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Brazil’s Varig One Step Closer to the Grave

Only the workers said yes to an offer by VarigLog to buy moribund Brazilian airline Varig during a meeting Monday, July 17, with the main creditors of the company, which is US$ 3.2 billion in the red.

With this an auction scheduled for Tuesday, July 18, has been scrapped and Varig seems closer to landing all its planes for good. The case now goes back to the justice, which will have the last word, probably leading the company into bankruptcy.

Creditors had been divided in three classes. Those from class 1, the workers, accepted the proposal of close to half a billion dollars. Those from class 2, led by the Aerus pension fund, and class 3 (leasing companies as well as state firms like Infraero and BR Distribuidora) voted against the proposal. Other creditors include International Lease Finance Corp., a unit of American International Group Inc. and state-owned Banco do Brasil.

Having started at 3 pm in Rio de Janeiro, the meeting to discuss VarigLog’s offer lasted more than four hours and brought together around 1,000 Varig employees and representatives of leasing companies, banks and state firms.

The assembly’s decision will be now taken to judge Luiz Roberto Ayoub from Rio’s Bankruptcy Court. Ayoub has been reluctant to rule in favor of bankruptcy afraid to carry in his résumé the title of the man who killed which once was the pride of Brazil. He might also be deemed responsible for the firing of 10,000 workers.

In reality, the old Varig is already dead and the company is just a ghost of its old self. A mere 13 of its planes are flying and profits have dwindled 84% since December 2005 from US$ 197 million a month to US$ 32 million. In December the company still had 58 planes with plan to get five more.

VarigLog, the company that was trying a rescue, once belonged to Varig. It was bought earlier this year by the Brazilian investment company Volo and the American investment fund Matlin Patterson whose main investors are US pension funds.

In the last few weeks, VarigLog had injected about US$ 13 million into Varig to pay for the daily maintenance of the company and allow a semblance of normality. A report by Deloitte Touche Tohmatsu, Varig’s judicially appointed administrator, reveals that Varig cannot survive by itself until the end of the month.

Marcelo Bottini, Varig’s president, blamed GE Capital Aviation services, which leases airplanes, for the failure of the latest meeting to discuss VarigLog’s offer. If Varig goes bankrupt, said Bottini, GE Capital will be responsible for that.

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  • Show Comments (3)

  • Helene

    What about the passengers?
    Could you please also inform about what will happen to all the passengers who already have purchased tickets to travel with Varig?

    I am currently on vacation in Latin America, having travelled from Europe with Varig. My plan is to return on the 30th of july. If Varig goes bankrupt before that date, what options do I have? What about all the other Varig passengers all around the world? When will the decision by judge Luiz Roberto Ayoub from Rio’s Bankruptcy Court be taken?

    Please write more about these issues! I am sure there are many people who are anxious to know this!

  • Bo

    You are so right, Stephen. It simply does not work year in and year out giving poor service to passangers. If there was not for the other companies in the group Varig belong to, Scandinavian Airlines, Lufthansa and more, I am sure Varig would be dead a long time ago. Before we moved to Brazil we always flew with Varig on our vacations to Brazil. They never managed to do such simple thing as getting families together. We were always split up during long flights. Even childrens. We finally was tired on Varig bad service and organization and changed company. I am sure we were not alone.

  • Stephen White

    Marcelo Bottini
    Mr.Bottini, If Varig goes bankrupt it will not be GE Captial’s fault, it is your fault and the several previous CEO’s who are responsible. The mis-mangement, lack of vision, heads in the sand, poor service, poor training….the list goes on and last but not least Brazilians are known for not worrying about paying their debts but this time the wake up call comes as the final chapter.. Was a great airline, but all falls when greed takes over and your compeition leaves you in the dusk or rather grounded !!! Sad tale, indeed.

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