Brazil Aviation Officials OK Varig Sale

Brazilian aviation authorities approved the sale of the cargo unit of the country's bankrupt flagship Varig airline, opening a window Saturday for the salvation of the carrier and an end to chaos for stranded ticket holders.

The company Volo de Brasil announced its intention to buy the VarigLog cargo unit earlier this year but the sale was held up by claims that Volo is controlled by foreign investors. Foreigners are allowed to own only 20 percent of Brazilian airlines.

Volo, which says its majority owners are Brazilian, offered $500 million for all of Varig on Friday. Allowing it to buy the cargo unit means Brazil's government does not have a problem with Volo's ownership structure. That suggests that Volo also would be in a good position to buy all of the country's largest international airline.

Judge Luiz Roberto Ayoub has final say over the airline's restructuring and was analyzing the Volo proposal over the weekend to determine its viability.

He told Brazil's CBN radio Saturday that approval of VarigLog's sale to Volo removed one of the biggest hurdles the firm faced in trying to buy Varig.

The 79-year-old company - a source of pride for Brazil and renowned until recently for stellar service - seemed on the verge of collapse this week after canceling hundreds of flights and suspending dozens of international and domestic routes.

The airline has run short of money to pay for fuel, with planes grounded amid demands by leasing companies for overdue payments.

In Germany, Brazilian soccer fans who flew into Paris; Milan, Italy; and Munich, Germany, found out that the company had suspended service to those destinations, and they were instructed to try to get home through Frankfurt, one of the few European destinations now served by Varig, the Agencia Estado news wire service said.

Paying their own way over land, they were put on long waiting lists for seats.

The government estimated earlier this week that 28,000 people were overseas and scheduled to return by June 30.

Brazil's air force said five planes would be available if the government is forced to rescue stranded passengers.

The judge indicated the entry of Volo as a new suitor for the entire company means that another auction will probably have to be held to give other investors a chance to bid.

The proposal also will be reviewed by Varig's creditors and Ayoub said he will not consider liquidating the company unless they ask him to.

On Friday, the judge rejected a $449 million bid for Varig from a workers group that failed to come up with a $75 million down payment, the authority said in a statement.

Varig has routes throughout Latin America and to Europe and the United States. Many passengers did manage to get on flights Friday despite the carrier's cancellations, 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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