MIAMI – The Argentinian Government has announced that it will merge Aerolineas Argentinas (AR) and Austral (UU) into a single flag carrier due to the pandemic impact in both companies.

While the current situation sped the move as official, the decision of a merged company under the same AR name, as reported, had been evaluated since Alberto Fernández took office as president.

The decision to merge two brands comes from the restabilization in 2008 but was again discussed last April 14, becoming a fact today for the survival, development and growth of the company. Consequently, 1,700 workers of UU are now part of the 12,000 Aerolineas Group payroll.

Benefits of an efficient merge amid hard times

AR CEO, Pablo Ceriani explained in a letter to employees that the airline is facing an uncertain and delicate situation, so the absorption is expected to maintain the company afloat through “several critical months” without income or regular operations as the state can not sustain such costs.

The merger will mean an initial saving of about US$100m per year due to the reorganization of internal structures to be concluded before 2020 ends, which will translate into a significant increase in operating efficiency and an increase in turnover.

According to calculations, efficiency will be seen in a reduced downtime of 25% of aircraft due for major inspections by 2023, that is to say, an increased aircraft availability equivalent to have an extra long-range aircraft and three for domestic and regional routes during three high season months.

As a result, the direct maintenance cost per flight hour of the entire fleet will also be reduced by almost 7% by 2023. An additional US$2.5m saving will be generated from 2022 due to the maintenance areas merger.

The promised efficiency of the merger will be extended to a further US$3m in revenue from reduction of maintenance slots that can be used to serve third parties.

Ceriani explained that the duplication of structures and processes had no reason to exist, so the company reorganization will take place under the same operational rules, designing a process of unification of ranks based on the needs of the market.

Besides the AR extension, which also includes Optar, Aerohandling and JetPaq, two new business units will be added. Following the “Lufthansa model,” maintenance would increase the company profits by US$30m in its first year, while Loads is a result of recent medical supplies operations from China.

Unions management

Regarding unions, the company will be in conversations with leaders to review clauses of the agreements that became obsolete and prevent efficient operation because there was certain structural unproductivity since the re-statization.

Currently, AR indicates that the income of employees will not be touched nor any benefits that have been cut for a long time, as salaries remain protected by the National State.

New financial position

Company sources indicate that AR’s US$100m annual savings will total from US$42m of net profit from fleet cost; US$13.5m in tax savings; US$8m in organic structure savings; US$33m for improved efficiency and services to third parties; and US$2.5m for overtime reduction or elimination.

In contrast, the group registered a US$680m loss in 2019, which Ceriani attributed to the handing over of the carrier’s market share to the competition by the previous government.

For this year, the losses will be covered in part with increased debt with suppliers and financial institutions and the vast majority with contributions from the national treasury.

However, saying that “companies that do not adapt to the needs of their times disappear,” Ceriani believes that AR should be up to the occasion to stay afloat with an even better and stronger position.

Fleet efficiency also discussed

Even though Ceriani said that there would be no aircraft retirement, AR technical managers said that Boeing it’s 737-700 would be withdrawn. In contrast, 20 Embraer E-190 aircraft would be maintained.

As part of the new structure conversations, jets would be suitable for air cargo operations, which now is an operativity option for airlines considering the current travel restrictions.

So far, AR is carrying repatriation flights to China with a US$1,500 cost per ticket as the government imposed a quarantine period to last until May 10, as long as there is no additional extension.