Brazil's Gol to Buy Varig

Brazil's Gol airline announced Wednesday that it will buy Varig, the nation's former flagship carrier, in a cash and stock deal valued at about $275 million.

Gol, the country's No. 2 carrier, said it will also assume about $45 million of Varig's debt. Varig had been Brazil's top airline for decades but virtually disintegrated last year under crushing debt.

Varig will be acquired by GTI SA, a wholly owned subsidiary of GOL Linhas Aereas Inteligentes SA, Gol said in a statement.

The carriers will operate separately, with Gol maintaining the Varig name for its fleet of planes, but Varig will incorporate low-cost practices that Gol used to expand its market share dramatically.

Varig was bought last year in bankruptcy proceedings by investors that included Brazilians and the U.S. investment fund Matlin Patterson. Matlin Patterson did not immediately comment.

Gol chief executive Constantino Oliveira Jr. said the purchase sustains the Varig brand, allow it to double its current fleet of jets from 17 to 34, and reinstates routes to the United States and Europe that were dropped during the bankruptcy proceedings.

"Gol intends to provide Varig with the necessary ambition, management expertise, financial strength and cost base to compete with South American and world competitors," Oliveira said.

Gol began flying in 2001 with just six jets and rapidly expanded across South America as Varig lost market share.

Gol is controlled by the Oliveira family, and some family members became billionaires as the airline expanded operations using a low-cost strategy modeled after similar carriers in the United States and Europe.

Prudential analyst Bob McAdoo wrote in a report that "any deal that removes Varig from the market should be a short-term positive for GOL," as it could remove some capacity. Fewer available seats allows airlines to more boost fares.

The Chilean carrier has long sought to establish a subsidiary in South America's biggest country, and has a tradition of entering foreign markets via defunct local airlines.

Gol rose 73 cents, or 2.8 percent, to close at $26.51 on the New York Stock Exchange and then slipped 11 cents to $26.40 in aftermarket electronic trading.

The stock has ranged between $25.31 and $41.25 over the past year.


AP Business Writer Stan Choe in New York contributed to this report.

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