Brazil’s tarnished crown jewel of aviation Varig fell to a United States-Brazilian investor group for a knockdown $24-million — saving the once-proud national carrier from liquidation.
Hours after the deal was announced on Thursday, the new owner announced an immediate “temporary” halt to all 25 international and national flights except those between Rio de Janeiro and São Paulo.
The move is “the first step in the company’s recovery strategy”, said Varig Logistica SA (VarigLog), owned by Volo do Brasil — a consortium of US investment fund Matlin Patterson and Brazilian partners — since closing its purchase of the bankrupt carrier.
VarigLog said that after July 28, it will “gradually” resume flights to the 11 foreign destinations and 12 Brazilian ones it served by Thursday.
VarigLog was the only bidder in the auction for Varig, created 79 years ago to fly the flag of Latin America’s largest country but now operating a bare 13 aircraft.
“A new Varig is born,” said Varig chief executive Marcelo Bottini, who is expected to keep his job. “We are not afraid to face the future after the difficulties we have seen.”
Varig fell under bankruptcy protection last year and since the end of June has only been flying to half of its destinations — dropping such prestigious locales as New York and nearly stranding Brazil fans in Germany during the Soccer World Cup.
A plan by Varig’s staff to buy the company collapsed last month after they failed to make the first $75-million down payment. A judge then annulled the sale, setting the stage for Thursday’s auction.
VarigLog, the airline’s former freight operation, had already put enough money into Varig during the past month that it will not have to pay any more to complete the purchase.
But the deal also compels the company to invest $485-million in the airline to keep it going.
“We are entering a new stage. The great challenge will be the negotiations with our aircraft leasers,” said VarigLog chairperson Joao Bernes de Sousa.
Varig is saddled with more than $3-billion in debt and last turned a profit in 1995. Its fleet is depleted from 70 aircraft one year ago as a number of jets fell into creditor hands.
A New York court is shortly expected to rule whether Varig aircraft it allowed to be seized in the US will remain grounded or can be taken back over and operated by Varig’s new owners.
The new owners take the helm of a company with 10 600 employees, who are expected to face drastic cutbacks as the VarigLog team decides how many of Varig’s destinations to keep.
Officially, Varig still controls 60% of Brazil’s international routes to 21 foreign and 46 regional destinations. But rivals Tam and Gol, which have lower costs and cheaper tickets, have left Varig with only 16% of the domestic market.
VarigLog said it also plans to increase the airline’s daily flights between Rio de Janeiro and São Paulo from 10 to 36.
“We want to offer more options” to passengers on this particular route, hoping to “quickly re-establish its growth and profitability”, the new company said in a statement.
Varig was hit hard by the economic problems that dogged Brazil in the 1980s and 1990s.
In 1982, when Brazil declared a foreign debt moratorium, the company was forced to finance new aircraft purchases in Japanese yen that cost it heavily when the yen sharply revalued several years later.
A decision to freeze ticket prices between 1986 and 1991 cost the airline $2-billion.
Its bad luck was compounded by the buffeting of the aviation industry that followed the 1991 Gulf War. By 1994, Varig was forced to lay off 10% of its 29 700 employees and suspend payments for 60 days.
The airline crisis after the September 11 2001 attacks further worsened the problems, sending it toward bankruptcy.
Some observers said the year-old saga to stave off liquidation reflected a deeper national malaise and that seeing Varig disappear would have hurt Brazilians’ already wounded psyche.
“It would perhaps be excessive to say Varig is our Coca-Cola, but its disappearance would deliver a blow to our already weak national self-esteem,” wrote Zuenir Ventura, who chronicled Varig’s battle for the O Globo newspaper. — AFP