/ 3 June 2006

Auction of bankrupt Brazilian airline postponed

A bankruptcy court judge has postponed Monday’s scheduled auction of Brazil’s debt-ridden flagship airline Viacao Aerea Rio-Grandense (Varig), the company said on Friday.

The auction was rescheduled at the request of potential buyers, Varig said in a statement.

Eleven companies, including Portugal’s TAP, were expected to bid for the planes, routes and offices of Varig, which has been under bankruptcy protection since July last year.

The company is saddled with debts estimated at $3,5-billion, and under the rules of the auction it was not clear whether the buyer would be free from that debt.

”I was expecting this, because in truth the model proposed for the auction leaves a lot of things unclear,” said Ameriles Romano, an economic analyst at Tendencias Consultores in São Paulo.

Several Brazilian carriers, including TAM, Gol Linhas Aereas Inteligentes, BRA, Webjet and OceanAir, had picked up the tender document giving them the right to bid, Varig said.

Varig’s domestic and international operating assets will be put up for sale for a minimum $860-million. If that minimum bid is not met, the company’s domestic assets could be sold, for at least $700-million.

The proceeds would be used to pay debts on operating expenses to allow the airline to continue flying.

Varig remains Brazil’s leading airline on international routes, but has fallen behind TAM and Gol domestically as cash-flow problems have forced it to reduce operations.

The auction, originally scheduled for July, was moved ahead because the airline was in danger of shutting down. — Sapa-AP