Brian Homewood RIO DE JANEIRO Brazil's four major airlines have described reports that they are considering merging into two as "mere speculation". But the Brazilian airline industry remains awash with rumours that Varig, Vasp, Transbrasil and Tam could join forces.

Varig says that company president Fernando Pinto, who went on record in July as saying that the international market is too small for four Brazilian airlines, is not commenting on the matter and adds that it does not intend to merge.

TAM, Transbrasil and VASP have all issued denials and confirm that the airline presidents held a meeting in Sao Paulo in August, but that the agenda was restricted to common difficulties in the Brazilian economic crisis and ways of increasing co-operation.

VASP spokeswoman Ligia Cruz says the government wants to reduce the number of airlines because it is facing compensation payouts over price controls it imposed at the start of the decade. Transbrasil, the first to sue for damages over fares it claimed the government set at an unrealistically low rate between 1985 and 1992, was awarded last year the equivalent of $593 million in damages after winning its case. In June, Varig and Vasp were also victorious in a Brazilian court, although the government has a right of appeal in each case. "It will be much easier for the government if there are only two companies left," says Cruz.

Cruz adds that Transbrasil, TAM and Vasp were built up through the efforts of their respective presidents, who would not be prepared to give up their companies lightly. "When [VASP president] Wagner Canhedo bought the company in 1990, its revenue was $400 million a year. Now it is $1.5 billion," says Cruz.

However, Cruz hints that VASP could change its outlook in the long term. "VASP's position in principle would be that of a buyer. Canhedo goes in to win and to be a majority shareholder."

VASP, Transbrasil and Varig have suspended international routes following January's devaluation of the Brazilian real. Domestic routes have also been cut.

TAM, however, has continued with its expansion plans, taking delivery in August of two Airbus A319s, the first pair to fly in the country. A further two will be delivered by the end of the year. These are the first of a lease order of 38 aircraft.

Analysts agree that, whether or not mergers are on the cards, the Brazilian airlines are spreading themselves too thinly internationally. The fact that all four fly to the USA has left them vulnerable to competition from American Airlines, United Airlines, Delta Air Lines and Continental Airlines, which now also fly to Brazil.

The Brazilian Airlines Association revealed that last year that, for the first time, more passengers flew on US carriers between the two countries than on Brazilian ones.

Source: Airline Business