BRAZIL. Varig, Brazil’s international flag carrier, cancelled 67 of its 180 scheduled flights on Tuesday and almost half its flights on Wednesday amid mounting fears of financial collapse. On Tuesday airport authority Infraero said it was planning to distribute the company’s routes to Brazil’s other carriers, TAM and Gol, just a day after a consortium of Varig employees was given the go-ahead to purchase the airline.
On Monday night a court approved the sale of the carrier to the NV Participacoes consortium of Varig workers and two foreign investors for US$449 million. But the judge insisted that the consortium pay a deposit of US$75 million by Friday or the buyout would fail.
The consortium is now appealing to the country’s National Development Bank for a bridging loan to make the Friday payment and keep the airline alive. Varig also said it had struck a deal for fuel supplies that would keep it flying until Friday.
Another possible rescue option disappeared on Tuesday when a consortium including TAP Air Portugal and Air Canada pulled out of the bidding for Varig.
Infraero said that it would begin demanding Varig’s landing fees daily and in cash, until a long-term solution was found. It said it had begun talks with Varig’s rivals about splitting up its airport slots should Varig collapse.
Varig has been under bankruptcy protection since June 2005, when it became one of the first companies to use Brazil’s new bankruptcy law, similar to US Chapter 11 protection. The company has suffered from rising costs and low-cost competitors in its home market, where it now commands around 15% market share.
By contrast, Varig still retains about 66% of the international market for traffic to and from Brazil. Its collapse would have implications for the country’s tourism trade, and for the duty free market, were it to cease trading and routes closed. On Wednesday Varig announced the indefinite suspension of some major international routes, including Los Angeles, Milan, Paris, New York, Miami, Munich and Mexico City. According to analysts, foreign carriers rather than Varig’s local rivals would be expected to take up the slack on its overseas routes.
