Brazil - Brazzil Mag - Brazil: Bankrupt Varig Airlines Goes to Auction But Nobody Wants It

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NV Participações, a consortium led by workers of Brazilian Varig Airlines was the only group to bid for the bankrupt company when it went on auction this Thursday, June 8.

Even though the minimum price stipulated by the auction was US$ 860 million, NV Participações offered only US$ 449 million or 1.01 billion reais. From this total only US$ 128 million would be paid in the cash. The rest would come in form of debentures and participation of future profits.

The offer is for the whole of Varig, with its domestic and international routes. Judge Luiz Roberto Ayoub will have until Friday, June 9, to decide if the bid is valid.

In the first phase of the auction no one placed a bid for at least the minimum US$ 860 million. In the second phase, when smaller bids were allowed, only NV Participações had anything to offer.

Other groups participating in the auction, TAM, Gol, OceanAir and Céu Azul, representing the American investment fund Brooksfield, had nothing to offer.

For Milton Zuanazzi, director of Brazil's National Agency of Civil Aviation (ANAC), Varig's auction hasn't finished yet. According to him, nothing will happen before judge Ayoub makes his decision.

Ocean Air's president, Carlos Ebner, said that his company didn't make any offer because there was very little time to arrange all the financial details before the auction.

Varig, which once was the most important Brazilian Airline, due to mismanagement has been accumulating deficits for the last two decades. Today the company is deep in debt owing more than US$ 3 billion, 65% of which to the Brazilian government.

$850M Crazy! $450M Still too much!
written by Guest, June 08, 2006

When I read the starting price of $850M recently I thought the court was crazy. Now I believe it's the employee group who's crazy.
What are they buying exactly? With only 16% of the domestic market an investor would be better of going after GOL or TAM!
Buying Varig won't save their futures. It will only prolong the agony.
To survive, Varig needs a buyer who pays $50M and can slash 5000 employees and start fresh with the remainder. Who has the fortitude for that?

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An American
written by Guest, June 08, 2006

The above poster makes lots of good points. Why pay huge sums of money to buy a money losing business. With tough competition from TAM and GOL and very high fuel prices, it would be very difficult for Varig to every make money and very easy for Varig to continue losing money.
It would be much easier to put your money into a bank and make money from the interest than to buy Varig and try to make money operating an airline.

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Assets
written by Guest, June 08, 2006

Varig's most valuable assets are its international routes. These can be quite valuable to the right company.

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Buying Debt
written by Guest, June 08, 2006

Unless the billions of dollars/real debt is removed this deal has issues even at half the cost. The Real issue is if the old habits do not change, then the new Varig's owners will fall into the same debt. I'd like to understand what were the 3 - 5 major reasons (outside of fuel) causing this company to go bankrupt. Will the new owners have the proper cash flow to keep the airline afloat? How will the government handle the debt already owed? Unless the new leaders draw a line in the sand everything will repeat it's self.

acommonthought (bobby- Chicago)

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The Debt
written by Guest, June 09, 2006

(I'm the first poster).
The bankruptcy judge is telling buyers that they will be free from ALL debt. But, the confusion appears to be that that may be in conflict with the newest BK laws in Brazil.
I was referring to $50M with absolutely no debt. You are buying the routes. But which are profitable?
The previous poster mentions the international routes - but if Varig competes with American Airlines on the large Brazil-US routes, I'll bet on American - even though I personally prefer to fly Varig. American has very stong management.
I doubt Varig owns any of their aircraft but if they do, it would probably be only the oldest, most inefficient ones.
To succeed they need a new fuel efficient fleet, less employees and cheaper ones, strong management and Cash to try to rebuild the business. I doubt an employee buyout would bring any of those things.

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The routes
written by Guest, June 11, 2006

I was thinking more like a company like TAM might buy Varig, take the routes since they are expanding internationally, merge whatever operations make sense, and then shut the rest of Varig down.

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varig needs no enemy with such friends
written by Guest, June 23, 2006

yeah folks,
So wise are you'all. All business and no feelings. That is why the employees were biding on varig. For the sake of saving. after all it has 120000 employees.
But where are the brasilians living abroad with a lots of cash and great desire to keep Santos Dumont and Brazil from morning it's " star board service airlines" ?
Olha ai, isso faz pena
Helenisa Coutinho

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...
written by Serge, September 11, 2006

I see history repeating itself in the Employee buying Varig of Brazil. I saw it in Eastern and Pan American. The employees stepping up to save the ariline and their employment only to see everything, and I do mean everything lost. As far as TAM buying Varig to expand its International servicew - proceed with caution. Pan Am did the same when it bought National to increase its feeder traffic for its international service. Only to late to discover running a domestic airline is not the same as running an airline with a first class reputation. I commend the employees of Varig and believe me I know where they are at and where they are coming from. I was a FA/Chief Purser with Pan Am for 24yrs before being bought out buy another US Airline. After 36yrs of flying I know what their motivation was.

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Retiree from Aircraft manufacturer's service group.
written by A. Grant Smith, September 30, 2006

Without more details on causes for Bankruptcy, this whole Varig thing sounds like what I saw happening to Eastern. Sent there just over two months by the plane manufacturer to assist with AD confirmations, the Eastern personnel on the shop floors at Atlanta were so infuriated at the airline CEO they were constantly in a "destroy him" thinking mode. Work output was very low, particularly on the night shifts. Sure enough, as we expected, Eastern went down!

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