Abstract
Since 1946, Iberia, the Spanish flag carrier, was one of the most useful instruments of Spanish foreign policy, focusing, after the Second World War, on connections between Europe and Latin America. Taking advantage of many bilateral agreements between Spain and Latin American countries, Iberia increased its traffic in the region and in the 1950s consolidated an extensive Latin American network. After 1965, its top managers deployed a new policy in Latin America, scaling up its technical cooperation and financial support. In order to cope with the global liberalisation and privatisation of flag carriers, in the late 1970s and throughout the 1980s Iberia attempted to further escalate its penetration, acquiring many Latin American airlines, and to impede the access of European competitors in this region, but this strategy failed.
Between 1944 and 1978, commercial airlines, mainly owned by the state, operated with the monopoly of their national and international market. 1 Within this general context, Iberia, the Spanish flag carrier, acted to fulfil two main objectives: to carry the Spanish flag throughout the world and to serve the strategic interests of the governments of General Franco between 1939 and 1975. 2 This was even more necessary at the end of Second World War, due to the diplomatic isolation of the Spanish dictatorship led by General Francisco Franco.
This paper investigates the role of Iberia in Latin America from 1946 up to its privatisation in 2000. Iberia (and the Spanish regime) considered Latin America as a preferential market due to the cultural similarities and the political resonance between the Franco Regime and Latin American authoritarian governments. While this liaison had a neo-colonial spirit in its beginnings, it was later consolidated through economic and political strategies. 3 The research is based on Iberia's historical archives, the Spanish Ministry of Industry repositories and other secondary sources. The paper mainly takes a business history approach.
In the 1950s, Iberia was also important for the Spanish Regime in its construction of a new foreign policy. In order to reduce the international ostracism and change the image of the dictatorship, Iberia was instrumental in portraying a country that was modernising its social and economic structures. 4 This policy continued in the 1960s, with the introduction of the new jets and was fuelled by the lavish income generated by the strong growth of tourism in Europe. From then on, the penetration of the Latin America aviation market intensified: after the 1950's policy of bilateral agreements, the Spanish government and Iberia pursued technical and financial cooperation with the majority of Latin American countries and their airlines. This led to an improvement in traffic through the extension of flight itineraries and frequencies, an increase in the number of passengers and an intensified commercial presence in Latin America. This policy, in some aspects inspired by neo-colonialism, generated a positive image of the Franco regime beyond Latin American countries. However, as a side effect, this created disagreements with the USA due to Iberia's global action in the region.
The role of the Latin American region continued to be fundamental although adapted to the new conditions imposed in the international markets in the second half of the 1970s. After the liberalisation of the aviation market, which began in 1978 in the USA, 5 and the introduction of democracy in Spain in 1975, after the end of the Franco regime, Iberia attempted to adapt to the new international competitive environment. The privatisation of the European airlines beginning in 1980 created uncertainty in all countries, from the United Kingdom to Italy and also France, Germany or the Scandinavian countries. 6 The new Spanish leadership focused on building a bigger airline and converting it into a multinational company. The objective for the Spanish governments was clear: Iberia should be a large airline that could survive the mergers and acquisitions. One way to achieve this goal was to acquire Latin American airlines which were undergoing privatisation processes. Other European airlines had the same goal, but Iberia could rely on an extensive knowledge of the Latin American market: throughout its history, the Spanish company accumulated considerable business experience, and the Latin American market was highly relevant for Iberia as a source of revenue. In order to retain its prominence and keep its competitors out (Air France, KLM, Alitalia), Iberia purchased several (now privatised) Latin American airlines: these included Aerolíneas Argentinas, Viasa in Venezuela or Ladeco in Chile. However, in the new international landscape, the plan was not successful and the strategy ended in failure.
Iberia under the Franco regime: Latin America as a focus for Spanish diplomatic action
Iberia was created as an airline in 1927 and in 1939, at the end of the civil war, became a publicly owned company controlled by the state. 7 The dictatorial regime of General Franco established priorities in its international relations, granting Iberia a fundamental role in its development. At the end of Second World War, the international community's isolation of the Franco regime reinforced the importance of Iberia. There were two main objectives of Spanish diplomacy: to obtain the USA's political acknowledgement and to extend the support bases for the Franco regime with a policy of boosting its prestige and image, leveraging more complying attitudes in the Latin American countries. The first was achieved with the USA–Spain friendship and cooperation treaties in 1953. 8 The second was carried out through a diplomatic offensive in the region which was based on a rhetoric of the exaltation of Spanish culture, in which Iberia played a central role via a network of connections between Latin America and Spain (extended to Western Europe). In this way, the support of the USA was reinforced with an active presence in Latin America whereby the “logic of the air” established a new way of conducting international relations: all this implemented a mind-set of an “informal empire”, which was, of course, more rhetorical than real. 9
In this respect, Iberia developed a step-by-step strategy. At first, the airline secured the domestic services in the Iberian Peninsula and some routes to North Africa and the colonial territories of the Sahara and Equatorial Guinea. After the war, Iberia's management began to establish European connections and subsequently the Latin American network became a main goal. Already in 1946, Iberia began to fly to Buenos Aires and Iberia was the European leader in traffic to Argentina until 1950. The excellent relations between Franco and Perón 10 constituted an element of preferential support in this route, which was extended to Santiago de Chile, Montevideo, Río de Janeiro and Sao Paulo.
