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On Its Deathbed Brazil’s Varig Sees Its Routes Being Partitioned

A Brazilian bankruptcy judge approved on Monday an offer by an employee-led group to buy Varig, Brazil’s flag air carrier after getting guarantees the buyers have enough money to finance the transaction.

Judge Luiz Roberto Ayoub cleared the bid for the carrier’s assets provided the group, NV Participações, pays Varig US$ 75 million within 72 hours as a part of US$ 125 million of cash in offer.

The money will be used to make back payments on aircraft leases in an effort to avert seizure of more than half the airline’s fleet.

"They have 72 hours to resolve this problem or we will be back to this confusing situation," Ayoub said during a news conference in Rio de Janeiro.

Ayoub approved the proposal more than ten days after holding an auction of Varig’s assets to help generate enough cash to keep the airlines planes flying. Delays in approving the offer may cause Varig to ground several aircrafts because of lack of payment to its suppliers, revealed Márcio Marsillac, NV’s CEO.

The carrier has now 15 airplanes flying and another 36 inactive. 16 of those are in maintenance and 20 have been stopped for lack of lease payment. They might be repossessed any moment now.

The group, formed by Varig’s pilots and flight attendants, won its approval after presenting the judge with two unnamed investors, Marsillac said.

Rio de Janeiro-based NV, the sole bidder during the auction, offered US$ 449 million for Varig’s international and domestic airline operations, US$ 125 million of which was cash.

Ayoub had said the group needed to more than double its cash offer to win approval or present guarantees it could come up with the money, according to a Varig filing in U.S. bankruptcy court last week.

Marsillac will meet Brazilian government representatives to help obtain 150 million US dollars from the Brazil’s development bank to fund Varig’s working capital, Marsillac said.

The Brazilian government said last month the BNDES would finance as much as two thirds of the purchase price for the carrier’s assets. But they are requiring guarantees that the NV doesn’t seem able to present.

"Let’s hope this marvellous group of people from this marvellous company can save Varig," said Judge Ayoub who all along indicated he wanted to save the air carrier from bankruptcy and dissolution.

Varig’s debts amount to 3 billion US dollars and the cash strapped company has been unable to pay suppliers and the 10.600 staff. Last week it was forced to suspend 230 domestic and international flights.

Founded in 1927 Varig rapidly became identified as Brazil’s main international airline. However from 1986 to 1991 the government froze air rates, in spite of hyper inflation, and in 1991 Varig lost its international monopoly. Varig is suing the government for losses generated during that time.

Until noon, Varig had already cancelled 51 flights this Tuesday, June 20, about one third of all flights for the day.

While NV hinted that it would not be able to raise the US$ 75 million to beat the Friday deadline, ANAC (Brazil’s National Agency of Civilian Aviation) has already started the partition of Varig routes among its competitors.

All Brazilian airlines, including Tam and Gol, were invited today, June 20, by ANAC to make a presentation in which they describe their capability and the Varig’s routes they are interested in.

Mercopress, Bzz

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  • Guest

    Finish off Varig!
    It served its purpose, it’s now a lousy company that needs to die!

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