Politics, Business & Culture in the Americas

Aviation: Mixed Signals For Latin America’s Aeronautics

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Even in the best economic times, it is impossible to untangle and interpret the contradictory trends in Latin American aviation. Now, in what is for many industries a time of slow economic recovery, the aviation industry is looking promising. New flight routes, new equipment purchases and higher passenger traffic indicate that 2010 may be a positive year for America’s aeronautics industry.

The best example of these confusing trends (and Latin American entrepreneurship) is the unexpected emergence of a tiny airline based in a medium-sized town in the interior of Argentina.

In October 2008, Aerochaco, headquartered in Resistencia, the capital city of Argentina’s Chaco province, came back to life after 20 years of inactivity. The airline, founded in the mid-1960s but closed since 1990, enjoyed its comeback at a time when markets had hit bottom, aircraft production had slowed and airlines were reducing their flight frequencies. Aerochaco’s secret: an infusion of government and private funds.

Operated by Macair Jet, the airline, as of December 2009, profitably flies two McDonnell Douglas MD-87 and two BA Jetstream 32 aircraft and is the official carrier of Buenos Aires’ popular Boca Juniors soccer franchise. Its 29 weekly flights connect three domestic cities, and international flights are offered to Montevideo, Uruguay, and Paraná, Brazil.

The Aerochaco case explains some of the pervading optimism in Latin American aviation. Tracking commercial passenger traffic, the Latin American and Caribbean Air Transport Association (ALTA) shows an unpredictable series of ups and downs from month to month over the course of 2009. ALTA reports an increase in passengers for six months last year but also notes corresponding drops in commercial traffic in four months in 2008. October recorded the biggest monthly passenger traffic increase (13.5 percent), while May showed the biggest decrease (12.3 percent). But the upward trend in passenger movement was expected to continue in early 2010.

Latin American airlines are building on their commercial traffic to try to improve the industry. Last October, ALTA members, representing some 40 airlines and government organizations, issued a set of resolutions for 2010. The top concern was air safety. They agreed to establish a centralized entity to develop and oversee technical certification standards and improve international aviation relationships. Another issue for the Latin American airline industry is the postponement of future fee hikes and non-essential aviation projects “until the industry shows signs of recuperation.” Significantly, ALTA members have also pledged to support their commitment to lower aircraft toxic emissions by 15 percent by 2020 and by 50 percent by 2050.

The pervading optimism in Latin American aviation is also demonstrated by the flurry of financial transactions executed last December. In Brazil, the region’s largest market, the National Bank for Economic and Social Development (BNDES), approved an additional $640 million for Argentina’s purchase of 20 Embraer 190 aircraft for its Austral Airlines.

Embraer also signed a three-year, $2.2 billion memorandum of understanding with CDB Leasing, a branch of China Development Bank, for new regional aircraft destined for Chinese airlines. In September, Embraer reported that its aircraft order backlog added up to $18.6 billion and that it was on track to close the year with a company record of 232 units delivered. In Panama, Copa Airlines announced toward the end of 2009 that it had increased a previous order to 15 Boeing 737-800 aircraft.

Other signs of progress come from commercial airline flight expansion. For example, in Uruguay, the Civil Aeronautics Board has presented to the executive branch a “free skies” policy proposal for the Punta del Este airport. If passed, the measure would largely open traffic to all non-regular flights at the country’s second largest airfield.

Back in Brazil, American Airlines expanded its code-sharing agreement with Gol Airlines from 58 flights to more than 800 flights in a 49-city plan. In Venezuela, President Hugo Chávez announced on national TV in early December that the state’s Conviasa airline would immediately increase (to 14) the number of weekly flights between Caracas and Buenos Aires. At the time, Aerolineas Argentinas was offering four weekly flights. Like Aerochaco, both of these airlines started as flag entities. However, they were privatized in the 1990s, were taken back by the government when they went bankrupt and later reopened.

The speed of the economic downturn will likely have an important effect on the health and future of Latin American aviation this year. But the bottom line for most aviation service providers—aircraft manufacturers, airline and airport operations or technical or professional personnel—depends directly on one element: the general public. The mixed bag of growth in the aviation industry and decrease in the economic fortunes of the general population is a phenomenon that can only call for a wait-and-see attitude.

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