Nothing seems to run smoothly in the attempted integration of Varig and TAM. Combined, they would be among the world's top 25 airline groups, over twice the size of the next largest Latin American rival. But new obstacles keep coming up.
It looked as if Varig's year-long power struggle between pro- and anti-merger camps was finally over in June. The Ruben Berta Foundation, which owns 87% of Varig's shares on behalf of employees and had opposed a merger, has now voted to replace the last opponents. Then Gilberto Rigoni, who was ousted as president of the foundation's controlling council, convinced a court to reinstate him after he claimed he was illegally removed. But another court later annulled this decision.
Rival Vasp also threatens to challenge any Varig-TAM merger, claiming that Brazil's antitrust agency has no right to approve a merger that would give an airline more than 50% of the market. The combined domestic market share of Varig and TAM would be 67%.Brazil's competition law also recognises the "failing company" doctrine, which allows approval of any deal if one of the companies might fail without it. Defence minister Jos‚ Viegas, who is responsible for overseeing civil aviation, argues that Varig might indeed collapse without TAM.
But the Brazilian government is so concerned that it postponed the public signing of a merger agreement between Varig and TAM, and has now proposed to rewrite its competition law.
The delay in signing means Varig cannot qualify yet for any of the interim financing offered by Brazil's development bank. Varig clearly needs help, but the bank insists on an irrevocable commitment to the merger before it will release funds.
DAVID KNIBB SEATTLE
Source: Airline Business