The Current State of Varig

Old Aug 28, 05, 1:44 pm
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The Current State of Varig

I thought this summary from Financial Times' Latin American Agenda of today might interest readers of this forum:

Varig, the stricken Brazilian airline which has liabilities of more than R$9bn, is the first company to restructure under the new Brazilian bankruptcy law introduced earlier this year. Without the new law Varig might well have disappeared like Transbrasil and other collapsed Brazilian airlines. Even so, even with the new law Brazilian insolvency proceedings can be messy. In this, case trades union pressures and the judiciary are combining to slow things down. On Wednesday, things could become even more complicated when a US judge rules on a bid by the International Finance Lease Corporation to repossess four airliners leased to Varig. The cash-strapped company has been unable to make lease payments. A programme to raise funds has been bogged down. Administrators want to sell off profitable subsidiaries such as VarigLog, a logistics company, but the airlines' trades unions are challenging the plan in the courts. Separately, after union protests a government attorney is investigating a court ordered remuneration plan for the administrators, again potentially delaying the process.
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Old Aug 28, 05, 3:15 pm
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Thanks for the feedback.

Regardless, when speaking of Varig (airline) it's proper to define which Varig are we referring to.

Certain short-hops in coach receive far better service than long-haul business flights.

Certain airplanes are spotless while others... well, they should have gone through a major overhaul long ago.

Certain crews act top notch (did they attend SQ school?), while others couldn't simply care less.. and I really mean it.

Financially speaking RG is a mess - for shareholders, employees, Brazilian travelling public.

For this forum - their Smiles program is highly profitable yet RG makes a point of making it quite clear that whomever flies with miles does it "for free" - so they should be grateful.

I wonder RG is in such a mess...
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Old Sep 13, 05, 5:56 am
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Latest News (Sep. 13, 2005)

September 13, 2005

Brazilian airline Varig unveiled plans on Monday to fire 13 percent of its 12,000 employees and form a new company by the end of 2006 to avoid bankruptcy.

The new entity will shed much of the original Varig's debt burden and hopefully attract new investors, the company said.

It will be auctioned off under a recovery plan that will serve as a basis for discussions with creditors and judges as part of its efforts to exit bankruptcy protection.

"Today we kicked off the discussions with creditors and those interested in the recovery of Varig," said David Zylbersztajn, president of the company board who had been invited by the company's administration earlier this year to try to save the Brazilian carrier.

The plan was prepared by his team with the help of Lufthansa Consulting and UBS bank.

Varig has until the end of the year to find a solution to avoid bankruptcy. A creditors' committee is due to be set up on September 24.

Varig owes BRR7.7 billion reais (USD$3.3 billion) to the government and private creditors, including BRR4.5 billion (USD$1.9 billion) in taxes and duties.

The remaining BRR3.2 billion (USD$1.4 billion) in debt is owed to suppliers, aircraft leasing companies and state agencies and firms. It has not yet been decided whether this debt will be made part of the new entity.

It will get some of the assets of airlines forming part of the original Varig.

"The new Varig will have obligations with the old one. If it uses Varig's brand name it will have to pay the old company, if it wants to have access to the Smiles frequent flyers program, it will also have to pay," said lawyer Fabiano Cavalcanti, who worked on the plan.

The administration expects the fiscal debt to the government to be resolved after two years and the two entities could then be unified again.

On Tuesday, Varig administration will meet Vice President and Defense Minister Jose Alencar, who is in charge of civil aviation, to try to resolve the mutual debt problem.

Meanwhile, Varig hopes to break even this year with revenues matching expenditures thanks to operating improvements including the cancellation of unprofitable flights and an increased number of flights that are bringing money into its coffers, said Varig President Omar da Cunha.

Although it is vying for second place in the domestic market with no-frills airline Gol after market leader TAM, Varig still holds the leading position in international flights among Brazilian firms.

International flights provide 60 percent of the company's revenues.

Under the plan, Varig plans to reactivate 14 aircraft now idled due to a lack of funds and renew half of its fleet in the next two years when the current leases expire.

Da Cunha said it would depend on the new controlling shareholders whether to lease Boeing planes -- a brand traditionally used by Varig -- or another make.

Varig hopes to obtain over USD$40 million before the final decision on the plan by selling its express courier and logistics arm, VarigLog, to the US private equity firm MatlinPatterson.

(Reuters)
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Old Sep 18, 05, 2:33 pm
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(From Financial Times Sep. 18, 2005)

Varig's creditors

The administrators of Varig, Brazil's troubled airline, meet the company's unhappy creditors on Monday. The mood will not be good. Administrators want creditors to convert their debts into equity in a new operating company that would be freed from some R$4.5bn of liabilities stemming from tax and pensions obligations (of total debts of R$7.7bn). But the creditors, ranging from international leasing companies to Brazilian media groups, are upset about the way their claims are being organised and, in particular, the way that one of the alleged privileged treatment afforded to one of their number, the Aerus Pension Fund.

