Brazil's Varig Suspends Air Routes As Creditors Seek to Seize Planes

Brazil's embattled flagship airline Varig has temporarily suspended dozens of international and domestic flights as creditors try to seize its planes, the company said Wednesday.

Viacao Aerea Rio-Grandense, or Varig, said in a press release that the suspensions were due to negotiations with airplane leasing companies.

Local media reported that about 70 percent of the airline's 180 daily flights were suspended, with all but 25 of the company's 61 airplanes inactive. Some 20 planes were grounded for 72 hours while judges in New York decide whether the aircraft can be seized by leasing companies for nonpayment of rent.

Sixteen other planes were reportedly grounded due to maintenance issues.

Meanwhile Tuesday, Brazilian civil aviation authorities began distributing Varig's routes among other carriers.

"We need to make an emergency plan to handle the passengers and minimize these people's travel problems," Milton Zuanazzi, general director of Brazil's National Civil Aviation Agency, told reporters in Brasilia, the nation's capital.

Varig said it had suspended flights to Milan, Munich, Miami, Madrid, Paris, New York, Los Angeles, Mexico City, Montevideo, Asuncion and Bogota. Passengers with tickets for those routes would be accommodated by other airlines, it added.

The company said it would still fly internationally to Frankfurt, London, Buenos Aires, Lima, Santa Cruz de La Sierra, Santiago and Caracas, and would maintain its most popular and profitable domestic routes.

The fate of the debt-strapped airline will likely be decided Friday, the deadline for workers' group TGV to get a US$75 million (euro60 million) loan to cover an initial deposit to buy the airline. TGV purchased Varig's assets at a bankruptcy auction on June 8.

If TGV does not make the deposit by Friday, the auction will be declared void, a Brazilian bankruptcy court judge said Monday.

On Tuesday, TGV appealed to Brazil's National Development Bank for a bridge loan, saying its investors might not have enough time to convert their assets into cash by Friday.

TGV, which is made up of Varig workers, claims to have the backing of several large investors but so far has declined to name them.

Varig has been in financial trouble for several years, with a mounting debt of some US$3.5 billion (euro2.7 billion). It has been under protection from its creditors since June 2005, when it became one of the first companies to use a new Brazilian bankruptcy law similar to U.S. Chapter 11 proceedings.

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