VarigLog made another deposit yesterday, July 3, to keep bankrupt Brazilian airline Varig operating for another 24 hours. Thanks to this constant cash infusion the moribund company hasn’t yet gone belly up.
According to spokespersons at a Rio de Janeiro court, up to June 29, VarigLog had already made deposits totaling US$ 5.5 million to cover Varig’s current operating expenses.
VarigLog, which was a Varig subsidiary before being sold at the end of last year to an American group, has made a commitment to spend up to US$ 20 million to keep Varig flying until such time as another auction can take place when VarigLog will make a concrete offer to take over the ailing airliner.
After a careful examination of the VarigLog proposal, government legal officials (Ministério Público) and the Rio de Janeiro business court handling the case have now both announced that the proposal is acceptable. The offer is in compliance with Brazil’s new corporate bankruptcy and recovery laws.
The VarigLog proposal will, among other things, honor Varig’s frequent flyer program. "Smiles" is the biggest such program in Brazil, with five million users.
VarigLog will also divide the company into two parts, one with most of its valuable domestic and international routes (Varig Operacional), the other with its liabilities (Varig antiga).
The Varig Worker Group (TGV) will get 5% of Varig Operacional stock, and Varig antiga will get another 5%. Varig antiga will not be completely abandoned; it will operate some domestic lines (Rio Sul and Nordeste Linhas Aéreas) using aircraft that Varig Operational will furnish in order to keep Varig antiga viable.
What this all means now, with approval of the VarigLog proposal by the court and government lawyers, is that next Monday, June 10, the proposal will be formally submitted to an assembly of Varig creditors. If it is accepted there will be a new auction two days later.