The reorganisation plan announced last week entails 2,000 job losses at the airline and further cuts at maintenance and airport management subsidiaries. It is hoped to win creditor agreement to the reorganisation plan by the end of the month. That looks like a tall order.


© Copyright The Financial Times Limited 2005 "FT" and the "Financial Times" are trademarks of The Financial Times.
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Old Sep 21, 05, 1:49 pm
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Brazil's Varig Airline Receives Local Investor Proposal

DOW JONES NEWSWIRES
September 21, 2005 9:12 a.m.

SAO PAULO -- A local Brazilian court has received a formal proposal from a businessman interested in assuming a controlling stake in financially troubled airline Viacao Aerea Riograndense SA (VAGV4.BR), or Varig, local business dailies reported in their Wednesday editions.

Brazilian businessman Nelson Tanure offered a total of $202 million in two tranches to assume control of the airline. In the first tranche, the businessman would invest $100 million to acquire 25% of shares currently held by the Ruben Berta Foundation, which controls 87% of Varig's shares. The second tranche would involve a $12 million payment in exchange for the right to name members of the board of directors of the company for a period of 10 years.

During the 10-year period, Tenure would invest an additional $90 million to acquire more shares, according to the proposal.

Earlier this month, Varig presented a business plan to a Rio de Janeiro bankruptcy judge designed to reorganize the company and attract new investors.

The move came nearly two months after Varig filed for bankruptcy protection under a new bankruptcy law, passed in 2004, designed to speed up procedures while encouraging negotiations with creditors.

Varig, which has total debts of 7.7 billion Brazilian reals ($1=BRL2.30), has also received investment feelers from TAP Air Portugal.

-By Rogerio Jelmayer, Dow Jones Newswires; 55-11-3145-1480; [email protected]
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Old Sep 22, 05, 5:02 pm
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I wonder what aircraft type Varig is behind/defaulted on?

If it is 767-300 or 777 I know a buyer AIR CANADA!
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Old Oct 13, 05, 8:56 am
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Brazil Varig Controller Proposes $500M Asset Sale -Report

DOW JONES NEWSWIRES
October 13, 2005 9:17 a.m.

RIO DE JANEIRO -- The Rubem Berta Foundation, controlling shareholder of troubled Brazilian airline Viacao Aerea Riograndense SA (VAGV4.BR), made a proposal to sell the airline's logistics and maintenance units, as well as its mileage program for $500 million, the Estado newswire said.

The funds from the sale of the units are supposed to go into an improvement of maintenance and the operational capacity of Varig, the agency said.

The Rubem Berta Foundation owns 56% of Varig, but is expected to give up its majority stake as part of a restructuring to avoid bankruptcy.

Varig in September presented a sketchy business plan to a Rio de Janeiro bankruptcy judge designed to reorganize the company and attract new investors. Creditors have until Dec. 17 to examine the plan and vote to approve or reject it.

The airline put its total debt at 7.7 billion Brazilian reals ($3.4 billion). The company said BRL4.5 billion of the total was owed to the government as tax and social security arrears.

Next to the financial difficulties, Varig also is suffering from a lack of maintenance of its jets that could result in almost half of then being grounded soon.

The proposal by the Rubem Berta Foundation collides with a plan by Varig's board, which as a prerequisite for further restructuring proposed to sell off Varig's logistics unit now, and not in a package with the other two units the foundation proposed to sell.

The sale of VarigLog, how the logistics unit is called, to U.S. group Matlin Patterson for $38 million in cash plus $65 million to be paid from VarigLog receipts later, is one of the issues to be discussed at a creditors' meeting today.
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Old Oct 23, 05, 5:00 pm
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Varig rescue plan to be presented

By Jonathan Wheatley in São Paulo
A last-minute rescue package for Varig, the indebted Brazilian airline, is expected to be presented to a New York bankruptcy court on Monday by Brazil's government-owned development bank and by TAP, the Portuguese airline, and Matlin-Patterson, a US distressed equity fund.

Varig, under bankruptcy protection in Brazil from creditors owed about $3.3bn, is fighting to retain 20 aircraft that leasing companies have threatened to sequester after the airline failed to make payments of about $62m. Of Varig's fleet of 76 aircraft, 15 are grounded for lack of maintenance. The court has given Varig until November 11 to present plans to meet its short-term debts with leasing companies.

The development bank, known as the BNDES stepped in last week, reportedly after President Luiz Inácio Lula da Silva insisted to ministers that Varig should not be allowed to collapse. The BNDES offered to provide the $62m needed in the short term in finance for a special purpose company that would be established by private investors to buy Varig's cargo company, VarigLog, and its aircraft maintenance company, VEM.

Under the BNDES plan, the SPC would buy two-thirds of the shares in VarigLog and VEM. Following due diligence, the BNDES may provide additional finance to meet the full purchase price, should it exceed $62m. Both TAP and Matlin-Patterson, separately, have expressed interest in taking part and will join the BNDES at the bankruptcy court today.

