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Venezuela in debt deal with airlines

Wednesday, May 28, 2014

CARACAS, Venezuela—Venezuela’s cash-strapped government has agreed to pay part of US$4 billion owed to foreign airlines and may soon allow them to aggressively raise airfares as it works to head off more carriers from leaving the country. 


Finance Minister Rodolfo Marco Torres announced a deal to allow six Latin American airlines including Colombia’s Avianca and AeroMexico to repatriate revenue from local sales in 2012 and 2013. The debt deal was reached in a closed-door meeting 
with representatives of the airline industry. Alitalia of Italy and Panama’s Copa this month became the latest airlines to cut flights to Venezuela, citing the debt impasse.


The deal came just a few days after President Nicolas Maduro denied that airlines are leaving over debts, arguing that some are temporarily rerouting planes to meet surging demand to travel to Brazil for next month’s World Cup. Airline representatives reported that Venezuela’s government also said airfares starting in July will be based on the country’s weaker Sicad II exchange rate of about 50 bolivars per dollar compared with the official rate of 6.3 to the dollar.


The government did not comment on that possible change. But economists said such a move would be tantamount to a stealth devaluation that would effectively sanction a multifold-increase in airfares prices in bolivars. The government earlier this year unveiled the Sicad II exchange mechanism to meet pent-up demand for dollars after more than a decade of rigid exchange controls that force companies to turn to the illegal black market, where the bolivar is even weaker, to obtain hard currency.


Air Canada and TAP of Portugal are among other airlines that have reduced flights to Venezuela in recent months, citing the repatriation problems spurred by a shortage of US dollars. Several US carriers have restricted ticket sales, making it difficult to find seats on remaining flights out of the country.