Status of Varig?

[Annie]

TAP/Portugal has just posted a notice on their website that they will no longer accept pax with Varig tickets. Any insight as to what is going on with Varig?

Thank you,

 

[Rogue5]

Air Transport

New Varig Owners Slowly Start Exerting Control Over Brazilian Carrier
Aviation Week & Space Technology
07/31/2006, page 49

Jens Flottau
Frankfurt

A group of Brazilian and U.S. investors are betting that Brazil's troubled carrier can be revived

The new owners of Brazilian airline Varig are hoping to reestablish stable operations soon, following the carrier's suspension of most services.

Volo do Brasil, a group of Brazilian and U.S. investors, bought Varig this month at an auction in Rio de Janeiro, assuming liabilities in excess of $600 million. This helped avert the carrier's imminent liquidation, but the company still faces major obstacles in its struggle to become a viable enterprise.

Immediately following the takeover, Varig temporarily grounded all of its flights, except on the busy Rio de Janeiro-Sao Paulo corridor. Frequencies on the "Punte Aerea" were almost doubled to 36 daily round trips from 20. But the airline left thousands of passengers stranded at almost all of its other destinations, including points in the U.S. and Europe.

Last week, the carrier slowly reintroduced some services, albeit with limited frequencies, to Frankfurt, New York, Miami, London and Buenos Aires, among others. "We recognize the discomfort that Varig passengers [have] experienced, and we are working hard to solve the problems and normalize operations," CEO Marcelo Bottini said in a statement.

The company was under intense pressure by Brazil's air transport regulator ANAC to reintroduce flights to key domestic and international destinations.

VARIG IS CURRENTLY operating only 13 aircraft, with most of its fleet parked at Rio de Janeiro's international airport. By the end of 2005, Varig had 58 aircraft in service, and two years ago boasted a fleet of 120. The aircraft are grounded in many cases because Varig could not afford routine maintenance work. In others, the airline was forced by lessors to ground the aircraft for failing to make lease payments. As its cash reserves dwindled, Varig grounded more planes because it could no longer afford fuel or air traffic control and landing charges.

Volo do Brasil has been trying to take over Varig for months. The group is majority controlled by Brazilian entrepreneurs Marco Antonio Audi, Luis Eduardo Gallo and Marcos Haftel. U.S. private equity fund MatlinPatterson Global Opportunities Partners LP owns 20% of Volo do Brasil. The company acquired Varig's cargo subsidiary, VarigLog, this year in a move that helped the passenger airline continue services for a few additional weeks.

Varig has been operating under the Brazilian equivalent of Chapter 11 bankruptcy protection since June 2005. Numerous attempts to sell the airline have failed since, and bankruptcy Judge Roberto Ayoub rescheduled the auction several times. Among others, a group of Varig employees launched a takeover attempt, but were unable to arrange the necessary financing. An earlier takeover attempt by Volo do Brasil was blocked over concerns that the company was controlled by MatlinPatterson. Brazilian law limits foreign ownership in airlines to 20%.

Volo do Brasil plans to lay off 9,500 Varig staff and immediately rehire 1,600. The carrier's operating assets, routes, slots and brand are to be placed with a new company, while most of the debt will remain with the unit now operating under bankruptcy protection. The old entity has recently begun to operate some services on behalf of the "new Varig."

A similar approach was taken in Switzerland when former national carrier Swissair collapsed in October 2001. The airline operated services on behalf of Crossair for several months, later rebranding the airline as Swiss International Air Lines. Swiss took over about two-thirds of the former Swissair fleet.

However, the relaunched carrier is facing massive challenges. The airline has to rebuild consumer confidence. Most key corporate customers have been opting for Varig's Brazilian rivals Gol and TAM in the last few years. While Varig remains a part of Star Alliance at this point, its membership could be in question, as its massive reduction in size means Star has lost significant exposure in South America. Chile's LAN belongs to Oneworld, leaving Varig's largest rival, TAM, as the only sizeable carrier in the region that would be attractive to Star. However, TAM has links with American Airlines (Oneworld) and Air France (SkyTeam), among others, and is still unaligned.

Claims by creditors could be the biggest single threat to the new Varig, industry sources note. The airline's old debt is estimated at $3.6 billion, with such creditors as international leasing companies ILFC and GE Capital Aviation Services, along with the Brazilian government and the country's airport authority. The prospect of having to deal with billions of dollars of claims for years to come has intimidated many: Volo do Brasil was the only bidder.

.....

 

[Annie]

Thanks ROgue5 for the information.

Best,

 

[amt]

I've heard that most of their pilots went to East Europe...places like Emirates and other airlines in India.....what a shame!

 

[DallasGatr]

That's alot of good looking F/A's out of work!

 

[Whine Lover]

Not to worry...

Matlin-Patterson ( Investment Group) now owns a significant portion of Varig.

They also have been "In Bed" with Southwest for many years.

Couple these facts with their recent investment in ATA, SWA's acknowledgement that they will seek International revenues/markets, the Varig acquisition...and you can see the future.

The 800 Pound Gorilla is beating it's Chest.

Can you hear it?


YKW

 

[Palomino]

yep. like King Kong hanging from the Empire State Building.

Southwest should stick to their core business and continued success. they shouldn't climb the tower to their doom.

even a founding father of Southwest has said they are moving away from what has made them such a success. hope they don't stray too far from their shrewd business model.

 

[Green]

That's alot of good looking F/A's out of work!

I had that exact same thought when I heard of Varigs fate. Probably 70% of the hot fa's remaining in this industry just hit the unemployment line.

 

[amt]

I flew RG last march and all I saw was old FA's. Now all the hotties are flying for either TAM or GOL. Besides, there're plenty of sugar daddys down there willing to take care of them...