Meanwhile, Iberia used the Lockheed L1049 Super Constellations (planes which still had piston engines) for its New York route, in order to penetrate the northern Atlantic market. To keep pace with this growing network, Iberia needed a new fleet, which gave the company some headaches: the orders for new Lockheed L1049 were delayed. Iberia needed to receive five new Lockheed L1049 in order to implement its plan of action in America and it was only able to obtain three planes in 1954. The objective was to operate weekly flights to New York, Mexico, Havana, San Juan de Puerto Rico, Caracas, Bogotá, Rio de Janeiro, Montevideo and Buenos Aires. This policy was consolidated in the 1960s based on two parallel processes: the introduction of jet engines in commercial aviation and the strong growth in traffic as a consequence of the increase in tourism, particularly advantageous for Iberia in Europe. 11
Technical and financial cooperation, 1966–73: New growth strategies in Latin America and the focus on Argentina
For Iberia, the objective at the end of the 1950s was to continue to ensure its presence in Latin America and to attempt to consolidate this market as its main source of income. This cash flow enabled Iberia to further modernise its fleet by purchasing the first jets, while the Spanish economy was implementing its industrialisation process. This allowed Iberia to increase its network in Latin America: In the Caribbean, Iberia opened routes to Puerto Rico, Caracas, Lima and Bogotá. 12 In the case of Cuba, Castro's revolution slowed down the expectations of a boom in tourism on the island which was already considerable at the beginning of the 1960s. At this moment, the Hispanic-Mexican market alone represented 13 per cent of Iberia's long haul traffic. Despite the absence of diplomatic relations between Mexico and Spain (they had been interrupted in 1939 due to the failure by the Mexican authorities to acknowledge the Franco regime), the traffic between Mexico and Spain was practically in the hands of Iberia. 13
Passengers transported by European Flag Carriers (1955–70) (thousands).
Source: IATA, World Air Transport Statistics.
With an increase in the number of passengers, which almost tripled between 1965 and 1970, the managers of Iberia felt comfortable with their ambitious plans of fleet renewal and expansion (using more jet engine aircrafts) and with the development of a more complex organisation of the company, which had increased its number of workers and extended its sales network in order to compete with the charter airlines.
The most significant interventions took place in Argentina, Uruguay and Panama, although actions were also undertaken in Peru, the Dominican Republic, Bolivia, Ecuador, Guatemala and Venezuela. In Argentina, Aerolíneas Argentinas had already faced problems with its fleet during the second half of the 1960s. It operated its routes to the USA and Europe under conditions that were inferior to the competing airlines as it only had outdated Comet aircraft with high maintenance costs and fuel consumption. Aerolíneas Argentinas accumulated large losses on its balance sheet: the strategy adopted to overcome its technical inferiority did not generate the expected results. 14 So while the company urgently needed to modernise its fleet, it had difficulty to obtain capital, forcing the Argentine government to recur to alternative sources (beyond the public budget). France and Germany, which had traditionally held a strong interest in the region, offered collaboration through Air France and Lufthansa. However, Aerolíneas Argentinas felt more in tune with Iberia, not only because it offered a similar deal as the other European airlines but, most of all, due to the community of interests existing in the exploitation of the South American and European markets. 15 Meanwhile, for Iberia, the route to Buenos Aires and Santiago de Chile (via Brazil) was fundamental for its commercial interests, particularly in view of the possible strategic advantages to be gained when the large capacity aircraft such as the Boeing 747 jumbo jet came into operation. This was one of the objectives that formed part of a comprehensive plan for the company for the whole of America. 16
Iberia's goal was indeed strategic: its objectives were to create a hub in Latin America (e.g. Buenos Aires), so as to increase its traffic rights and to better exploit the fleet. From 1969, agreements between the two companies were reached, starting with the Iberia providing financial support for the acquisition of two Boeing 707, with a cost of 18 million dollars (equivalent to 125 million today's US$). The two planes were to be provided by Iberia and would be exploited by Aerolíneas Argentinas through a lease contract, with the option to purchase. Therefore, Iberia would purchase the planes in its own name and lease them to the Argentine airline and Iberia would be gradually reimbursed the principal and interests of the total cost of the operation. 17
However, Iberia planned a wider cooperation, although it faced resistance from Argentina: a proper alliance between the two companies was not reached at this stage and the Argentine authorities only authorised an increased frequency of Iberia's flights to Buenos Aires, requesting the revision of the pooling conditions with Iberia on the European routes or on routes to destinations such as Buenos Aires or Santiago de Chile. 18
The financial support provided to Aerolíneas Argentinas had a direct impact on the profit and loss account of the Spanish company. The previous pooling agreements between Iberia and Aerolíneas Argentinas, established in 1963 and in force until 1967, generated a positive balance for the Argentine company of 1.6 million dollars (equivalent to 11.9 million today's US$). However, when the financing agreement of the two Boeing 707s was reached, the pooling balance changed radically in Iberia's favour. In total, the transfers from Aerolíneas Argentinas to Iberia for the balances of the pooling agreement between 1967 and 1971 amounted to 2.3 million dollars. 19
So, despite the good financial performance, the cooperation with Argentina did not lead to the creation of an operating alliance or a closer collaboration. The objective of maximising the profitability of the fleet leasing operation with increases in traffic was achieved, but Iberia's objective of reaching a higher level of agreement in order to unite the strategy of Aerolíneas Argentinas with that of the Spanish airline failed. The effects of the economic crisis of 1973 and the political instability of Argentina put an end to a period of commercial collaboration. In 1975, the ownership of the two aircrafts was transferred from Iberia to Aerolíneas Argentinas.
