Saturday, September 22, 2012

PLUNA CRJ-900 Auction Postponed from September 12 to October 1

The Uruguayan government postponed the auction of the seven company-owned PLUNA CRJ-900's from September 12 to October 1 only three hours before the event was to take place.

The Uruguayan congress passed a law in mid-July setting the base price of the aircraft, to be sold as one lot, at US$ 136 million, the same amount of money owed on the aircraft to ScotiaBank and covered by a Uruguayan government guarantee.  Failing any bids for that amount a new floor bid amount of US$ 100 million was to be established.  If there were still no bids, then the auction would be considered a failure and the congress was to take up the matter of the aircrafts' disposition once again.

BQB Lineas Aereas' owner, Juan Carlos Lopez Mena, considered the asking prices to be excessive with the market values of the CRJ-900's estimated at US$ 11-12 million each.  Also, the idea was to sell the aircraft to a party that would restart PLUNA, or at least resurrect a large part of the former airline's route structure centered around a Montevideo (MVD) hub with at least 250 of its former employees taken on to work the operation.

Several companies expressed an interest in the auction, including BQB, Sol Lineas Aereas (Argentina),  Conviasa (Venezuela), LATAM ,and CUTCSA (Uruguayan bus line).  In all, seven parties paid the US$ 5,000 fee to inspect the aircraft and all the documents detailing the individual aircraft histories, which appeared promising for the auction.  However, at 9:00am on the morning of September 12, three hours before the auction was to start at 12:00 noon, the government postponed it with the official reason being to give more time to potential buyers to study the offer.  However, the real reason appears to be that it was clear that no party was to present itself at the auction, which would have been a failure and a very public embarrassment for the government.


There are several problems with the conditions of the auction:

1) Excessive Price

The asking price of the CRJ-900's is in excess of their market value by about US$ 8-9 million each or about 60% more than they are actually worth.  Furthermore, if they were to be bought as one lot, any potential buyers would probably seek a volume discount.  The Uruguayan congress determined the asking price on the basis of the amount the government would have to pay to cover the outstanding debt on the purchase price of the planes but potential buyers are not concerned with that amount, only what the planes are worth.

2) Former PLUNA Route Rights not Guaranteed

It was stipulated that potential buyers of the planes would be airlines that would operate them on the former PLUNA routes but the route rights were not part of the purchase price.  The government only stated that the buyers of the aircraft would have priority in the route negotiations, without any guarantees, making the aircraft purchase less attractive and giving little incentive to pay the premium price that the government was asking.

3) Route Rights Controlled by Other Governments Too

Even if the aircraft buyer was awarded rights to all the routes that PLUNA formerly operated, the purchaser would need several more new routes for the MVD hub to be viable.  The lack of certain key routes was the main reason behind PLUNA's failure. 

For example, PLUNA flew east/northeast from MVD to nine cities in Brazil, including Sao Paulo (GRU), Campinas (VCP), Rio de Janeiro (GIG), Porto Alegre (POA), Belo Horizonte (CNF), Brasilia (BSB), Florianopolis (FLN) , Curitiba (CWB) and Iguassu (IGU).  However, PLUNA flew west/northwest to only a few cities for all of these Brazilian passengers to connect to, such as Asuncion (ASU), Santiago (SCL), Buenos Aeres Ezeiza (EZE) and Aeroparque (AEP) plus Cordoba (COR).

The airline needed several other cities, all in Argentina, to feed / get feed from for the MVD hub concept to have a chance at viability, such as Rosario (ROS), Mendoza (MDZ), Bariloche (BRC), Mar del Plata (MDQ) and possibly Trelew (REL) and Salta (SLA) too.  However, the Argentine government, in an effort to protect state-owned carrier Aerolineas Argentinas from competition, has denied many route requests by foreign carriers wanting to fly into Argentina.  It should be noted that even with the route rights that PLUNA wanted, there would have been no guarantee of success.        

4) Requirement to take on 250 former PLUNA Employees

The Uruguayan government was going to make the hiring of at least 250 former PLUNA employees a condition of granting route rights, involving itself in the strategic decision-making of the aircraft buyer.  Private enterprise never welcomes government intervention in its business decisions.

Stay tuned as the next attempt at selling the CRJ-900's and resurrecting at least part of the PLUNA operation is scheduled to take place on Monday, October 1.

Sources: El Pais Uruguay, several articles, 12-14Sep12

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