Brazil's Varig Airline Receives New Bid, Could Face New Auction

July 12, 2006
If creditors accept the offer, Varig will be put up for auction to allow other bidders a chance to take over the company.

A Brazilian investment group has offered $500 million for the country's struggling flagship airline Varig, and it could go to auction next week, the company said Tuesday.

A bankruptcy judge will put the proposal from Volo do Brasil to creditors of the indebted Viacao Aerea Rio-Grandense SA airline on July 17, Varig spokesman Paulo Cesar said in Rio de Janeiro.

"Assuming they accept it, we'll have a new auction on July 18," he said.

Judges at a Rio de Janeiro bankruptcy court met for seven hours Monday before voting to accept the bid from Volo do Brasil, which recently purchased Varig's cargo unit VarigLog.

If creditors accept the offer - currently the only one - Varig will be put up for auction to allow other bidders a chance to take over the company.

The minimum asking price will be 52.8 million Brazilian reals (US$24 million;euro19 million), which will be passed on to creditors. The buyer will also be obliged to issue 100 million reals (US$46 million;euro36 million) in 10-year debentures to pay off debts.

Varig has been in financial trouble for years, with debts now totaling around 8 billion reals (US$3.7 billion;euro2.9 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 have demanded their crafts back and the company can't pay for their maintenance.

Volo do Brasil has handed more than US$11 million (euro8.6 million) to Varig to ensure the airline continues operating until a final decision is made on its future.

On June 8, a Varig workers' group agreed to purchase the airline for US$449 million (euro351 million) at a bankruptcy auction. But it was unable to make the first payment, throwing the airline's fate back into doubt.

On Friday, the court-appointed restructuring administrator, Deloitte, declared that liquidation would be a better option for creditors than accepting the only offer for the ailing carrier.

However, changes to the offer presented Monday were "a considerable improvement," Deloitte director Luiz Alberto Fiore told the Estado newswire.

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