… and with Uruguay and Panama
The River Plate market was complemented with a concerted action with Primeras Líneas Uruguayan Nacionales (PLUNA), the Uruguayan airline, which began in 1969 with the signing of a leasing contract with the option to purchase of one Boeing 737. At the beginning of 1970, Iberia and PLUNA signed an additional agreement for technical assistance. A feasibility study of the Uruguayan airline was carried out with the aim of transforming the company into a profitable business (in a previous study, Iberia had detected a lack of solid business management criteria in the airline). 20 Bearing in mind PLUNA's overall transformation, Iberia proposed a three-year contract for technical and financial consulting. The cooperation sought to prevent other European airlines from capturing traffic in Buenos Aires and Montevideo and to use the rights that PLUNA had to fly to New York. 21 However, for Iberia, the idea was for the Uruguayan company to operate as an airline with a regional network which distributed the passengers travelling from Europe and the rest of America while the Spanish airline would operate the main route with large capacity planes. 22
PLUNA, meanwhile, sought to operate its own routes to New York and Madrid and Rome and to purchase a Boeing 707 to cover this expansion. Iberia's management advised against the implementation of the projects, pointing out the high risks involved. Its consultants proposed an alternative broader plan aimed at reorganising the Uruguayan airlines which were subject to the Uruguayan open skies policy (which removed all types of restrictions to flight rights), so as to protect PLUNA against other carriers. Furthermore, the Uruguayan government had to develop an active financing policy for the airline, going beyond covering its deficit (which it had been doing since 1965), and contributing additional capital.
The execution of these recommendations was deficient. The open skies policy was not changed and there was no financial support from the Uruguayan government to capitalise the national airline. Iberia, meanwhile, was not able to modify the organisational structure of the Uruguayan flag carrier. The strict Uruguayan employment policy added to the political instability of the country, frustrating the efforts to achieve a change in the corporate culture of PLUNA. The financial problems were particularly severe as the Uruguayan government had not established any short- or medium-term financial plan.
The financial problems of PLUNA ended up paralysing Iberia's action for modernising the Uruguayan firm, mainly because none of the measures proposed as urgent by the Spanish airline were implemented. From April 1972, the Boeing 737 stopped flying. At the end of 1973, PLUNA's debt accumulated in the operation amounted to 3.3 million dollars (equivalent to 19.14 million today's US$). Iberia was able to partially recover its own losses cancelling the lease contracts with PLUNA in 1974 and selling the Boeing 737 to a Honduran company. The cooperative agreement between the two airlines ended in April of the same year. 23
Panama was one of the countries chosen as a hub to redistribute traffic between North and South America and between American and Europe (naturally, for this latter route, via Spain). 24 For this purpose, Iberia developed contacts in Panama, supported by a group of local shareholders who had economic ties with Spanish companies. In November 1966, Iberia started talks with such a group led by Fernando and Carlos Eleta. The project that the Eleta group presented to Iberia consisted in creating the airline “Panair” and obtaining international traffic rights from Panama with the United States and other countries in the Gulf of Mexico and the Caribbean. 25 The directors of the company assumed that the traffic rights would be granted as Fernando Eleta had been the Minister of Foreign Affairs in the Panamanian government of Marco Aurelio Robles since 1964. With the creation of Panair, the Eleta Group sought to develop an air transport network based on the opening of the new airport of Tocumen (1971). Iberia's objective was to obtain the traffic rights for routes transversal to its arrival routes, such as Lima to Panama and to New York, which, until then, were exclusive to the Panamanian government. Air Panamá Internacional was founded in 1967 and Iberia acquired a 33 per cent share of the new company. 26
The creation of the new airline encountered an obstacle from the outset: the USA State Department did not transfer the requests to authorise the flights to Miami and New York, and, even though the Panamanian government had granted the flying rights to the new airline, the Civil Aviation Board considered that Air Panamá Internacional was an airline controlled indirectly by Iberia. 27
The political crisis in Panama in 1968 and the hostility of the Civil Aviation Board delayed the beginning of Air Panama's activity. In 1969, API began operating with a Douglas DC-9 leased from (and guaranteed by) Iberia, at a politically delicate moment as General Omar Torrijos had consolidated his power within the Governing Junta that had been undertaking the administration of the country since the military coup of 1968. 28 During its first years of operating, API reported a monthly operating deficit of 80,000 dollars (equivalent to 555,000 today's US$) and its debt with Iberia amounted to 2.8 million dollars (equivalent to 19,432,000 today's US$). The management of Iberia considered that the risks undertaken in the operation were very high, but sought to scale up its cooperation as a solution: Iberia expanded Air Panama's fleet with a second Douglas DC-9 and incorporated a new Douglas DC-8. The Spanish government directly intervened in order to grant loans to Air Panama.
