Brazil’s Varig airline sold for US$ 24 million

21 July 2006

Rio de Janeiro, Brazil, 21 July – VarigLog, the former subsidiary of troubled Brazilian national carrier Varig, has bought the bankrupt airline at auction for US$ 24 million.

VarigLog was the only bidder in the auction Thursday and had deposited the obligatory US$ 24 million reserve price to acquire Varig’s operating assets a day earlier.

Under the conditions of the auction, VarigLog pledged to invest about US$ 500 million in the restructured Varig over the coming years, of which US$ 150 million will be spent within 30 days and half of the total amount will be deposited in the account of the new Varig 78 hours after the deal receives legal approval.

VariLog’s proposal means that Varig has been split into two, with the “old” company not being sold off and remaining with debts of around reais 7 billion and current assets valued at reais 120 million.

The old Varig will continue to operate one aircraft on the Sao Paulo-Porto Seguro route in the state of Baia with 50 employees. A remaining 9,000 Varig staff will be made redundant in coming days.

Created in 1927 by German pilot Otto Ernst Meyer, Viação Aérea Rio-Grandese (Varig) opened its first international route in 1942 from Porto Alegre to Montevideo.

From 1941, the company came under the control of Ruben Bertha, the company’s first employee, and later became owned by a group of workers from the firm under the same name.

In 1986, Varig was obliged to freeze its fares due to government economic policies and the company started to suffer financially.

Four years later, the company lost its monopoly on international routes and the airline recorded the first loss in its history, a setback aggravated by increasing fuel costs.

In 2003, Varig lost its leadership of the Brazilian domestic markets and began codesharing with its main competitor, TAM, in a bid to reduce operating costs.

Brazil’s competition agency, CADE, decided to end Varig’s shared flights in 2005.

The ending of shared flights worsened the financial situation of the company, which filed for bankruptcy in June 2005.

At the end of last year, Varig sold is maintenance arm, VEM, and cargo division, VarigLog, to Aero-Lb and Volo do Brasil, respectively.

Aero-LB is a firm created by the Straus investment fund of Brazil and Reaching Force, owned in equal parts by Portugal’s TAP airline and Geocapital of Macau casino tycoon Stanley Ho.

The crisis of bankrupt Varig deteriorated in recent months with the reduction of its fleet from 58 aircraft in December 2005 to only 13 this month, which led to an 83 percent drop in revenues.

In its 79-year existence, Brazil’s most internationally recognized airline has carried over 120 million passengers. (macauhub)