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July 18, 2006
Como se dice "Inauspicious Start?"
Brazil's airline Varig in death throes
Judge rejects airline bid; future of Brazilian carrier in limbo
RIO DE JANEIRO, Brazil (AP) -- A bankruptcy judge on Friday canceled the planned sale of Brazil's flagship Varig airline to a workers' group, throwing the future of the carrier into limbo and virtually ensuring more travel chaos ahead for ticket holders in Brazil and abroad.Judge Luiz Roberto Ayoub said the TGV workers' group, which made the sole bid for Varig at a June 8 bankruptcy auction, failed to make its $75 million first payment.
Ayoub confirmed that another company, VarigLog, on Friday offered $500 million -- slightly higher than TGV's $449 million bid -- and that he and bankruptcy administrators would examine the bid over the weekend to determine whether it seems viable.
VarigLog, the airline's former cargo unit, was bought earlier this year by Volo do Brasil, but that transaction must still be approved by authorities amid claims that Volo is controlled by foreign investors. Foreigners are allowed to own only 20 percent of Brazilian airlines. Volo says it is Brazilian-owned
The judge said no decision will be made on the new offer until consultations with Varig's creditors take place, probably next week. And Ayoub indicated that another auction would probably have to be held to give other investors a chance at making bids.
The judge said he would not take steps to liquidate the company unless creditors ask him to do so. But the 79-year-old company -- once renowned for stellar service and a source of deep pride for Brazil -- already seemed on the verge of collapsing.
Varig, or Viacao Aerea Rio-Grandense SA, continued mass cancelations of flights Friday in Brazil, Latin America, Europe and the United States.
Lacking money to pay for fuel and with planes grounded amid demands by leasing companies for overdue payments, the airline canceled 189 of its 276 flights scheduled to depart by 5 p.m. local time Friday, Brazil's National Civil Aviation Authority said.
Hundreds of Brazilians trying to return to Brazil from the World Cup in Germany were stuck in Frankfurt, and other airlines didn't have space to take them, Brazil's Agencia Estado news wire service said.
Other passengers in Europe and Brazil were managing to get on flights to go where they want to go, but delays were lasting anywhere from hours to days as the heavy summer holiday goes into high gear.
The government estimated a day earlier that 28,000 people are abroad with Varig tickets between this week and June 30.
On Friday, the Brazilian air force put five planes at the government's disposal should it need to rescue stranded passengers. Two of them are aging Boeing 707s that would be used to bring Brazilians back from Europe, and the other three are much smaller planes that could be used in South America.
Other domestic and international airlines were gearing up to take over Varig's routes if the company is broken up, but some were refusing to honor the airlines tickets despite pleas by Brazil's government.
Varig said it managed Friday to restore a flight to New York City that had been suspended, and insisted that only 11 of nearly 200 foreign airlines were refusing to honor the carrier's tickets.
But complicating matters further, Brazilian airport authorities said that Varig would be required starting July 1 to pay airport fees in cash prior to each flight. Much of the company's $3.5 billion debt is to Brazil's government, workers and pension funds.
Varig has been under protection from its creditors since June 2005, when it became one of the first companies to use a new Brazilian bankruptcy law similar to U.S. Chapter 11 proceedings.
Varig is Brazil's largest international carrier, but its domestic penetration slumped in recent years as its financial problems worsened.
Our first flight - out of JFK tomorrow night - has been cancelled. I've been on two phones for about an hour and a half today trying to sort this out. The good news is - given the length of one proposed layover scenario - Matt and I may be establishing residency in Florida. This unexpected windfall of fate will surely come in handy when it's college-picking time for young D...
GO GATORS!
Posted by Bree at July 18, 2006 08:05 AM