The pressures of the Spanish management and the demands of Iberia gave rise to an agreement signed in April 1972. 29 This new deal included the promise by the Panama government to make Air Panama the national flag carrier. The agreement included the implementation of a five-year commercial plan: the Spanish government's commitment to financing this five-year plan through Iberia allowed Iberia to increase its presence in the governing body of Air Panama. 30
But Iberia's management was starting to get cold feet about the whole business, due to its distrust of the delaying tactics of the Panamanian group; furthermore, the USA Civil Aviation Board continued to have doubts about traffic rights to fly to the United States, particularly New York and Los Angeles. Moreover, the Board did not approve the presence of Iberia in Panama. The deterioration of the relations between Air Panama and Iberia was further accelerated by the withdrawal of the concession of traffic rights exclusively to Air Panama by the Panamanian government. When the first Boeing 747 jumbo jets of Pan American Airways began to fly from the USA to Panama, it was clear that the Panamanian government broke its commitment. In this situation, Iberia decided to withdraw from the Air Panama operation given that Pan American's new route infringed the agreement.
But Iberia was persuaded to stay by the Spanish government: the latter forced Iberia to accumulate a total debt of 20 million dollars in 1976 (equivalent to 88 million today's US$). In July of that year, it was agreed to dissolve and wind up the firm. Iberia's debt continued to grow due to the interest rate applied: in May 1978, Iberia transferred its rights over Air Panama to COFINA, a Panamanian national corporation for 6.5 million dollars, assuming losses of more than 10 million dollars (equivalent to 39.7 million today's US$) at the end of the operation.
Summing up, Iberia's strategy was aligned (not always in a successful way for the company) with the plan of Spain's Minister of Foreign Affairs in the early 1970s that sought to extend Spain's influence in Latin America's industrial sector. The so-called Plan general de Iberoamérica (1970–73) involved all of the economic ministers and almost all of the countries of Latin America. Iberia was one of the instrumental pieces for the development of this plan. 31 The new strategy was based on the promotion of cooperation with airlines of the region and was focused on establishing technical and financial help as “objectives of development cooperation” in exchange for preferential treatment for Iberia through the extension of its traffic rights. 32
The cooperation with the Latin American countries promoted by the last phase of the Franco regime (1969–73) had different objectives and results for Iberia. The Hispanist rhetoric and the neo-colonial stance of Franco's technocrats in Latin America, rather than being a transfer of a modernising image of the regime was more like an economic “conquest”. However, under the guise of technical cooperation, there was clearly an interest for supporting Spanish investors and entrepreneurs. Meanwhile, Iberia attempted to gain commercial spaces in the region, develop hubs such as the ones in Panama or Buenos Aires to defend and extend passenger traffic and take advantage of new transport flows. It partially fulfilled its objectives as the losses incurred with the Panamanian operation were compensated with the increase in the passenger traffic in the region, new traffic rights and higher flight frequencies in other countries.
Liberalisation and Iberia's failed attempt to become a multinational airline
The economic recession of 1973 and the liberalisation of air space in the USA from 1978 transformed the global passenger transport market. 33 Between 1979 and 1983, the airlines experienced a severe crisis and incurred structural losses for the first time since 1961. 34 Within this context, Iberia had to redefine its role within the Spanish public business sector during the second half of the 1980s and the progressive adoption of liberalising measures implemented by the European Community (which eventually led many airlines to a situation close to bankruptcy). 35 In order to face this new scenario, it was necessary, for Iberia and other airlines, to implement a drastic reduction in costs, to create more aggressive alliances with other airlines and to increase the size of the company so as to prepare it for future integrations with greater leverage.
