Brazil’s Varig: What an Airline Shouldn’t Be

In nearly eight decades of operation in the country, Brazilian civil aviation has been marked by ups and downs, with crises that led to the extinction, for example, of PanAir (1965) and Cruzeiro do Sul (1975) and the privatization of Vasp (1990).

To resolve the current situation, which has already engulfed Transbrasil (which went bankrupt in 2002) and is affecting Vasp and Varig, some analysts and entrepreneurs are suggesting changes in the rules governing the sector.


Brazil has the world’s second largest civil aviation fleet, with 11 thousand aircraft, but this figure represents only 0.5% of the total possessed by the United States, the leader with 200 thousand aircraft.


The Brazilian fleet is ranked among the ten best in the world in terms of safety and quality, according to the classification of the International Civil Aviation Organization.


Despite the earnings boost generated by the increase in the number of passengers and volume of cargo in 2004, the financial returns are insufficient to ensure the survival of the largest companies, in consequence of high operational costs and excessive regulations.


It also seems clear that the importation of new management models, similar to those adopted by American and European entrepreneurs, represents an irreversible trend.


This tendency would explain the leap made by airlines like Gol, which entered the market in 2001. At the same time as Gol is commemorating its success, with a fleet that has expanded from 6 airplanes to 31, the Rubem Berta Foundation, which controls Varig, remains tied up in debt problems, and Vasp continues to be under interdiction.


Varig is the largest Brazilian airline and leader in international flights, with an 85% share of the foreign market. Domestically, Varig is in second place, with a 31% share.


Its performance last year was the best in the last three years, but it still faces the problem of a substantial debt, reported to be on the order of US$ 2.01 billion (5.7 billion reais) in December, 2004, leaving the company’s future prospects in doubt. 63% of this sum represents debts owed to the government.


Another debt-ridden airline, Vasp, which was transferred from the public to the private sector in 1990, had its headquarters sealed off on March 21 of this year by order of the 14th Labor Court of São Paulo.


Just in the suit judged by this court, referring to failure to comply with clauses of the collective bargaining agreement, the company owes its employees a total of US$ 30 million (75 million reais).


The creation of an agency to regulate civil aviation is one of the proposals being discussed by the sector and is under consideration for passage by the National Congress.


Agência Brasil

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