Varig Sold at Auction

Brazilian airline Varig was sold at auction on Thursday to Volo do Brasil, a local investment fund, for $24 million, saving the airline from collapse, at least for now. Volo has pledged $485 million to revitalize the airline. Together with U.S. investment fund Matlin Patterson, Volo already controls Varig's former cargo unit VarigLog. The sale, which still needs Civil Aviation Agency approval, gives Varig some hope of staying aloft. Out of cash to pay for fuel and airport fees, the debt-ridden carrier has been canceling flights and grounding planes for months. Volo said Thursday night said it would halt all Varig flights—except the Sao Paulo-Rio de Janeiro commuter route—until July 28, giving it time to bring more planes into operation and adequately service Varig's routes. Volo will get most of Varig's routes and the bulk of its fleet, now down to 13 aircraft from 60 just a few months ago. It will also take over Varig's frequent flyer program, called Smiles. However, the airline's debt of more than $3.1 billion will be the responsibility of the Ruben Berta Foundation, a long-time controlling shareholder. The foundation, widely criticized for mismanagement, will retain a pilot training center and other Varig buildings, and keep one domestic route for cash flow. Varig employees are already bracing for layoffs; the new owner in its auction filing said it would keep only 2,000 of 10,000 employees.

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