Yet another chapter unfolded on Wednesday in the saga of Varig, Brazil’s former flag-carrying airline, when it was sold to low-cost competitor Gol for about $320m in cash, equity and debt just eight months after being sold in a bankruptcy auction for $24m.
Gol said on Wednesday it agreed to buy VRG, which operates Varig, for $98m in cash plus 3 per cent of Gol’s capital in non-voting stock, bringing the total offered to about $275m. It also agreed to assume R$100m in VRG debentures.
Varig’s operating assets were sold at auction last July after the company had run up debts estimated at $8bn. Years of mismanagement and a refusal to face the need for streamlining left it unable to compete with aggressive newcomers such as Gol and TAM, currently Brazil’s leading airline both domestically and internationally.
Gol said it would maintain the Varig brand and service alongside its low-cost operation but promised to introduce “the Gol management model, including … substantial reductions in operating costs to make the company competitive in the short term.”
It also promised to double Varig’s existing fleet of 17 aircraft in the medium term.
A spokesperson for Gol stressed that the purchase was in no way associated with the “old Varig” and that Gol would be “100 per cent protected” from the old Varig’s creditors and any other “legacy” issues. Varig’s operating assets and its liabilities were separated during bankruptcy proceedings and the rump company is fighting a series of legal actions brought by former employees, tax authorities and others.
The operating assets were sold in July to VarigLog, its former cargo division, itself sold six months previously to a consortium backed by Matlin Patterson, a US distressed equity firm.
The deal comes in the midst of an operational crisis in Brazilian aviation, triggered last September by a mid-air collision between an executive jet and a Gol passenger aircraft , in which 154 people died.
The incident exposed flaws in Brazil’s air traffic control systems, leading to repeated flight delays. Authorities say the crisis has been exacerbated by aggressive operating tactics by TAM and Gol including overbooking and aircraft spending much more time in the air than previously.