Among the consequences, the change of the institutional environment obliged the airlines to compete within the European and global markets. In parallel, in Latin America a privatisation process of the public assets was initiated and was accompanied by the deregulation of the air transport markets. From 1988, the total or partial sale of assets in the hands of the public sector in Latin America began, which coincided with the needs of the European airlines to increase in size, expand internationally and modify their strategies. 36 Within this context, Iberia – which had undergone a critical period between 1979 and 1985 due to the reduction of passengers and strong financial losses – with the support of the state, considered resuming its growth and expansion strategy in Latin America.
The reasons for Iberia to resume its expansion policies resided in the need to take advantage of the possibilities that had arisen after the start of the privatisation process in Latin America. After 1986, the European Commission launched the liberalisation of European tariffs and airlines routes: faced with increased competition in the European market, Iberia sought areas and markets where the competition was less threatening, and it could rely on the apparently similar policies implemented in the 1960s. What was new was the institutional environment, with different regulations, which added to the open and competitive conditions of the European and international markets. On the other hand, the results obtained by the airline in the late 1980s were not the same as those of the second half of the 1960s. The directors of Iberia acknowledged that they were seeking in “what should be their natural market: Latin America” to acquire a much larger size and a share of the direct control of the airlines of countries such as Argentina, Chile and Venezuela. Unlike the previous situations, Iberia was striving to become a multinational airline. The interest was not confined to participating in strategic agreements to obtain traffic rights but extended to integrating affiliate companies in a joint venture, with full ownership in the social capital of the acquired airlines. 37
A new attempt to expand in the South Atlantic: Chile and Argentina as targets
In 1990, the first of the operations took place when Iberia became a shareholder of Aerolíneas Argentinas. 38 The company was nationalised by the military regime in 1978 and a first privatisation effort was made in 1987. 39 The proposal to sell Aerolíneas Argentinas to European companies was not successful and in 1989, a new privatisation attempt was made with the government of Carlos Menem.
In June 1990, Iberia, together with other investment groups, submitted a purchase proposal of Aerolíneas Argentinas. The Spanish airline purchased 30 per cent of the Argentine flag carrier with other financial partners and local investors, with the engagement of the company workers and the Argentine state. Overall, the Argentine contingent retained the majority of the capital. Iberia's proposal forced the withdrawal of other proposals, such as those of Varig with the support of Citibank, American Airlines with Chase Manhattan Bank and Alitalia with Lapa. 40
The base price for the whole company was 623 million dollars (equivalent to 1215 million today's US$) and the majority share, that is 85 per cent, amounted to 529.6 million (equivalent to 1032 million today's US$). 41 At the end of 1990, the group led by Iberia purchased an 85 per cent share of Aerolíneas Argentinas. However, there was a series of doubts within the Argentine government regarding the feasibility of the project, given the financial fragility of the Argentine investment group. 42
The payment conditions that had been agreed were not fulfilled and throughout 1991 changes were made to the structure of the consortium. Iberia increased its share to 40 per cent. The management of the airline was placed in the hands of Iberia, which sent three executives, while it negotiated the payment conditions. The operating results in 1991 and 1992 were negative, within a context of a downward trend in passengers which had begun in 1988. Simultaneously, the talks to reach an agreement with respect to the payment of the purchase rights were becoming further and further removed from the commitments acquired in the solicitation document. The Argentine state did not receive the payments and ended up accepting the payment of only 50 million dollars in instalments. Moreover, the successful tenderer did not fulfil its commitment to incorporate planes into the fleet and only accepted to transfer three aircraft from Austral to Aerolíneas Argentinas. In mid-1992, the level of debt of the company was three times the value of the company's net worth, which was accompanied by a restructuring of the company's shareholders.
Faced with this situation, after 1992 Iberia attempted to implement an absorption policy of Aerolíneas Argentinas in order to integrate it within the company's corporate group. But the internal problems of the Argentine airline, the mistaken perspectives forecast by Iberia in the South Atlantic market and the administrative and management problems led to the accumulation of a significant deficit which, in 1995, amounted to 480 million dollars (equivalent to 792 million today's US$). 43 At this point, the trading company controlled 85 per cent of Aerolíneas Argentinas as the Argentine state and the workers now represented the minority share, definitively breaching the stipulations of the privatisation law of the company.
For two years, the decisive action of some of the directors of Iberia and the relative boom in the international market gave rise to an improvement of the operating results, reducing the losses in 1997. By then, Iberia had already decided to end its participation in the Argentine airline. In September 2001, after five years of disputes with the workers and the suspension of payments agreed in June, Iberia sold the company to the Spanish tourism group Marsans. 44 Until the moment of its sale, Aerolíneas Argentinas had cost Iberia (via the holding INI-SEPI) around 1820 million dollars (equivalent to 2584 million today's US$) and had generated 1230 million dollars of debt (equivalent to 2398 million today's US$), accumulated during the decade as a shareholder. The integration of Aerolíneas Argentinas into Iberia's wider strategy in the region failed completely. What is worse, the huge losses incurred in the process almost resulted in the disappearance of Iberia itself!
