{"id":24119,"date":"2024-11-11T11:17:37","date_gmt":"2024-11-11T14:17:37","guid":{"rendered":"http:\/\/fund.ar\/publicacion\/what-to-do-with-aerolineas-argentinas\/"},"modified":"2024-12-12T16:58:48","modified_gmt":"2024-12-12T19:58:48","slug":"what-to-do-with-aerolineas-argentinas","status":"publish","type":"publicacion","link":"https:\/\/fund.ar\/en\/publicacion\/what-to-do-with-aerolineas-argentinas\/","title":{"rendered":"What to do with Aerolineas Argentinas?"},"content":{"rendered":"\t\t
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State-owned enterprises (SOEs) in Argentina are at the centre of public debate. Milei’s government repeats, over and over again like a mantra, that they are inefficient and represent a heavy burden on the national state’s strained public accounts. The reasoning behind this is simple: why keep inefficient companies in state hands whose services or goods could be provided by the private sector?<\/strong><\/h4>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Answering this question requires at least three steps. First,<\/span> take a<\/b> look around the world<\/b> to see whether SOEs are a <\/span>rara avis<\/span><\/i> of “leftist” developing countries or policy instruments present in modern developed countries. Second, <\/span>to separate the wheat from the chaff<\/b> to understand in which cases state ownership of enterprises is justified and what are the potential costs of renouncing the exercise of these ownership rights. Third, <\/span>takes a closer look at the management<\/b> of public companies, in particular to understand the reasons for their inefficiencies and policy alternatives. To this end, we focus on Aerol\u00edneas Argentinas.\u00a0<\/span><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Public enterprises, a neighbourhood phenomenon<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tSOEs play a key role in many economies around the world, regardless of the geographical region or the level of economic development of the countries. <\/span>Norway, Finland and Korea<\/b> developed leading-edge sectors based on their SOEs. In Southeast Asian countries such as <\/span>Thailand and Indonesia<\/b>, SOEs are leading the energy transition.<\/span>\r\n\r\nThey are particularly relevant in strategic sectors of modern economies, such as finance, energy and transport. Several of the world’s largest companies are publicly owned: Equinor, COFCO, Airbus, Deutsche Telekom, Banco do Brasil, Petrobras, Telecom Italia, ICBC, Japan’s NTT, Enel, Pemex, France Telecom, Engie, State Grid China, JBS, Saudi Arabian Oil Company, Gazprom, and many more around the world.<\/span>\r\n\r\nIn recent years, the importance of SOEs in the world economy has increased. While in 2000-2002 they accounted for 5% of the total revenues of the world’s two thousand largest companies, this share increased to 17% in 2016-2018<\/span> 1. In 2018, the total assets of SOEs reached an equivalent of 50% of global GDP.\u00a0<\/span>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\tTwo factors contribute to this change:<\/b><\/span>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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  • On the one hand, governments own pension funds, financial institutions and sovereign wealth funds<\/b>, which have reached an amount equivalent to one third of global financial asset holdings. Some of these funds are invested in equity stakes in companies. For example, in 2010, sovereign wealth funds held more than 50% of the shares in around 1,000 companies. By 2020, the total had risen to ten thousand firms.2<\/sup><\/li>
  • On the other hand, the second factor is the growth and internationalisation process of SOEs<\/b>, particularly in China. Since 2008, SOEs account for between 5%-15% per year of cross-border acquisitions (acquisition of private companies in countries outside the state that owns the SOE<\/span>)3<\/sup>.<\/span><\/li><\/ul>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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    Public companies, means to an end<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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    \n\t\t\t\t\t\t\t\t\tSOEs are an instrument to achieve certain public policy objectives. However, ideological views are often adopted where the instrument becomes an end. The debate ceases to be about public policy objectives and the instruments to achieve them and becomes a maximalist ideological debate about the existence of these types of companies.<\/span>\r\n\r\nProgressive governments in Argentina have made an uncritical defence of SOEs, leaving no room to debate that sometimes these instruments work poorly and need to be improved. For its part, the current government decided to continue with the Argentine classic where instruments are discussed from ideological points of view and ends are mixed with instruments. <\/span>“No public company is useful and they should all be privatised<\/span>“ is one of the new truths<\/span>.\r\n\r\nA public enterprise is useful if it fulfils the public policy objectives defined by the state, and if it does so efficiently and effectively. <\/b>In this type of enterprise, being efficient does not necessarily mean being profitable: it means using the available resources in an optimal way. To be efficient is to have the capacity to achieve the objectives. <\/span>\r\n\r\nFor example, let us assume the case of a public utility that provides drinking water and sanitation and charges a tariff that covers costs, while allowing for a small profit with the objective of allocating this profit to expand the service network. If the company is not efficient and makes a loss that must be financed with state contributions, not only is the objective of expanding the water and sanitation network not achieved, but also funds that were originally allocated to other public programmes or policies are diverted.<\/span>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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    There are several reasons that justify the existence of public enterprises, reasons that demonstrate the presence of a public interest at stake:<\/strong><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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    Market failures<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    The existence of SOEs is usually justified as a way to correct market failures. For example, in cases where the private sector does not have sufficient incentives to invest in projects where large investments are required, profits are long term and there is high uncertainty. Another example of market failure is natural monopolies, where it is most efficient for a single supplier to provide a good or service; drinking water distribution or energy distribution networks are examples of this type of market situation.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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    Industrial or development policy in strategic sectors<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    SOEs can play a key role in economic development by fostering the growth of new sectors or activities. Examples of this role are the Chilean company CODELCO, created in 1976 in the copper mining sector, or the Korean company POSCO, created in 1968 for steel production. In our country, after its majority expropriation, the role of YPF was central to the development of hydrocarbon exploitation in Vaca Muerta.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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    SOEs can fulfil macroeconomic objectives. For example, a public bank can have a counter-cyclical credit policy or a public enterprise can increase investment in a crisis context. These enterprises do not replace macroeconomic tools, but complement them.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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    The government’s argument is that many of the functions performed by SOEs could be performed more efficiently by private companies. But the truth is that this requires complex regulatory regimes or taxation schemes to ensure that policy objectives are met, and involves high administration costs. So, <\/span>why not try to make SOEs, which fulfil some relevant policy objective, both efficient and transparent?<\/b><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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    There is renewed interest in the world on how to improve the management of SOEs. In general terms, it is argued that they need to follow standards and practices similar to those of the private sector, without losing sight of the particular characteristics of this type of instrument.<\/span><\/p>\n

