Venezuelan Government Challenges Foreign Airlines

Caracas Venezuela

Venezuela demands airlines sell tickets to its 30 million citizens in bolivar currency. But the International Air Transport Association (IATA) says Venezuela “has not approved requests to repatriate the resulting revenue.”

The currency controls are forcing airlines to reconsider routes to Venezuela. A week ago, Air Canada suspended its operations. They cited security issues related to street protests. But currency controls were also a factor.

The IATA says airlines are out $3.8 billion, money the Venezuela currency board won’t repatriate. Or, if they do, exchange fees likely cheat the airlines. Currency controls are the shadow side of doing business in Venezuela.

“The airlines want to keep serving the market. They want to keep connecting Venezuela to the world. But they do expect to get paid for it,” the chief executive of IATA told Reuters.

In the last year, 11 airlines serving Venezuela, including American Airlines, Lufthansa, Delta, Avianca and Copa cut flights from 15 percent to 75 percent.

Venezuelan president Nicolas Maduro says the debts will be paid, unless the airline suspends service. In that case, they’ll be “kicked out.”

The currency control system goes back to socialist Hugo Chavez. It requires companies like airlines get approval from state currency boards to purchase hard currency like U.S. dollars. As for the thriving black market, well, $3.8 billion is a lot to dump on the street.

Airlines say they’d consider trading for jet fuel. But government officials remain moot.

This week, Venezuela offered a new foreign exchange, pegging the bolivar at around 52 per dollar. Airlines sold tickets at the official exchange rate of just over 6 bolivars per dollar, about the value of a flight schedule run through a shredder. The airlines are drowning and Venezuela is describing the water. It’s a huge loss.

A loss that Venezuela says is “part of the currency risks of international business and not the responsibility of Venezuela’s central bank.”

The Tarmac’s View:  Air Canada might look visionary pulling out of Venezuela when they did. However this plays out, airlines will take a financial hit. But Venezuela can’t operate without foreign airlines. You can’t jet around the world on chicanery. If nothing else, they can trade for jet fuel, and most likely they will. This is a high-consequence choice for Venezuela, a fall line between calculation and deceit.

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Comments (Showing 2 of 2)

  • dhuey at 5:46pm March 28, 2014

    It’s looking like the end game for the Chavistas. As if foreign businesses and investors didn’t have enough reasons to abandon Venezuela. Now they might struggle to get in and out of the country.

  • OskiBear at 11:58pm March 31, 2014

    “But government officials remain moot.”

    Is that supposed to be “mute?”

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