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Top-Flight Attendants

Despite challenging times for the aviation industry Uruguay’s Pluna is now turning a profit after years of losses, and it’s all thanks to three men and their investor group, says Brendan Sobie

Uruguay wasn’t on the agenda when Matias Campiani, Arturo Demalde and Sebastian Hirsch established German investor group Leadgate in 2004. But after researching opportunities in Europe, the trio decided to make Uruguay’s largest dairy company, Parmalat (a subsidiary of the Italian firm), their first acquisition. The investment quickly paid off as Leadgate turned Parmalat’s fortunes around in only two years, growing its annual revenue base from $45m to $57m before selling it in 2007 for a handsome profit to a Venezuelan company.

Leadgate subsequently scoured the world for new opportunities but was again attracted to Uruguay, this time in the traditionally shunned airline industry. Leadgate acquired a 75% stake in government-owned flag carrier Pluna in 2007 and has already brought the long struggling company back to profitability. In only 18 months, Pluna has been transformed into a completely different airline, with a renewed fleet, overhauled network and new business model. 

“We’ve been working hard to turnaround the company,” says Campiani, who has served as Pluna’s chief executive during the restructuring. “In October we broke even and in November we started making money.” He says the turnaround is proof Pluna’s new strategy of turning Montevideo into a hub for the Southern Cone of South America is working. Pluna previously relied on local traffic with less than 10% of its passengers connecting onto other flights.  

Campiani says Pluna has already increased the portion of its passengers that transfer at Montevideo to 40%. While it has dropped its only long-haul destination, Madrid, it has added frequencies to key business centres in the region including Buenos Aires, Santiago and São Paulo and launched routes to secondary cities such as Asunción in Paraguay, Rosario in Argentina and Curitiba in Brazil. Switching to smaller aircraft was a key part of the strategy, allowing it to fly below the radar of larger carriers and operate thinner routes. 

It is now cooperating with and feeding larger carriers rather than trying to compete against them, codesharing with Brazilian carrier TAM and Spain’s Iberia and aiming to start codesharing with American Airlines. 

Replacing a mixed fleet of Boeing 737s, 757s and 767 with seven new Bombardier CRJ900 jets also has improved costs and efficiency. While it is still a flag carrier, with the government retaining a 25% share, Pluna has adopted many best practices from low-cost carriers, including charging for food and checked bags. 

Campiani says the changes leave Pluna better positioned for the economic downturn. He says bookings for the peak season, which in the Southern Cone runs through February, are strong and is confident the carrier will end 2009 with a profit. “What helps in this environment is we have small planes. Our aircraft size will help us get through the downturn.” 

Leadgate, which so far has invested €11.6m in Pluna, in December agreed to pump another €6.9m into the carrier over the next 18 months with the Uruguayan government providing another €2.3m. Campiani says the €9.2m is needed to pay overdue fuel bills and cover the €20.8m in losses incurred during the first 12 months of Leadgate ownership, which ended 30 June 2008. He says another capital infusion will not be needed as the airline is no longer bleeding cash and it is on track to become a viable and sustainable business by 2010. 

Leadgate has enjoyed so much success in Uruguay it has prompted it to rethink its overall investment strategy. Campiani says Leadgate will try to sell Transpa, a Czech manufacturer of logistics equipment which has been transformed into a profitable company since being acquired in 2007, and has stopped looking for new opportunities in Europe. Leadgate has even closed its German office and nearly all of its employees are now based in Montevideo. Campiani says Leadgate will open a Buenos Aires office in March. 

“Now we’re focusing in Latin America and in particular the Southern Cone. They are growth markets, are markets we’re comfortable with and are markets that we know,” Campiani says. “I’m sure 2009 will present a lot of opportunities. It’s a period of crisis and a lot of companies are in distress.” 

All three of Leadgate’s partners are originally from Argentina but after earning business degrees in the US worked in Europe, most recently in Germany, where they met. Campiani worked for Alcoa before starting a technology company, Blade, in 1999, which was sold to Tulip Computers in 2004. Demalde, who serves as Pluna’s vice-president of transformation, formerly worked for Siemens while Hirsch, who serves as CFO worked for management consultancy McKinsey.  

The trio take a hands-on approach, restructuring companies while inviting other individuals to help fund each acquisition. With Parmalat, Pluna and Transpa, Leadgate believes it has established a framework for turning around companies which it is now ready to duplicate elsewhere in South America.  

“We started in Germany and intended to look in Europe. Then Parmalat brought us to this part of the world, where we have expanded our network,” Campiani explains. “Our focus isn’t on any one industry but is more regional and on the situation of the company. If we can add value through the right management, we’re open to all opportunities.”