Brazilian Government Wants Control of VARIG to Sell it Out

Brazilian authorities are weighing the possibility of turning VARIG Airline’s debt into shares with a view to bail it out and make it a state-run company before it’s sold under the gavel.

That feasibility was discussed in a meeting attended by Brazil’s Vice President and Defense Minister Jose Alencar, members of the Ruben Berta Foundation –the air company’s owner-, representatives of the Civil Aviation Department and officials from Unibanco, the firm that sketched out the overhaul plan for the airline.

As the largest chunk of VARIG’s $1.8 billion debt is owed to state enterprises, the government would provisionally become the airline’s major shareholder and will regain full control of the company before selling it in auction.

Brazil’s flagship airline has lost ground in the domestic market in recent years to TAM and GOL –the latter is a low-cost carrier founded in 2001. However, it continues to be the leading company in the outbound flight front, covering more than 83 percent of all international routes.

VARIG President and CEO Luiz Martins pointed out this week negotiations over the debt-to-shares conversion is a complex matter that must be discussed with the rest of the creditors. Mr. Martins, though, ruled out the carrier will be nationalized in the future.

One of the formulas to bail out VARIG was a possible merger with TAM, Brazil’s leading domestic carrier, but the process backfired and the two companies wound up signing a document that put an end to a sharecode agreement they had inked a couple of years ago.

Negotiations to get VARIG off the hook take place at a time when VASP, another big Brazilian carrier, is neck-high in debt.