Peru Moves to Create Low-cost State-owned Air Carrier

By Daniel Martínez Garbuno

RIO DE JANEIRO, BRAZIL – The Transport Commission of the Peruvian Congress approved a  bill that would allow the creation of a State carrier, called Línea Aérea de Bandera del Perú (LAPERU). Predictably, the private airline sector in Peru is not happy with the decision.

What would LAPERU look like?

Last November, we discussed the possibility of the Peruvian Government creating LAPERU. The airline would become the first low-cost partially state-owned airline in the world. The original proposal was that the Government would own 35% of LAPERU. The remainder of the airline’s shares would go to a mix of private investors.

The objective of LAPERU would be to create an essential service, at a low cost, to promote Peru tourism. The government said, “Peru’s state carrier can offer a service that satisfies the need of millions of people moving from one place to another with the best low-cost fares, without having to pay for ancillary services that have no value for them.”

LAPERU would also serve as a way to keep air traffic revenues in the country. According to the congressman who proposed the bill last year, airlines operating in Peru take away income because they are not Peruvian. He referred to airlines like LATAM, Viva Air, and Sky; all of them fly domestically in Peru but have foreign owners. Avianca used to operate in the country but stopped last year due to the COVID-19 crisis, then declared bankruptcy.

What did the Commission approve?

This week, the Transport Commission met to look deeply into LAPERU’s project. According to local media, the Commission then approved the project with nine votes in favor and one against.

Nevertheless, the Commission changed the Government stake proposal from 35% to 100%, making it wholly state-owned. According to Julian Palacín, regional expert and former president of the Peruvian Corporation of Airports and Commercial Aviation (Corpac), a wholly state-owned carrier will not be approved by the Congress. In an interview with the Peruvian newspaper Gestión, he said,

“My position is that (the airline) is under a public and private association, but in the approval (by the Transport Commission), they changed it into a 100% state company, and I don’t think the Congress will approve that.”

Not everybody is happy

Before COVID-19, state airlines were a declining trend in aviation. That’s not to say that states didn’t have an investment in many carriers, as many do, for instance France and the Netherlands in Air France-KLM. Nevertheless, most governments saw that having State carriers produced more issues in the long run, as we can see with Alitalia and South African Airways.

In Peru, there used to be several state carriers, like AeroPerú and Tans Peru. Both have ceased operations, but not after posting numerous annual losses in the 90s and have fatal accidents.

The International Air Transport Companies’ Association (AETAI in Spanish) said that creating a new State-owned carrier would be monopolistic and unconstitutional. “This proposal, besides turning away private investments and create over costs, is anticompetitive and unconstitutional from the legal point of view; therefore, we reject it all.”

Nevertheless, Peru could use a new Peruvian airline, said Julian Palacín. According to the expert, a new carrier, in which the state holds 20% of the equity and private investors the remainder, would benefit the country.

He said that before the pandemic, LATAM and Avianca held a semi monopolistic control on the Peruvian market. In the last 20 years, LATAM has earned nearly US$15 billion in Peru but hasn’t invested in the country.

Source: Simple Flying