Lula Hints Brazil Might Use Public Money to Rescue Bankrupted Varig

Brazilian President Luiz InΓ‘cio Lula da Silva said Friday, April 28, that the government can provide the funds needed to prevent troubled air carrier Varig from shutting down.

Lula, said the government did not plan to directly inject funds into the cash-strapped airline, but could keep the airline going by providing loans to a company interested in acquiring Varig.

"I’ve said publicly that the government is not going to put public money (into the airline). What we can do is finance (a deal to) save Varig," Lula said in reference to ongoing negotiations for the sale of the company.

He said a market solution as opposed to a government bailout was the answer to the airline’s financial crisis.

Varig, which has close to 11,000 employees, has debts of some US$ 4.3 billion, most of which is owed to public entities. In past weeks, the airline acknowledged that it lacked the funds to meet daily expenses, including fuel costs and the price of renting terminal space at airports.

"Varig, like other Brazilian companies, became a sort of national passion," said Lula. "But these things can’t be handled with one’s heart," but instead the problem must be considered as one of a private company with problems, he said.

The president said he agreed with the stance of Rio de Janeiro Judge Luiz Roberto Ayoub, who is in charge of the airline’s legal proceedings. The company entered a court-supervised recovery process last June after being unable to pay its suppliers.

According to the judge, Varig cannot be considered completely bankrupt since it is still a viable company and could be acquired by a firm interested in infusing it with capital.

Earlier this month, Brazil’s social security ministry took control of the Aerus pension fund, which serves workers in the aviation sector.

The ministry said that the move was aimed at "protecting the interests of the participants" and preventing use of pension money to shore up the finances of Varig. Some of the troubled carrier’s employees proposed dipping into Aerus for that purpose in a letter sent to the federal government.

Aerus is already one of Varig’s biggest creditors, with the airline’s owing the fund roughly 2.3 billion reais (US$ 1 billion) in the form of employee pension contributions that the carrier improperly retained.

Varig was Brazil’s largest airline until recent years. Although it is still the nation’s leader in international flights, with 32 percent of the total, it has fallen to third place in terms of domestic flights in recent months and has grounded several of its planes for lack of ability to pay maintenance costs.

Mercopress – www.mercopress.com

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  • Show Comments (6)

  • greg

    put a pic of da money on da PG. cause i have to take it 2 school or else i’ll get an F πŸ™ πŸ™ πŸ™

  • Guest

    ??????????/
    what money does brazil use?

  • Guest

    What is really the Airlines Problems
    What is really Varig’s financial problems? Once this is truly addressed then steps should be made to determine what are the next steps. I am surprised by the amount of debit accumulated by this airline. Being sold off to private investors isn’t always the right solution. If the core of the business model has a problem, it’ll always have problems whether it is publicly or privately owned.

    Is it the cost of rising fuel? Mismanagement? Lack of passengers? Competition market situation? Pricing structure? Over burdened pension plan? High taxes? Equipment issues? Service gaps? Unprofitable hubs or flights?

    Viva la Brazil—
    Roberto- Chicago
    acommonthought@aol.com

  • Guest

    Staus Quo !!
    Looks like nothing has changed…. still passing out the peoples’ money to his politcally connected friends. Can’t wait for the election.

    Classificados Gratis

  • Guest

    The Future of Varig
    Varig needs to be sold to a private equity firm who can then re-structure the business so it’s ran as a comercial enterprise not as a bus service for migrant workers and wealthy Brazilians. Then Brazil needs to deregulate it’s international aviation market to boost competition and quality. Brazil needs more tourism not less.

  • Guest

    Raimundo Santos
    Lula should not be so preocuppied with bankrupted companies, but also with urgent social causes. In fact, Lula is giving a shit for social programs which might help tackle the chasm between the rich and the poor in this country. I don’t believe a word he says. It’s all part of his demagogic political rhetoric. Have a look at what he promised on his last presidential campaign and you’ll notice he’s a complete failure. However, he’s just a by-product of our dirty, unfair political system, which deceives masses of people with the help of our nasty, alienating media. Education is the key to solve many of Brazil’s injustices. Down with our political system!

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