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Position:LanChile thought to be looking to expand its operations to Argentina - Brief Article

LanChile, Latin America's most profitable carrier, circles Argentina.

WHEN LANCHILE'S NEW PERUVIAN START-UP LANPERU TOOK off in July, the airline industry started buzzing about which Latin American country would be next to have a Lan airline flying its friendly skies.

Many are placing their bets on Argentina, whose own flagship carrier, Aerolineas Argentinas, is looking for investors. The majority shareholders are seeking an out, and the potential investor that carries the most weight is LanChile. Industry observers say that the airline, along with some institutional investors, might come in and buy a majority stake with some US$250 million.

The move would follow a pattern that Chile's largest carrier has been flying for some time. Given the size of the domestic market, expansion can be found only outside. "Four years ago, 60% of our business was in Chile. Today 80% of our sales are outside of Chile," says LanChile's chief operating officer, Luis Ernesto Videla.

A marketing alliance with American Airlines, Chile's open-skies agreement with the United States and admittance to global airline alliance OneWorld will all keep LanChile flying in that direction. The agreement with American, Latin America's largest U.S. carrier, was signed in October 1999, and the Miami-Santiago flight began operation last October. More code-shared flights to Los Angeles, Dallas and San Francisco were added in November. The third phase, which involves adding Orlando, Houston, Denver and Atlanta, is scheduled for the second quarter of 2000.

The agreement with OneWorld, which includes American, British Airways, Canadian, Cathay Pacific, Finnair, Iberia and Quantas, should be implemented by June. Meanwhile, LanPeru started flying to Miami in November and is awaiting approval for Mexico City, Buenos Aires and Los Angeles. "They are really trying to make the transition to an international airline," says Jean Winslow, a Santiago-based analyst for Merrill Lynch.

A LanChile investment in Aerolineas Argentinas--which is part owned by American Airlines, whose former executives run the airline--would represent a quantum leap. "Argentina is so much bigger than Chile. I think they'd have a tough time," says Glenn Engel, New York-based airline analyst for Goldman Sachs, adding that obtaining the necessary capital would not be easy.

Flying solo to Argentina? LanChile's management has indicated it understands the concerns. "The issue is that [Argentina] is a much larger investment...

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