But Aerolíneas Argentinas was not the only piece of Iberia's plan. The acquisition strategy of Iberia in the region included the purchase of Ladeco of Chile. In April 1991, Iberia purchased 35 per cent of the social capital of Ladeco, a private company established in 1957. Between 1978 and 1982, Ladeco rapidly gained share of the domestic market in detriment to the publicly owned airline LAN. However, the economic crisis of 1982 led to the bankruptcy of the Cruzat group, the owner of Ladeco, which obliged the Chilean state to nationalise the airline. Ladeco was privatised again in 1986 45 and, from then, it sought the support of larger European or North American companies (so to reduce the market power held by the flag carrier LAN). For Iberia, the entry into this airline represented a small step forward in the Pacific area which could be complemented with its operations in Argentina and the plan for a hub in Buenos Aires. The increased oil prices and the effects of the 1991 Gulf War caused Iberia to leave Chile in 1996. LAN assumed the control of the airline in a concerted action with Iberia, establishing shared codes on its flights. Unlike the Aerolíneas Argentinas operation, the process of entering and exiting Ladeco was simpler, earning Iberia capital gains and reinforcing its alliance with the leading operator in the Chilean market. 46
A similar operation was Iberia's participation in the flag carrier of Venezuela, Viasa. In 1991, the Venezuelan state implemented the privatisation process of the airline. 47 The tender was immediately won by Iberia as it was the only bidder. However, the permanent disputes with the pilots' unions, the internal resistance to change the structure of the company and the poor operating results led to the bankruptcy of the airline in 1997. Iberia calculated the losses derived from its participation in Viasa at 60 million dollars (equivalent to 93 million today's US$). 48
But Iberia went further, making attempts to acquire PLUNA, Líneas Aéreas Paraguayas, Lloyd Aéreo Boliviano and the Ecuatoriana de Aviación. All of these projects failed, but formed part of what Iberia called its Strategic Plan. The goal of this Latin American plan was to gain control of many airlines, which could lead to economies of scale and, eventually, to the creation of continental hubs. In particular, three hubs were planned: Buenos Aires, Santo Domingo and Miami. In 1992, the Miami hub began to operate with flights to Cancún and Guatemala. After 1994, however, the strategy began to display weaknesses, leading the company to negative results in its investee companies and placing it at great risk of bankruptcy. The strategic plan for Latin America had failed on such a scale that the very feasibility of the future of Iberia was put into question.
Conclusions
Latin America has played a central role in Iberia's historical strategy practically since it began operating as an airline. The business objectives were aligned and shaped by the Spanish foreign policy actions in each period. The international relations with the region constituted a fundamental foreign policy leverage for the Franco regime between 1944 and 1975. After the deployment of flights to the region in the 1950s, the strategy in following decades was based on other objectives. After 1960, Iberia sought to maintain and extend its influence in the area, limiting its action to technical or management cooperation agreements which did not oblige it to participate directly in the local airlines. The international regulations prevented it from having any direct participation in other state-owned airlines. However, resorting to Latin America became important again as it had fluid political relations with the majority of the countries of the region. Iberia had considerable negotiating power with the local airlines based on its larger financial size and was better equipped in terms of management and operational expertise, enabling it to gain advantages in the agreements established throughout the region. This strategic policy generated important results in terms of traffic, in exchange for financial and technical assistance to renovate and manage fleets, consolidating Iberia as a leading airline in Europe in terms of passenger and cargo flows to Latin America. Undoubtedly, the neo-colonial attitude was present in the diplomatic offensive deployed by the Spanish authorities between 1970 and 1974 to obtain the support of the countries in the Latin American Plan which was based on the provision of development cooperation in exchange for political support to the Franco regime. Iberia played a central role in this plan, which may be observed in the cases of Argentina, Uruguay and Panama.
Spain resorted once again to Latin America when, after 1980, the reduction in international regulations gave rise to a new scenario. The privatisations of public airlines in Latin America and the global changes in air regulations led to a new revaluation process of this regional market. Within this new context, Iberia attempted to enhance its role in the Latin American markets by aggressively competing with European and international airlines. The strategy chosen by Iberia (still owned by the state) was to acquire airlines in Latin America. The failure in the operations with Aerolíneas Argentinas, Ladeco and Viasa brought Iberia close to bankruptcy. Public intervention rescued the airline and led it towards an ordered process of privatisation after 1996. Until then, Iberia had maintained its presence in Latin American traffic with Europe as one of its principal assets. The strategy did not achieve the expected success but Latin America continued to be the principal source of income for Iberia, representing 25 per cent of the total traffic between Europe and the region.
Footnotes
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
1
Rigas Doganis, Flying Off Course. The Economics of International Airlines (London: Routledge, 1985); Alan Dobson, A History of International Civil Aviation. From its Origins Through Transformative Evolution (Oxon: Routledge, 2017); Martin Staniland, Government Birds: Air Transport and the State in Western Europe (Lanham, Boulder, New York, Toronto, Oxford: Rowman & Littlefield Publishers Inc., 2003).
