Fate of Brazil's Varig Back in Hands of Judge

The fate of Brazil's flagship airline Varig was back in the courts on Monday as a bankruptcy judge considered the latest bid to rescue the embattled carrier.

Judge Luiz Roberto Ayoub said he would rule on whether to accept a $500 million bid from Volo do Brasil for the airline, which was on the verge of collapse following a wave of flight cancellations in Brazil and abroad.

Ayoub began considering Volo's offer Friday after the airline's planned sale to a workers' group TGV fell through. TGV was the only bidder for the carrier at a bankruptcy auction on June 8, but failed to come up with a $75 million down payment by Friday's deadline.

The latest bid got a boost Saturday when Brazilian aviation authorities approved the sale of VarigLog, the airline's cargo division, which Volo had purchased earlier this year.

On Monday, Volo do Brasil's press office said the company paid Varig an undisclosed sum sufficient to keep the airline running, albeit with sharply reduced routes, until Wednesday when Ayoub is now expected to issue its decision.

Ayoub told Brazil's CBN radio Saturday that approval of VarigLog's sale removed one of the biggest hurdles Volo faced in trying to buy Varig, because it suggested the government was satisfied that 80 percent of the company was in Brazilian hands.

By law, foreign owners can hold no more than 20 percent of a Brazilian airline.

Ayoub, who has final say over the airline's restructuring, has suggested that instead of directly approving Varig's sale to Volo, he would likely order another auction.

The 79-year-old Varig - a source of pride for Brazil and known until recently for its stellar service - is short of money to pay for everything from fuel to airport landing fees, and has grounded many of its jets amid demands by leasing companies for overdue payments.

Brazilian fans who headed to soccer's World Cup in Germany were surprised to discover the company had indefinitely suspended service to and from most European destinations. Passengers were told to try to return home through Frankfurt, one of the few European cities still served by Varig.

The government estimated earlier this week that 28,000 ticket holders overseas, many of them Brazilians, were scheduled to return by June 30. Brazil's air force said five planes were available if the government is forced to rescue stranded passengers.

Varig has routes throughout Latin America and to Europe and the United States. Many passengers managed to board flights on other airlines but said they faced delays ranging from hours to days.

The airline has been under protection from its creditors since June 2005, and its domestic share of the market in Latin America's largest country slumped in recent years as its financial problems worsened.

Before heading into bankruptcy, Varig repeatedly appealed for a government bailout, but top Brazilian officials said they wanted a free-market solution.


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