On the brink of collapse, Brazil’s Varig could survive if creditors, regulators, and courts approve a $400 million buy-out offered by VarigLog, the airline’s former cargo subsidiary.

Running out of cash, Varig is also running out of options. The national development bank has denied it a line of credit. Regulators have rejected a proposal for Synergy’s OceanAir to operate its domestic routes. Government creditors have rejected a 90 day moratorium request on airport fees and fuel.

The government also recently seized Varig’s pension funds to prevent the airline from raiding them and a labour court has seized all of Varig’s assets to secure debts. Worst of all, Brazil’s President Lula da Silva declares he will not use government funds to save a private company from bankruptcy. This is a far cry from earlier assurances.

VarigLog’s offer to buy Varig’s assets and inject operating funds may be the airline’s last option. Harking back to earlier plans for “old” and “new” Varigs, the bid calls for most of Varig’s 7 billion reais ($3.3 billion) debts to remain with the “old” airline, while its assets, including leased jets and most employees, would move to a new company Varig­Log would take over. Old debts would be satisfied only from a judgment Varig holds against the government from a 1980s claim.

TAP Portugal still professes an interest in Varig, but has no role in this offer. However, it is taking over Varig’s ­Brazil-Portugal routes to ease the airline’s financial worries and threats of repossession of some of its fleet.

VarigLog’s bid is backed by its majority owner Volo Brasil, a company formed by three Brazilian businessmen and US equity fund Matlin Patterson, which also brought US low-cost player ATA Airlines out of Chapter 11 and approached Aloha Airlines about a rescue.

Varig’s board is urging approval of VarigLog’s offer. Unions have generally agreed, so the next move is up to creditors. Any of them could also ask the court to declare Varig bankrupt and force it into liquidation. ■

Source: Airline Business