BRIAN HOMEWOOD RIO DE JANEIRO Brazilian aviation is again in confusion over mergers, with VASP proposing a single holding company for the four main companies and the government's development bank repeating an offer to finance fusion.

For the second time this year, Andrea Calabia, president of The Brazilian National Development Bank (BNDES), has announced that the bank will finance a merger if the struggling companies come up with a viable plan.

On the first occasion, VASP, Varig, Transbrasil and TAM, the big four, said they were not interested. This time, the latter three again rejected the idea, while VASP came up with its holding company idea. VASP has even gone as far as to propose a name for the company - Air Latina - which the company says would reflect the fact that "Brazil is now a major power in Latin American aviation".

The airline points out that VASP is a majority shareholder in Lloyd Aéreo Boliviano (LAB), Ecuatoriana and Argentina's Tansa, while Varig owns Pluna, and TAM has a subsidiary with the same acronym in Paraguay.

VASP's proposal, however, has been viewed so poorly by Varig, Transbrasil and TAM that they have jointly bought advertising space in leading Brazilian newspapers to say they are not interested. "We did not and do not intend to take part in any understandings towards this end," says the statement. "There is no commitment to the idea of forming a holding company for Brazilian airlines". But VASP says it is still open to any future co-operation with the others.

All four airlines are in debt and have lost money this year as a result of a massive currency devaluation in January, which raised costs, most of which are in dollars and reduced demand. All responded by changing or slashing routes.

Varig president Fernando Pinto suggests his company's rivals should stop flying internationally and concentrate their efforts on their domestic routes. "We need a single, strong company competing with the foreign airlines and that company already exits: it's Varig," he says.

TAM president Rolim Amaro's main call is for a relaxation of government controls, in particular of air fares, and a reduction of crushing local taxes. The government fixes the fares for domestic routes, although it allowed companies to make discounts of up to 65% last year. Amaro, however, wants to be able to charge more than the maximum rate at peak times, while improving discounts to off-peak travellers.

There is movement in the government to make changes, which would include replacement of the military-controlled Department of Civil Aviation with a civilian-controlled body.

Source: Airline Business