    This includes a number of reforms aimed at:<\/b><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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    1. Improve its governance.<\/span><\/li>\n
    2. Introduce good management practices to increase their efficiency and effectiveness in meeting commercial and non-commercial objectives.<\/span><\/li>\n
    3. Have more transparent policies to assess their contribution to economic development.<\/li>\n
    4. Open the ownership of companies to private capital and promote their exit to the capital markets, so that minority shareholders have some degree of influence over decisions.<\/li>\n<\/ol>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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      Governments in Argentina have made little progress in this type of reform. There have been some attempts to improve SOE governance, but they have not been sustained over time. And, as is often the case, when the necessary reforms are not addressed in due time, it leaves room for extreme positions, such as the one we are seeing today: the national government’s political agenda is privatisation.<\/span><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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      Aerol\u00edneas Argentinas, flag carrier or reservoir of inefficiencies and privileges?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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      In our country, there are reasons that justify the need for public policies that encourage and promote air transport development. Among the main ones, the following stand out:<\/span><\/p>\n

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      1. It is the eighth largest country in terms of territorial extension with large territories of low population density and with a third of its population concentrated in the AMBA.<\/span><\/li>\n
      2. It is surrounded by oceans in a southern region of the planet far from the regions with the highest intensity of world passenger and trade flows.<\/span><\/li>\n
      3. It has a federal political organisation.<\/li>\n<\/ol>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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        A priori<\/span><\/i>, at a theoretical level, incentive policies and regulatory policies could be designed to contribute to achieving the objectives of aerocommercial development and connectivity that the country needs with private operators. These policies would have costs. However, the starting point for thinking about how to improve connectivity and the development of the airline industry must be based on an analysis of reality. <\/span><\/p>\n

        The national state owns the flag carrier, which has a 64% share of the domestic market and flies to 39 domestic destinations, most of them with two daily frequencies, and is the only company operating in half of them. It currently has a workforce of 11,920 employees, most of them highly qualified, and has a fleet of 81 aircraft and an important maintenance and training infrastructure. Disposing of these assets would have high costs for the state, both in terms of the obligations already incurred and the investments made.<\/span><\/p>\n

        Table 1,<\/b> summarises some of the company’s indicators for the period 2015-2023. After the pandemic, there was a recovery in the total number of passengers carried on domestic flights in a context of market growth. Internationally, the company did not recover the total number of passengers carried before the pandemic, although it maintained the <\/span>market share<\/i> with a substantial improvement in the occupancy factor. During the period, the total number of employees and the fleet remained constant. <\/span><\/p>\n

        During 2023, it carried 11 million domestic passengers (a record number for the company and a return to <\/span> 2019 <\/span>market share<\/span><\/i> ), 2.8 million passengers on international routes and operated 114 thousand flights with an average total seat occupancy factor of 84% (industry estimates that average occupancy must exceed 70% to break even).\u00a0<\/span><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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