Argentina's government has avoided spending the $20 million start-up capital required to launch Federal Airlines (LAFSA) by contracting Southern Winds to do it instead.
Under an ingenious deal, the government will subsidise Southern Wind's fuel bill by $1 million per month and pay the salaries of LAFSA's 800 employees. In return, Southern Winds will expand its fleet from five to 15 Boeing 737-200s and use LAFSA staff to fly the former routes of LAPA and Dinar, which collapsed earlier this year.
The fleet expansion will start in early October and Southern Winds expects the project to be completed by the end of the year. It will operate the new routes in its own name and livery, with crews in its own uniforms, but it will possibly add LAFSA's name once the new airline has its own operating license.
This deal fulfills the government's goals in creating LAFSA - to find jobs for the 800 staff of LAPA and Dinar, and avoid handing Aerolíneas Argentinas - which already controls over 70% of the market - a domestic monopoly.
The pact is effective for six months and renewable for another six. Buenos Aires has consistently said it wants to sell LAFSA after six months. Rumours persist that LanChile is keen to buy a stake.
The Southern Winds deal has drawn some fire. Critics have questioned how much it will really save the government. Smaller airlines are asked for a fuel subsidy of their own.
Buenos Aires is working on a plan to turn over some of LAFSA's thinner routes to Aerovip and American Falcon in exchange for such a subsidy.
Source: Airline Business
