LAN sees Varig as the key to its entry into the vast market of Brazil, so it is watching with keen interest as Brazil's flag carrier and the Brazilian government debate and discuss various proposals for that airline's restructuring.

The LAN group, with affiliate airlines in Chile, the Dominican Republic, Ecuador and Peru, continues to look for openings in other parts of Latin America. Sebasti n Piñera, LAN director and major shareholder, says: "LAN is looking 24 hours of every day for new opportunities and we are devoting much attention to Argentina and Brazil." Piñera will not discuss specific initiatives LAN may have in mind, but he admits that Varig is now the centre of attention.

This is not the first time that LAN has expressed an interest in Brazil, but the country seems to have moved ahead of Argentina in the airline's strategic thinking. LAN last year seemed set to find an entry into Argentina by year-end. However, talks with American Falcon collapsed; negotiations with Southern Winds had hardly started before they were called off; and LAN lost interest in Lafsa, the paper airline that Argentina's government ultimately plans to sell.

Exactly how LAN would fit in with Varig remains unclear, largely because the Brazilian government and its flag carrier have yet to settle on a process or format for the airline's restructuring. Deadlines come and go; the most recent to come being Varig's promise to unveil its own plan by late March. Among the contentious issues it faces are whether Brazil's government will take a stake, whether it will raise Varig's foreign cap from its current 20% limit, and how Varig will retire its $2 billion debt load. Different government agencies, such as inland revenue, social security, and the country's airport operator Infraero, represent a large part of that debt.

LAN has never publicly admitted that it seeks a stake in Varig, but it may be forced to declare its intentions soon. The Pestana Group, Portugal's largest tourism and leisure group, which is involved with Europe's wet-lease specialist EuroAtlantic Airways, says it is interested. EuroAtlantic has a joint venture with Varig operating two Boeing 767s under a wet-lease and profit-sharing agreement. Other potential investors mentioned are Spain's Marsans group, which owns Aerolineas Argentinas, and TAP Air Portugal.


Source: Airline Business