Varig File For Bankruptcy..

A sad state of affairs, I read about them maybe having to hand back some of their triple 7s a while ago, doesn’t look good for them.

SAO PAULO, Brazil (AP) — Varig, Brazil’s debt-laden flagship airline, filed for bankruptcy protection Friday to keep a restructuring plan on track and prevent 11 of its 82 jetliners from being seized by a division of American International Group Inc.

Varig, whose full name is Viacao Aerea Riograndense SA, had faced a Friday deadline to pay overdue leasing bills for the planes. But the filing allows the carrier to keep using the jetliners while a judge mediates details of the airline’s rescue plan with creditors, Varig lawyer Sergio Bermudes said.

The legal move came as Varig is trying to negotiate an alliance with Portugal’s state-owned airline aimed at preventing the South American carrier from collapsing under a mountain of debt.

At a news conference, Varig Chairman David Zylbersztajn said the airline obtained an injunction from a New York court preventing AIG from seizing the planes. He offered no further details of the U.S. court ruling.

“This action will give the company time to find new investors. Time is our biggest enemy,” Zylbersztajn said. He added that the company has received “signals from potential investors,” but declined to offer names.

Varig has two months to present a recovery plan to creditors under new Brazilian bankruptcy laws, Bermudes said, and will continue operating as usual.

“It’s not possible for a company of Varig’s size to go out of business,” Bermudes said.

In a statement, Varig said that “the use of this legal instrument guarantees Varig’s operations without harm to its 35,000 daily passengers, the five million holders of its Smiles (frequent flyer) cards or its 17,000 employees.”

Two years ago, several Varig jetliners were temporarily seized by creditors in Miami and Paris when the company failed to keep up with leasing payments.

The new bankruptcy laws allow protection and court mediation for companies that are trying to restructure. Previously, most companies could not get protection from the courts, and were be forced to liquidate when judges found in favor of creditors.

Varig’s negotiations with the TAP Portugal are ongoing, and involve a plan for TAP to invest an undisclosed sum in Varig and get a stake of up to 20 percent stake in the Brazilian carrier. The two airlines would not merge under the deal being discussed.

Both companies have overlapping trans-Atlantic routes between South America and Europe, and already have a code-sharing agreement on some flights.

But the Varig deal will be complicated because the airline is loaded with debt of 9.5 billion reals (US$4 billion, euro3.2 billion) and has steadily lost domestic market share in Latin America’s largest country over the last several years.

Also, Varig’s controlling shareholder — the nonprofit Rubem Berta Foundation representing airline employees — has repeatedly refused to relinquish control during previous attempts at restructuring despite being blamed for many of the airline’s problems. TAP says it received assurances the foundation is now willing to cede control.

http://biz.yahoo.com/ap/050617/brazil_troubled_airline.html?.v=1