Brazil's flagship airline Varig faced bankruptcy Tuesday after creditors rejected the only $500 million bid for the company.
Viacao Aerea Rio-Grandense SA shares plunged in opening trading, with the race to dump Varig stock so intense that the Sao Paulo stock exchange suspended activity and set an auction at 1404 GMT to offer shares at 1.70 reals $0.77 - 56 percent less than Monday's closing price.
Creditors on Monday night rejected the bid from Brazilian investment group Volo do Brasil, which recently purchased Varig's cargo unit VarigLog. Varig workers and pensioners favored the offer, but it was opposed by airplane leasing companies, the airline's press office said Monday.
Bankruptcy judges in Rio de Janeiro must now decide whether to continue searching for a restructuring solution for the indebted airline or liquidate its assets.
Varig's management said late Monday it still believes it can sell its assets at an auction Wednesday.
Varig has been in financial trouble for years, with debts that now totaling around 8 billion Brazilian reals $3.6 billion.
The airline is having trouble paying for landing and departure fees and fuel for its jets. More than two-thirds of its planes are grounded as leasing companies demand their crafts back and the company can not pay for basic maintenance.
The company has been able to continue flying because of daily deposits by Volo, which already total more than $13 million.
Varig, once Brazil's biggest airline, today has just 13 planes - down from 58 in December - and has seen revenues drop by 80 percent, to $32 million a month, Fabio Carvalho, a lawyer for the company, told the government news service Agencia Brasil on Monday.
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