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LATAM airlines hit by 'perfect storm' in Argentina

Published on NewsOK Modified: August 22, 2013 at 5:30 pm •  Published: August 22, 2013

SANTIAGO, Chile (AP) — Latin America's largest passenger airline is struggling to weather what one analyst called a "perfect storm" of bad news.

The latest setback is part of what LATAM considers a campaign by Argentina's government to undermine the company's competitive advantages against money-losing state-owned Aerolineas Argentinas. That effort reached a critical stage Tuesday night with an eviction notice giving LATAM's subsidiary, LAN Argentina, until month's end to vacate its hangar at the downtown Buenos Aires airport.

"We understand that this isn't an isolated action, but yet another in a growing number of actions taken against our company aimed at damaging our operations in Argentina," LATAM Vice President Enrique Cueto said in a letter to Chile's securities regulator.

He called the eviction notice "illegitimate" and said the company would pursue every available legal action in Argentina to re-establish its contract.

Also this week, LATAM announced a quarterly loss of $330 million due largely to currency fluctuations in Brazil, and it was fined $1 million by Canada in a price-fixing case involving South American cargo shipments.

"This has been a perfect storm because it's all coming together to give the company poor results," EuroAmerica brokerage analyst Jorge Sepulveda said Thursday.

LATAM shares plunged 10 percent before recovering some lost ground Thursday, but they still have lost more than half their value in the year since Chile's LAN Airlines and Brazil's TAM airlines merged. The company's investment-grade debt ratings were lowered after the LAN takeover, taking away much of the robust financial position the company had before the merger, Sepulveda said.

Chile's government plans to forcefully protest the eviction notice from Argentina's airports regulator at a Cabinet-level meeting between the two governments in Chile's capital Friday, Foreign Minister Alfredo Moreno said.

It's a sore point for Chilean President Sebastian Pinera, a billionaire investor who was LAN's chief executive before selling off his stake in the company to avoid conflicts of interest while in the presidency. His relationship with Argentine President Cristina Fernandez is cordial, but her government's efforts to centrally control the Argentine economy has increasingly led to clashes with Chilean business interests.

As a private company, LATAM has proven a tough competitor for state-owned Aerolineas and its short-hopping subsidiary, Austral, in the years since Fernandez's late husband and predecessor as president, Nestor Kirchner, invited LAN Argentina to establish a significant presence at the downtown airport and provide service to underserved cities around Argentina.

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