Mr Lula da Silva's decision that the BNDES should intervene reportedly overruled the finance ministry and senior executives at the BNDES, who were willing to leave Varig's future in the hands of the market.

Those who opposed the plan reportedly argued there was little guarantee that the BNDES would be repaid, and that the plan would set a precedent for other troubled airlines. Vasp and Transbrasil, long-time competitors of Varig's, have stopped flying after failing to reach agreement with creditors.

Varig has announced that 1,500 of its 12,000 staff would be cut as part of a plan to reduce expenditure by $168m a year and increase revenues by $307m from the current $2.2bn. The plan involves creating a "new" Varig to operate Varig's airline services, leaving an "old" Varig with the company's assets and liabilities. The new Varig would pay the old company for use of the Varig name and for use of aircraft and other assets.
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Old Oct 25, 05, 12:40 am
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looks like it is touch and go for Varig. Hope they make it.
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Old Dec 18, 05, 12:05 pm
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VARIG Creditors Due to Meet

From FT Latin American Agenda Newsletter Sunday Dec 18 2005:

Creditors of Varig, Brazil's debt-ridden flag carrying airline currently under creditor protection, are due to meet on Monday to approve or reject any of three separate recovery plans. But Varig's passage through Brazil's new creditor protection system has turned into high farce and there is no guarantee that Monday's meeting will even take place.

In addition to its $3.3bn of debt, Varig's problem is that it is controlled by a charitable foundation, the Fundação Ruben Berta, which in turn is controlled by Varig's employees (most of the FRB's members are pilots). The FRB has fought tooth and nail against any reduction in Varig's bloated structure – it has about 30 pilots per aircraft, for example, about four times that of its most efficient peers. In May the FRB hired a team of high-profile business leaders as Varig's new board to give its restructuring process some credibility, but fired them in November after they proposed layoffs. Two apparently credible buy-out plans, one led by Matlin Patterson, a US distressed equity firm, the other by TAP, the Portuguese state airline, were abandoned in their late stages. Last week the FRB announced it had sold itself to Nelson Tanure, a Rio de Janeiro businessman, with interests in shipbuilding and newspapers.

Mr Tanure has orchestrated a number of questionable deals to rescue distressed companies, which usually involve buying a company's brand, setting up a new operation under that name, and leaving creditors to take their chances in Brazil's notoriously slow-moving courts against a rump company holding their debt. Seeing something similar on the way, judges blocked the deal and the FRB was first removed, then reinstated, then removed again from Varig's management.

Monday's meeting is due to consider proposals by Mr Tanure, by Varig itself, and by Varig group employees. None holds out much hope, and with the speed at which injunctions and counter-injuctions were issued last week there is every chance the meeting will be scrapped.

Brazil's new bankruptcy law introduced the concept of "judicial recovery": companies are given creditor protection in return for devising a recovery plan which creditors must approve, under judicial supervision. It was greeted with fanfare and has much promise. It is a shame it has so far been tested only by basket cases such as Varig, Vasp (another airline) and Parmalat.

The judges overseeing Varig's "recovery" must be firm and clear in implementing the law if it is not to lose credibility. If the FRB continues to block genuine restructuring, that will mean declaring Varig's collapse.
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Old Dec 28, 05, 5:33 pm
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A Brazilian judge has just ruled in favour of Varig. 8:30pm/Brazil

Varig will be given two years to recover itself and the judge ruled that lengthy areas in the company may take up to 15 years to recover completely.

Our miles are safe !
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Old Dec 29, 05, 4:28 am
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Originally Posted by pb9997
A Brazilian judge has just ruled in favour of Varig. 8:30pm/Brazil

Varig will be given two years to recover itself and the judge ruled that lengthy areas in the company may take up to 15 years to recover completely.

Our miles are safe !
Thanks for the news pb9997.

Sorry always to be the party spoiler, but let's just wait a couple of days until the dust settles.........Brazilian lower court judges often rule as the wind blows, and this decision is sure to stir up a minor tropical depression... .
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Old Dec 29, 05, 9:04 am
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Thumbs up

Thanks for keeping us up to date on this as most of the info is in Portuguese.
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Old Apr 5, 06, 11:49 am
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Strong Rumors That Varig May Stop Flying This Week if no New Funds are Received

There are strong speculation in the Brazilian newspapers today (April 5, 2006) that Varig may stop flying as early as Thursday thid week if no new funds are received.

This may just be rumors but I am posting this to alert anyone who may have travel plans involvingflights on Varig.
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Old Apr 5, 06, 2:01 pm
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Originally Posted by AAEXP
There are strong speculation in the Brazilian newspapers today (April 5, 2006) that Varig may stop flying as early as Thursday thid week if no new funds are received.

This may just be rumors but I am posting this to alert anyone who may have travel plans involvingflights on Varig.
I can just confirm that and obviously it doesn't seem to be only rumors it must be serious. RG was expectiong new funds last week from an 'anonymous' investor but they haven't received any money so far.
Thus they won't be able anymore to pay their bills.
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