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9th Jun 2006, 18:31
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Brazil's bankrupt Varig fails to sell at auction
RIO DE JANEIRO (AFP) - Brazil's 79-year-old flagship carrier Varig sailed
into limbo at auction after the bankrupt airline attracted a single bid, at
half the minimum price.
The price of Varig's preferred stock plunged 58 percent on the Sao Paulo
stock market after the auction to rescue it from liquidation drew a sole bid
from Participacoes, a group representing Varig employees, worth 449 million
dollars.
That was 48 percent below the minimum asking price of 860 million dollars
for the financially strapped airline's international and domestic routes and
52 aircraft.
But the airline's fate was held up after bankruptcy Judge Luiz Roberto Ayoub
said he would study the bid in the next 24 hours before deciding whether to
accept it.
Unions representing the airline's 10,600 employees and Varig's major
creditors have warned they would take legal action if the company's purchase
price is too low.
In the bidding Thursday, there were no bids during the first round in which
a minimum was set 860 million dollars. In addition to Participacoes, five
other groups were present: Brazil's discount airline GOL, leading carrier
TAM, and OceanAir; Aero-Lob controlled by Portugal's TAP, and a Canadian
investment fund.
A second round of bidding, for the airline's domestic routes and 30 aircraft
at a minimum price of 700 million dollars, also failed.
When the auctioneers then opened up for any bids, Participacoes stepped
forward with its cut-rate offer for all of Varig's assets, Varig
Operacional.
Ayoub has 24 hours to decide whether the price is fair. If he accepts it,
Participacoes must deposit 75 million dollars within three days to put the
sale on track.
Varig is saddled with debt of more than three billion dollars and has been
operating under bankruptcy protection for a year.
Sixty-five percent of that debt is owed to public services like airports
authority Infraero and fuel distributor BR Distribuidor. The company also
owes more than one billion dollars in unpaid taxes.
Varig Operacional would be sold debt-free, its debt assumed by a company
called Varig Relacionamiento.
The beleaguered airline recently has failed to honor contracts on leased
aircraft, which make up 80 percent of its fleet.
Milton Zuanazzi, president of the nation civil aviation office, said Varig's
sale was not over and so there is no need to speak of what will happen if
the offer is rejected.
"We are not going to talk about contingencies because the sale is not
closed," he said.
Founded in 1927, Varig, or Viacao Aerea Rio-Granadense, became the face of
Brazil in the skies in the 1970s when it won a monopoly on international
flights.
Its 111 agencies worldwide became virtual embassies for Brazilian travelers
and international sales represented 70 percent of revenue.
But Varig began to mark up losses after the government froze airfares
between 1986 and 1991 to combat runaway inflation. The airline has taken
court action to seek compensation for the estimated two billion dollars in
losses from that decision.
Varig was Brazil's leading domestic carrier until it was overtaken more than
two years ago by TAM. Last year it lost its second-place ranking to low-cost
competitor Gol.
Varig now has only a 16.7 percent share of the domestic market but remains
the country's leading international carrier, with a 66.4 percent share on
external routes.
Brazil's bankrupt Varig fails to sell at auction
RIO DE JANEIRO (AFP) - Brazil's 79-year-old flagship carrier Varig sailed
into limbo at auction after the bankrupt airline attracted a single bid, at
half the minimum price.
The price of Varig's preferred stock plunged 58 percent on the Sao Paulo
stock market after the auction to rescue it from liquidation drew a sole bid
from Participacoes, a group representing Varig employees, worth 449 million
dollars.
That was 48 percent below the minimum asking price of 860 million dollars
for the financially strapped airline's international and domestic routes and
52 aircraft.
But the airline's fate was held up after bankruptcy Judge Luiz Roberto Ayoub
said he would study the bid in the next 24 hours before deciding whether to
accept it.
Unions representing the airline's 10,600 employees and Varig's major
creditors have warned they would take legal action if the company's purchase
price is too low.
In the bidding Thursday, there were no bids during the first round in which
a minimum was set 860 million dollars. In addition to Participacoes, five
other groups were present: Brazil's discount airline GOL, leading carrier
TAM, and OceanAir; Aero-Lob controlled by Portugal's TAP, and a Canadian
investment fund.
A second round of bidding, for the airline's domestic routes and 30 aircraft
at a minimum price of 700 million dollars, also failed.
When the auctioneers then opened up for any bids, Participacoes stepped
forward with its cut-rate offer for all of Varig's assets, Varig
Operacional.
Ayoub has 24 hours to decide whether the price is fair. If he accepts it,
Participacoes must deposit 75 million dollars within three days to put the
sale on track.
Varig is saddled with debt of more than three billion dollars and has been
operating under bankruptcy protection for a year.
Sixty-five percent of that debt is owed to public services like airports
authority Infraero and fuel distributor BR Distribuidor. The company also
owes more than one billion dollars in unpaid taxes.
Varig Operacional would be sold debt-free, its debt assumed by a company
called Varig Relacionamiento.
The beleaguered airline recently has failed to honor contracts on leased
aircraft, which make up 80 percent of its fleet.
Milton Zuanazzi, president of the nation civil aviation office, said Varig's
sale was not over and so there is no need to speak of what will happen if
the offer is rejected.
"We are not going to talk about contingencies because the sale is not
closed," he said.
Founded in 1927, Varig, or Viacao Aerea Rio-Granadense, became the face of
Brazil in the skies in the 1970s when it won a monopoly on international
flights.
Its 111 agencies worldwide became virtual embassies for Brazilian travelers
and international sales represented 70 percent of revenue.
But Varig began to mark up losses after the government froze airfares
between 1986 and 1991 to combat runaway inflation. The airline has taken
court action to seek compensation for the estimated two billion dollars in
losses from that decision.
Varig was Brazil's leading domestic carrier until it was overtaken more than
two years ago by TAM. Last year it lost its second-place ranking to low-cost
competitor Gol.
Varig now has only a 16.7 percent share of the domestic market but remains
the country's leading international carrier, with a 66.4 percent share on
external routes.