MercoPress. South Atlantic News Agency

Partly Canadian owned South American airline on the verge of bankruptcy

Former Pluna CEO Matias Campiani and the grounded aircraft

Uruguay’s bankrupt flagship carrier Pluna decided on Tuesday to cancel all flights during 48 hours following an announcement from the union of a two-day strike to protest working conditions and rumours of 200 redundancies.

“To avoid situations of uncertainty for passengers regarding flights, Pluna has been forced to cancel all its operations while the industrial action persists” said a brief release from the company, which is also partly owned by the Canadian group Chorus-Jazz.

The union measure is scheduled to last until midday Friday and is geared “to ensure the jobs of the 900 workers of the airline”, said the union chairman Alberto Prego adding they feared that the airline could incorporate new “Argentine investors”.

Pluna has liabilities of over 300 million dollars, plus an unpaid fuel bill of 25 million dollars with Uruguay’s oil and gas company Ancap, and the situation of a fleet of 13 Bombardiers of recent acquisition purchased with credit support from Canadian private and government financial institutions is not clear and could further add to the debt laden airline, according to parliamentary hearings on the issue.

The current situation exposing the dramatic financial condition of the airline surfaced last June 15 when the main shareholder the LeadGate group (75%) and responsible for management, CEO Matías Campiani admitted Pluna was on the verge of collapse, it hardly ever managed to make a profit, in the last eight months to February lost 18 million dollars and needed at least 35 million dollars in capitalization to keep in the air.

The Uruguayan government, which holds the remaining 25% stake, took over the carrier after the battle over the need to recapitalize ended when LeadGate said it was withdrawing its ownership stake in the company admitting it did not have the fresh funds needed.

A third of Leadgate belongs to the Canadian group Chorus-Jazz. The Canadian group participation stems from a 15 million dollars investment in April 2010 in Latin American Regional Aviation Holdings Corp. [LARAH], the parent company of LeadGate. The investment gave Chorus a 33% stake in LARAH and a 25% indirect ownership stake of Pluna.

The investment was part of Chorus’ efforts to diversify its business away from its partnership with Air Canada, which currently accounts for 99% of its revenue after a previous 100 million dollars charter contract with Thomas Cook was cancelled earlier this year.

The investment in Pluna was meant to provide returns to Chorus by granting it access to the growing Latin American airline market, as well as by potentially participating in the company’s eventual initial public offering.

Although the Uruguayan government has promised to keep the airline running until it finds an interested party and has been making contacts with potential Argentine groups, Pluna's bankruptcy could have important implications for Export Development Canada, since the oration provided 120 million dollars guarantee for the purchase of Bombardier CRJ900 regional jets in 2010 and 2011.

All shares in the Pluna previously held by LARAH (LeadGate) have been moved into trust since the government took control of the airline in exchange for certain conditions and indemnities from the Uruguayan government.

Chorus has the exclusive right to purchase LeadGate’s remaining stake in the company within 30 days (July 15), but has yet to make a decision on the matter.

The LeadGate group which is believed to be made up of mainly Argentine investors and financial experts (not linked to the air industry) only partly complied with its contract clauses of injecting fresh funds, making the airline profitable and expanding flights out of the region taking advantage of Pluna lines to North America and Europe.