VARIG Hopes to Come in out of the Rain Clung to New Brazilian Bankruptcy Act

godking
18 February 2005 5:00am

Brazilian airline VARIG, marred in financial dire straits for quite some time, is eying the recently enacted Bankruptcy Act, that was signed into law by President Luiz Inacio Lula da Silva last week, as the lifeline that could pull the company out of heavy indebtedness.

With a $1.8 billion debt in tow –most of the money is owed to public companies- VARIG has been scrambling for over two years now to work its way out of a crisis that has dragged the carrier to the brink of complete shutdown time and again.

This symbol of Brazilian identity has already lost its share of the domestic market to rival airlines TAM and Gol, a couple of low-cost air companies. Yet, VARIG still has a tight grip of most international routes with a whopping 83.2 percent of the total.

VARIG execs hope the new Brazilian Bankruptcy Act, that will go into full effect four months from now and will rub out the former legislation that was in place since 1945, will provide a way out of the financial jam.

The new bankruptcy law allows cash-strapped enterprises to reschedule their debt terms and remain operational. One particular provision gives troubled airlines, like VARIG, the possibility of benefiting from the new regulations.

The possibility that the new act could bail out VARIG after more than two years of twists and turns, shot up the price of the air company´s shares at the Sao Paolo Stock Exchange, raising the value of high-end stocks by 14.2 percent.

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