2
Javier Vidal Olivares, Las Alas de España. Iberia, Líneas Aéreas (1940–2005) (Valencia: Publicaciones de la Universidad de Valencia, 2008).
3
As other airlines (Pan Am) Iberia retrieved the idea of rebuilt the Spanish colonial past in order to profit a new international context based on prestige of “flying the flag”; see Chris Hartt, Albert James Mills, Jean Helms Mills and Gabrielle Durepos, “Markets, Organizations, Institutions and National Identity Pan American Airways, Post Coloniality and Latin America”, Critical Perspectives on International Business 8:1 (2012) 14–36.
4
Angel Viñas, En las Garras del Águila. Los Pactos con Estados Unidos, de Franco a Felipe González (1945–1995) (Barcelona: Crítica, 2003); Lorenzo Delgado Gómez-Escalonilla, “La Política Latinoamericana de España en el Siglo XX”, Ayer 49 (2003) 125–6; Rosa Pardo, “De Puentes y Comunidades: Balance Historiográfico Sobre las Relaciones con América Latina Desde 1945”, in Lorenzo Delgado, Ricardo Martin de la Guardia and Rosa Pardo (eds), La Apertura Internacional de España. Entre el Franquismo y la Democracia, 1953–1986 (Madrid: Silex, 2016), 117–56.
5
Edad Ben-Yosef, The Evolution of the US Airline Industry. Theory, Strategy and Policy (Dordrecht: Springer, 2005), 23–64.
6
Peter Lyth and Hans Liudgel Dienel (eds), Flying the Flag. European Commercial Air Transport since 1945 (London: Macmillan, 1998).
7
Javier Vidal Olivares, Las Alas, 45–51.
8
Angel Viñas, En las garras.
9
Jenifer Van Vleck, Empire of the Air. Aviation and the American Ascendancy (Cambridge, MA and London: Harvard University Press, 2013).
10
Raanan Rein, The Franco-Perón Alliance: Relations Between Spain and Argentina, 1946–1955 (Pittsburgh and London: University of Pittsburgh Press, 1993).
11
Gómez-Escalonilla, “La Política”.
12
Iberia, Previsiones de Demanda y Necesidades de Flota, Iberia, 1965, pp. 65–7.
13
Ibid., 71.
14
Iberia Archives (IA). Madrid, Cooperación con Aerolíneas Argentinas, abril de 1967, Box Aerolíneas Argentinas, 1968–1975, Shelf 466.
15
Ibid., 3.
16
Ibid., 4.
17
IA, Madrid, Proyecto de Memorandum Iberia-Aerolíneas Argentinas, julio 1968, Box Aerolíneas Argentinas, 1968–1975, Shelf 466.
18
IA, Madrid, Director Gerente. Nota para el Sr. Vicepresidente del Consejo. Política Cooperativa con Aerolíneas Argentinas, 22 Septiembre de 1970, Box Aerolíneas Argentinas, 1968–1975, Shelf 466. The pool system was based in sharing incomes in a route between the airlines as a form of cooperation.
19
IA, Madrid, Conversaciones con Aerolíneas Argentinas. Informe del Director Comercial al Sr. Presidente del Consejo de Administración y Director Gerente Sobre Modificaciones en el Pool Comercial, 22 de Febrero de 1972, Box Aerolíneas Argentinas, 1968–1975, Shelf 466.
20
IA, Madrid, Informe Sobre la Asesoría Técnica a PLUNA, Enero de 1972, Box PLUNA, 1971–1974, Shelf 466.
21
ARGINI, Madrid, Altos Cargos, C. Boada, Box 56, Exp. 1. 30/6/1970. Cooperación en Hispanoamérica, 3.
22
IA, Madrid, Nota de José María Gullón para el Director-Gerente, Madrid 23 de Septiembre de 1971 Box PLUNA, 1971–1974, Shelf 466.
23
José Maruri, Historia de la Aviación Comercial en el Uruguay, Vol. I (Montevideo, s/f) 370–88.
24
ARGINI. Madrid, Altos Cargos, C. Boada, Box 56, Exp. 1. Cooperación en Hispanoamérica, 30/6/1970, p. 5.
25
IA, Madrid, Carta de Lázaro Ros a la Presidencia del INI, Recabando Aprobación de la Compra de Acciones de Air Panamá, 26-XII-1966, Box AIR PANAMÁ, 1966–1978, Shelf 466.
26
Jorge Rubén Rosas, Origen, Formación, Desarrollo y Crisis de una Empresa Aérea de bandera: Air Panamá Internacional SA (Panamá: Talleres de Imprenta Ziur, 1980).
