3holer
7th Aug 2002, 16:39
Industrial action by Varig's pilots are beginning to bear some fruits. The last round could see the ousting of management.
See below;
COMPANIES & FINANCE THE AMERICAS: Varig workers seek to oust executives
By Raymond Colitt in São Paulo
Financial Times; Aug 06, 2002
Employees of Varig, Latin America's largest airline, are set to take legal action to oust the company's senior executives over allegations of mismanagement.
"We will go to court to stop the disastrous management that has led to financial ruin of the company," said Flavio Souza, head of the pilots union (Apvar), which claims to represent 1,400 or more than 90 per cent of Varig pilots.
The move could mark a watershed in the company's troubles after repeated negotiations between management, the government and potential investors over a rescue plan have failed to produce results.
Struggling under heavy debts, rising competition and sharp currency depreciation, Varig had an annual net loss of R$480m (US$154m) at the end of last year, up from losses of R$178m in 2000 and R$94m in 1999. Its net equity fell from R$29m in 1999 to a negative R$523m last year.
On Friday, a local judge froze the personal assets of Varig executives and controlling shareholders, citing "an astronomical deficit, proven negligence of administrative duties and abuse of power in the squandering of the shareholder equity".
She added that there was "imminent danger of irreparable damage to creditors".
Varig would not comment but Ozires Silva, its president, told Gazeta Mercantil, a leading financial newspaper, yesterday: "If the pilots think they can do a better job, have them sack the leadership and command Varig - as if it were easy."
Behind the union's move is a reform proposal that includes restructuring debt, including labour and pension liabilities, that exceeds R$6bn, according to Bruno Rocha, a financial consultant hired by Apvar.
The rescue plan he will propose foresees a capitalisation of more than R$6bn, largely through bond and share offerings. "Creditors [mostly domestic banks and Petrobras, the state petrol company,] will want to renegotiate," said Mr Rocha. "They stand to lose more from bankruptcy because labour and pension liabilities take precedent."
The proposal would require the Ruben Berta Foundation (RBF), which provides services to employees, to relinquish its majority control.
Varig's unwieldy ownership structure, analysts say, is at the heart of its problem. As a non-profit organisation, they say, the RBF provides no incentive for Varig to make profits.
The company has streamlined operations, reduced costs and partially opened management to outside professionals, yet reforms have not gone far enough, critics say. "The company needs new leadership," said an analyst with a local bank.
Offers of aid from the BNDES, the state development bank, are said to hinge on such reforms.
Mr Souza said: "If the current management doesn't go, Varig will fail."
See below;
COMPANIES & FINANCE THE AMERICAS: Varig workers seek to oust executives
By Raymond Colitt in São Paulo
Financial Times; Aug 06, 2002
Employees of Varig, Latin America's largest airline, are set to take legal action to oust the company's senior executives over allegations of mismanagement.
"We will go to court to stop the disastrous management that has led to financial ruin of the company," said Flavio Souza, head of the pilots union (Apvar), which claims to represent 1,400 or more than 90 per cent of Varig pilots.
The move could mark a watershed in the company's troubles after repeated negotiations between management, the government and potential investors over a rescue plan have failed to produce results.
Struggling under heavy debts, rising competition and sharp currency depreciation, Varig had an annual net loss of R$480m (US$154m) at the end of last year, up from losses of R$178m in 2000 and R$94m in 1999. Its net equity fell from R$29m in 1999 to a negative R$523m last year.
On Friday, a local judge froze the personal assets of Varig executives and controlling shareholders, citing "an astronomical deficit, proven negligence of administrative duties and abuse of power in the squandering of the shareholder equity".
She added that there was "imminent danger of irreparable damage to creditors".
Varig would not comment but Ozires Silva, its president, told Gazeta Mercantil, a leading financial newspaper, yesterday: "If the pilots think they can do a better job, have them sack the leadership and command Varig - as if it were easy."
Behind the union's move is a reform proposal that includes restructuring debt, including labour and pension liabilities, that exceeds R$6bn, according to Bruno Rocha, a financial consultant hired by Apvar.
The rescue plan he will propose foresees a capitalisation of more than R$6bn, largely through bond and share offerings. "Creditors [mostly domestic banks and Petrobras, the state petrol company,] will want to renegotiate," said Mr Rocha. "They stand to lose more from bankruptcy because labour and pension liabilities take precedent."
The proposal would require the Ruben Berta Foundation (RBF), which provides services to employees, to relinquish its majority control.
Varig's unwieldy ownership structure, analysts say, is at the heart of its problem. As a non-profit organisation, they say, the RBF provides no incentive for Varig to make profits.
The company has streamlined operations, reduced costs and partially opened management to outside professionals, yet reforms have not gone far enough, critics say. "The company needs new leadership," said an analyst with a local bank.
Offers of aid from the BNDES, the state development bank, are said to hinge on such reforms.
Mr Souza said: "If the current management doesn't go, Varig will fail."