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Chorus Aviation works with Uruguay on Pluna recapitalization

An Air Canada JAZZ Bombardier DASH-8 airliner at Calgary, Alta.

Larry MacDougal/Larry MacDougal

Chorus Aviation Inc. says it is working with the Uruguayan government on the recapitalization of Pluna, just days after the Canadian company said it won't invest more money to bail out the airline.

The South American government, which owns a 25-per-cent equity interest in the national carrier, took control of its operations to allow it to continue operating.

In 2010, Jazz – as it was then called – invested $15-million to acquire a 25-per-cent stake in the South American national carrier, which connects the capital Montevideo to several neighbouring countries.

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The Halifax-based company said Thursday it's working "directly and co-operatively with the national government to produce and assess potential recapitalization and business plans for Pluna."

"We're working closely with the government in trying to find a solution," Chorus spokeswoman Manon Stuart said in an interview.

Last Friday, she said Chorus would not invest additional funds. The door appears to have opened slightly.

"I can't say one way or the other, it's just too early in the process. We really have to wait for the outcome of the review," Ms. Stuart said, noting that the "situation is evolving."

As part of the proceedings, all of the shares in Pluna – including ones held by Chorus through Latin American Regional Aviation Holding Corp. – have been delivered in trust with the Montevideo Stock Exchange in return for certain conditions and indemnities from the Uruguayan government.

Chorus said there is no guarantee that a successful recapitalization will be accomplished and that Chorus will retain an equity stake or investment in the airline.

The company is also assessing whether to take a writedown of its investment during the second-quarter results to be released in mid-August.

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Pluna's problems mark the second failed attempt by Chorus to become less dependent on Air Canada , its former parent company for which it provides regional service under a capacity purchase agreement.

In April, tour operator Thomas Cook Canada Inc. made an early exit from its five-year agreement with Chorus, citing market conditions. The contract provided $100-million in annual revenues.

Chorus operated a fleet of six Boeing 757 jets for the British vacation company since 2010 to sunny destinations during the winter season, including the Caribbean, Mexico and Central America. The deal had another three years left.

After experiencing the region's highest growth over the past two year, Pluna faced headwinds including slowing economies in South America, the introduction of protectionist measures in Argentina and a price war.

Pluna's bankruptcy could also have important implications for Export Development Canada. The Crown corporation provided a $120-million (U.S.) guarantee for the purchase of Bombardier CRJ900 regional jets in 2010 and 2011.

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