27
the Civil Aviation Board pointed out that It became apparent at that time that the minority ownership of API by Iberia did not constitute substantial ownership or control under Panamanian law, but, combined with the wet-leasing arrangement under which the proposed service would be provided with Iberia aircraft and crews, did present a problem under US law as applied by the Civil Aeronautic Board
28
ARGINI. Madrid, Box 325.4.7.9/4822. Informe Remitido por la Dirección de Iberia Acerca de la Situación de Air Panamá Internacional, 29/5/1971, s.p.
29
ARGINI, Madrid, Acuerdos de la Comisión Ejecutiva de Iberia Dirigidos a la Presidencia del INI en 8 de Febrero de 1972. Box 325.4.6.7/4991.Subcarpeta 325.4, Exp. 1.
30
IA, Madrid, Carta de José Sáenz Insausti, Director Gerente de Iberia a Carlos Eleta, Presidente de Air Panamá Internacional, Madrid, 15-V-1972, Box AIR PANAMÁ, 1966–1978.
31
See Beatriz Figallo and María José Henríquez “El Plan Iberoamericano del Franquismo. El Cono Sur y la Doctrina López-Bravo, 1969–1973”, Estudios Latinoamericanos 2 (2009) 25–46.
32
ARGINI, Madrid, Letter from Jesús Romeo Gorría, Chair of the Iberia Board to C. Boada, President of INI, 14 January 1971. ARGINI. Caja 325.4.7.9/4822 (Informes) Exp. 4.
33
Liberalisation started to change the international air traffic in many ways first in USA and after in Europe and the rest of the world. Peter Lyth, “Experiencing Turbulence: Regulation and Deregulation in the International Air Transport Industry, 1930–1990”, in J. McConville (ed.), Transport Regulation Matters (London: Pinter, 1996), 154–74; Peter Lyth and Hans Liudgel Dienel (eds), Flying the Flag. European Commercial Air Transport Since 1945 (London: Macmillan, 1998); Marc Dierikx, Clipping the Clouds. How Air Travel Changed the World (Westport: Praeger, 2008), 109–40.
34
Doganis, Flying Off Course, 18–19.
35
Alan Dobson, Globalization and Regional Integration. The Origins, Development, and Impact of the Single European Aviation Market (London: Routledge, 2002); Martin Staniland, A Europe of the Air. The Airline Industry and European Integration (Lanham: Rowman & Littlefield, 2008).
36
Privatisations which affected the majority of Latin American countries, including transport and telecommunications sector. Gregorio Vidal, Privatizaciones, Fusiones y Adquisiciones. Las Grandes Empresas en América Latina (Barcelona: Anthropos-UAM-UNAM, 2001); Ravi Ramamurti (ed.), Privatizing Monopolies. Lessons from the Telecommunications and Transport Sectors in Latin America (Baltimore and London: The John Hopkins University Press, 1996).
37
Iberia strategy followed the model of multinational enterprise explained by John Harry Dunning, Multinational Enterprises and the Global Economy (Reading: Addison-Wesley, 1993).
38
Mabel Twaites, Alas Rotas. La Política de Privatización y Quiebra de Aerolíneas Argentinas (Buenos Aires: Temas, 2001).
39
Melina Piglia, “Aeromovilidad, Tecnología y Poder. El Caso de la Modernización de la Flota de Aerolíneas Argentinas”, Revista de Historia de la Economía y de la Empresa 12 (2018) 125–53; Robert Grosse, “A Privatization Nightmare. Aerolíneas Argentinas”, in Ravi Ramamurti (ed.), Privatizing Monopolies. Lessons from the Telecommunications and Transport Sectors in Latin America (Baltimore and London: The John Hopkins University Press, 1996), 203–20, 206.
40
Ravi Ramamurti, Privatizing Monopolies, 208.
41
Germán Coloma, Pablo Gerchunoff and Manuel Olmos, La Privatización de Aerolíneas Argentinas (Santiago de Chile: Cepal, 1994), 18–19.
42
Ibid., 19.
43
That was a big obstacle from the own Iberia. Spanish government had to ask authorisation to European Commission to help the airline by increasing its capitalisation.
44
Argentinean government took total control again of AA and Austral in August of 2008.
45
R. Paredes-Molina and Ravi Ramamurti, “Ownership and Competition in Chile's Airline Industry”, in Ravi Ramamurti (ed.), Privatizing Monopolies. Lessons from the Telecommunications and Transport Sectors in Latin America (Baltimore and London: The John Hopkins University Press, 1996), 177–202.
46
Ibid., 194–5. Iberia gained profits of five million dollars in selling Ladeco, Memoria de Iberia, 1997, p. 44.
47
Janet Kelly, “One Piece of a Larger Puzzle. The Privatization of Viasa”, in Ravi Ramamurti (ed.), Privatizing Monopolies. Lessons from the Telecommunications and Transport Sectors in Latin America (Baltimore and London: The John Hopkins University Press, 1996), 241–77.
48
Memoria of Iberia, 1998, pp. 130–1.