Over the top: amid economic recovery, Aerolineas Argentinas sets sights on rival LAN.

When it comes to investing in Latin America's perennially underdeveloped air market, the sky's usually the limit. But back on planet Earth, few such ambitions take off.

So what makes Antonio Mata, executive committee president of Aerolineas Argentinas, think he can overtake top gun Chilean airline LAN and become the region's first bona fide mega-carrier? For starters, the 49-year-old Spaniard has an almost exclusive grip on the region's hottest air market, Argentina. The 5.1 million passengers that flew with the company last year, a 40% increase over 2002, reflected an unprecedented surge in tourism brought on by the country's 2001 devaluation.

Thanks to Aerolineas' 85% market share over the domestic market, the company doubled its earnings in 2003, to US$43.8 million, after turning its first operating profit in 25 years during 2002. Now, like LAN, it's setting its sights on the rest of the region, expanding service this year to Chile before introducing service to Bolivia, Paraguay and Uruguay.

Aerolineas' performance is even more impressive considering the shaky financial state of the airline just a few years ago. Since being privatized in 1990, the airline accumulated more than $1.20 billion in debt under a slew of failed management teams headed by Spain's Iberia, American Airlines, and most recently, Sociedad Estatal de Participaciones Industriales (SEPI), a holding company of the Spanish government. When Mata and a group of investors from Barcelona's Grupo Marsans took over from SEPI in October 2001, Aerolineas was bankrupt and most of its international flights were grounded for fear planes would be impounded by litigious foreign creditors.

The company was a financial mess, but operationally it was even worse. Its market share tumbled to a record low 17% as passengers stopped flying for fear of being left stranded by wildcat strikes. The company was on the auction block but nobody dared to touch it, not even LAN, whose CEO, Enrique Cueto, Mata claims had been anxious to break into the domestic Argentine market. "Enrique Cueto said the company would never be profitable in 25 years," says Mata. "Well, we did it."

Cost cutting, Mata says, was key. For example, routine aircraft maintenance work that was previously done abroad was repatriated, a more that halved repair costs and had the added benefit--essential to the company's public-relations campaign--of generating 2,500 jobs.

Aerolineas' competitors, however, attribute the remarkable financial recovery to a multi-million dollar bailout engineered by the Spanish government. To clean up what Mata calls the "broken dishes" it left behind, SEPI assumed half of Aerolineas' debt load. In 2002, Mata then negotiated an average 60% discount on the remaining $615 million with suppliers and airline manufacturers still reeling from the Sept. 11 terrorist attacks.

Now nearly debt free, Aerolineas is spending again. The company is now U.S. airplane maker Boeing's biggest client in the region thanks to Aerolineas' five-year, $557 million investment to replenish its aging fleet with 49 newer, albeit used, planes serviced by the U.S. manufacturer. Other capital improvements, including the construction of a $15 million, futuristic-sounding "Ciudad Aerolineas" headquarters, will consume another $100 million this year.

The beefed-up infrastructure is needed for Aerolineas to reach its goal of becoming South America's No. 1 carrier. For the past few years that's been an uncontested rank held by Chile's LAN. Aerolineas will test-fly its first foreign subsidiary, Aerolineas del Sur, which will try to steal away clients from LANS ironclad grip on Chiles domestic market. To finance the regional expansion, Aerolineas plans to sell up to 15% of its shares on the Buenos Aires stock exchange by year's end. The offering, which would be Argentina's first since 2000, will precede similar capital increases in Spain and the United States, says Mata.

If it all sounds a little too ambitious, then join the chorus of Mata's numerous skeptics. In comments to Chilean newspapers LAN's Cueto questioned whether the newcomer, in the absence of SEPI's financial crutch, had the wherewithal to implement a successful business plan. Closer to home, Aerolineas' competitors say Mata's love of the limelight and penchant for over-promising detracts from Aerolineas' otherwise impressive run. "Mata's biggest flaw is that he generates expectations that are impossible to fulfill," says Encarnacion Ezcurra, spokeswoman for Southern Winds airline.

Savvy. But even competitors recognize that Mata is a fast-moving, savvy entrepreneur who knows how to open some important doors. When Aerolineas management's longtime adversary, air mechanics' union leader Ricardo Cirielli, was appointed sub-secretary of air transport by President Nestor Kirchner, Mata responded with two gifts dear to the Peronist politician's heart. First he announced Aerolineas' desire to start servicing the Falkland Islands, bolstering Kirchner's diplomatic initiatives to regain greater access to the disputed islands that Argentina lost in a war with England in 1982. Then, in March, Mata shelled out $160,000 from his own pocket at a Rome auction to reclaim for Argentina the funeral shroud worn by Evita Peron, which he plans to donate to the government Aug. 22.

Another forte, defenders say, is Mata's background in Spain's tourism industry, which puts Aerolineas, for the first time in its 54-year history, in a broader context. Mata is not bashful about plans to build hotels in destinations the company serves and to diversify its holdings.

To be sure, nobody has a bigger stake in Aerolineas' success than Mata. When Grupo Marsans acquired Aerolineas it did so through its partnership in Air Comet, a Spanish airline that Mata started. He still holds a majority of its shares. "People have been questioning Marsans and Mata ever since they took over," says Patricio Seidel, president of ConsultAir, a longtime contractor for Aerolineas on behalf of foreign suppliers. "Nobody knows for sure what's going through their head, but judging from the results so far all one can say is 'wow'."

JOSHUA GOODMAN * BUENOS AIRES