By Buying Varig Gol Airline Disputes Top Position in Brazilian Skies

Brazilian Airline Gol Brazil's budget airline Gol announced it will buy struggling rival Varig for US$ 275 million (US$ 98 million cash), once Brazil's proud flag carrier. The deal also includes taking over Varig's debt of an estimated US$ 45 million but also includes access to its routes to the US and Europe as well as valuable slots at São Paulo airport.

For many years Latin America's largest air carrier, Varig almost collapsed under debt last year and was operating under bankruptcy protection. It managed to re-emerge after being bought by American-controlled investment group Volo do Brasil.

According to the agreement, Varig and Gol would be run as separate companies, Gol said, with Varig keeping its own brand and its Smiles frequent flyer program.

It would also see its number of planes double to 34, serving Frankfurt, London, Madrid, Milan and Paris as well as US and South American destinations, it added. That will warm up the competition with Brazil's number one airline, TAM.

"With this acquisition, Brazil will maintain an important flag in global aviation, the industry will benefit from an increase in jobs and demand will be better served," said Gol's chief executive, Constantino de Oliveira Junior.

He added Gol would keep its focus on its low-cost, low-fare business model, with a single class of service in the Brazilian domestic market and South America. Under the deal, Gol will also take control of the cargo business, VarigLog.

Before being sold to Volo, Varig had been due to be bought by a consortium of workers at the airline. However a judge cancelled the transaction after the group wasn't able to come up with the money to close the deal.

Chilean air carrier LAN, which has become Latin America's best and most profitable airline had been eyeing Varig as a possible acquisition and apparently had an option after having loaned the company US$ 17.1 million.

Mercopress

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