Varig, TAM ink tentative deal for possible merger
Brasília, 06 – Viação Aérea Rio Grandense (Varig) and TAM Linhas Aéreas, Brazil´s two largest airlines, Thursday said they have reached a tentative agreement for a possible merger.
The agreement, the companies said, affirms their “mutual interest in seeking a joint solution that kicks off the restructuring of Brazil´s civil aviation sector.”
In a statement, Varig and TAM said further they aim at reinvigorating the country´s airline industry “with an efficient, competitive new company, gaining economies of scale in order to be strong on the continent and capable of responding promptly to challenges and demands from the domestic and international markets.”
The deal between the two Brazilian airlines would include Varig´s regional units Rio Sul and Nordeste.
Both Varig and TAM have been in financial straits further aggravated by the Sep 11, 2001 terrorist attacks in the U.S.
While TAM reported losses of R$ 619 million ($1 = $ 3.56) for the first nine months of 2002, Varig´s debts pile up to $768 million.
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What I really wanna know is how they are gonna manage the things once VARIG operates Boeing airplanes and TAM, Airbus.
Regards,
Primer
By: Primer55 - 10th February 2003 at 22:44
RE: Varig, TAM ink tentative deal for possible merger
[updated:LAST EDITED ON 10-02-03 AT 10:44 PM (GMT)]Kabir,
Operating Airbus and Boeing wouldn’t be really a problem, but operation just one of them would reduce maintenance costs.
Saab,
They are planning a merge.
I have no idea how they will handle with code-shares and operational agreements.
Well, here goes an article took from bbc website.
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Brazil’s top airlines plan to merge
Latin America’s two largest airlines, Varig and Tam of Brazil, have announced plans to merge.
The combined company would have 218 planes, annual revenues of just under $4bn, and control about 70% of all air travel in Brazil.
However, details of how the merger will proceed are scarce. There is no business plan yet, and the two firms have not even agreed on the structure of the combined company.
Both airlines are carrying a heavy debt burden, and some analysts have warned that Varig could be close to bankruptcy.
Last week Varig suffered the humiliation of having one of its most modern aircraft, a Boeing 777, seized on a Paris airport, because it had failed to keep up with its lease payments.
Competition concerns
Daniell Mandelli, the president of Tam, said the two firms were most likely to merge, although an alternative could be the creation of a holding company that would own both airlines.
The details are to be worked out during the next six months.
Technically, the deal violates Brazilian antitrust law, which puts a limit of 50% market share on any merger.
However, these rules have been waived in previous instances, for example when brewing giants Antarctica Paulista and Brahma merged to control 80% of the beer market.
Observers suspect the airline deal was probably helped along by the new government of President Luiz Inacio Lula da Silva, which should help to smooth any regulatory obstacles.
Dragged down by debt
Brazil’s airline industry is struggling to cope with the same problems as most other carriers around the world.
The global economic slowdown, especially a slump of passenger numbers to the United States, and high fuel prices have hit profits hard.
Varig is finding it hard to cope with a debt burden of 2.7bn reals ($767m), and has also been hit by an accounting scandal after government officials discovered wrong bookings worth $370m.
Varig, which was founded in the 1920s, has 116 planes flying to 107 Brazilian cities, and to 24 foreign destinations.
The company is owned by the non-profit Rubem Berta Foundation, which represents Varig employees.
Tam is the upstart rival, but in terms of revenues has managed to overtake the flag carrier Varig. The airline has 102 planes that fly to 41 Brazilian destinations and three foreign cities.
Last year Tam returned 21 leased planes, but executives of both firms have promised that the merger will not result in any further plane reductions.
By: Saab 2000 - 10th February 2003 at 19:01
RE: Varig, TAM ink tentative deal for possible merger
[updated:LAST EDITED ON 10-02-03 AT 07:01 PM (GMT)]Is this a merger or are they just planning a joint venture?
Anyway, it is good for both airlines who are in financial problems with Varig being in a more precarious situation. However, who would be calling the shots? Varig is larger and is pretty much the Brazilian national carrier but on the other hand TAM is in a better financial posistion.
Also will TAM keep Varig in Star considering TAMs links to AA and Varigs dislike of UA? Though I doubt though alliances are on anyones mind at the moment.
By: KabirT - 10th February 2003 at 07:28
RE: Varig, TAM ink tentative deal for possible merger
Yes saw it on BBC.
I dont think after merging operating Boeing, Airbus would be a problem because when the merge all enginers come with them.
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February 10, 2003 at 12:03 am