airport -- be paid in dollars, or about three 
times the amount had they been paid in the equivalent amount of 
pesos.  Several airlines challenged the constitutionality of the 
decree in Argentine courts, with different results.  Aerolineas 
Argentinas (AR) won an injunction against this measure, and to this 
day still pays airport charges at discounted peso rates.  U.S.-based 
and other foreign carriers sought unsuccessfully the same relief in 
different Argentine courts.  As a result, since September 2002, AR 
has been paying user charges at Ezeiza roughly one-third of what 
U.S. carriers pay for the same services.  Four U.S. carriers filed 
complaints with the U.S. Department of Transportation, arguing that 
the discrepancy in charges put the GOA in violation of the 1985 
bilateral air transport services agreement, which states that 
"airlines not be required to pay charges higher than those paid by 
the airlines of the other party."  These carriers also argued that 
it constituted an "unreasonable discriminatory practice against" 
U.S. carriers.  The DOT agreed and imposed a countermeasure: AR was 
required to deposit in an escrow account in the United States the 
difference -- for each international flights landing at Ezeiza -- 
between the user fee it pays and the fee that U.S. carriers pay. 
Today, this accumulated escrow account amounts to about $5 million. 
 
 
¶13. (SBU) With the legal question surrounding this decree now 
settled, the remaining unresolved issue is if or when the GOA will 
ever discontinue AR's effective advantage it enjoys over its 
international competitors. 
 
--------------------------------------- 
 
BUENOS AIR 00001409  004 OF 004 
 
 
GOA pleased with LAN's recent expansion 
--------------------------------------- 
 
¶14. (SBU) Orchansky said that the GOA is "much more satisfied" with 
Chile-based LAN airlines in recent months.  (LAN entered the 
Argentine domestic market in 2005, and their experience here has 
been difficult at times, with LAN and the GOA often accusing each 
other of unmet promises.  The GOA says that LAN promised more planes 
and routes than so far realized; LAN says that below-market fares 
and unrealized tax and fuel rebates has stifled its desire/ability 
to expand services.)  Orchansky said that the Secretary of 
Transportation was pleased that LAN has recently added new routes 
and planes to Neuquen City, Rio Gallegos, and San Juan.  He 
acknowledged that GOA-sanctioned fare increases of almost 40% in 
recent months has made LAN expansion easier. 
 
--------------------------------------------- -------- 
Uruguayan flag carrier Pluna competing with local carriers 
--------------------------------------------- -------- 
 
¶15. (SBU) U.S. air carrier reps praised the "good marketing 
strategy" of Uruguayan flag carrier Pluna, and its decision to focus 
on the regional market, including Argentina, after it cancelled 
service to Madrid in September and put off expansion to other 
long-distance markets.  (Pluna is 75% owned and managed by Leadgate 
Investments, a consortium of mostly U.S. investors, and 25% owned by 
the GOU.)  In recent months, Pluna purchased several new 
Canadian-built Bombadier CRJ900s, and is moving to capture the 
potentially rich market of bringing Argentine travelers from the 
interior of Argentina who seek to go to Europe and the United 
States, and want to avoid the congestion, delays, and thefts of an 
intermediate stop at Ezeiza airport.  From Montevideo, where the 
Carrasco airport is nearing completion of a new terminal, long-haul 
carriers such as American Airlines, Iberia, and Air France can then 
take these passengers to the United States and Europe.  (NOTE: 
Embassy Montevideo reports that Pluna's financial losses and 
subsequent termination of its loss-making Madrid route prompted an 
ongoing dispute with GOU representatives on the board and labor 
unions, who oppose the move because of workforce implications and 
political sensitivity.  Airline industry observers in Uruguay have 
suggested that the GOU needs to choose whether Pluna will remain 
privately managed in the image of LAN or if the government exerts 
more control, as is the case with Aerolineas Argentinas.  At this 
point, it appears likely the LAN model will win out.  END NOTE.) 
 
 
WAYNE