Varig has had the worst nine months in its 75-year history, reporting yet another loss in its belated third-quarter results.
Despite revenues of $1.38 billion between January and September 2002 - a 4.6% increase over the same period a year earlier - Varig logged an accumulated loss of $598 million for the nine months. Varig's financial problems stem primarily from the pronounced devaluation of the Brazilian real.
With most of its income generated in local currency, Varig's aircraft leasing, debt and fuel expenses are pegged to the US dollar. As a result, currency depreciation played a key role in the 41.5% increase in the airline's operating costs, which amounted to $725 million from January to September 2002. Another factor behind the carrier's poor financial performance is the dispute over $191 million of duties levied against Varig by the Brazilian government. It is expected that the Brazilian courts will rule against Varig, forcing the airline to write off the contested sum.
Local airline industry sources say Varig is expected to cut about 2,000 employees from its payroll of 18,000 - nominally as part of the planned merger with TAM. The proposed redundancies are expected to encompass 250 pilots, 700 flight attendants and nearly 1,000 ground staff. After implementing a 30% reduction in domestic flights over the last few weeks, some sources suggest redundancies might be greater in view of the airline's record losses.
TAM and Varig were expected to have tendered the business plan for their proposed merger to Brazil's anti-trust agency, the Economic Defence Administration Council, at the end of March. However, doubts over the viability of the merger have emerged due to Varig's disastrous financial performance.
Source: Flight International