MercoPress. South Atlantic News Agency

Authorities block Varig aid deal

Aviation authorities blocked a deal that would have thrown a lifeline to Brazil's troubled flagship airline as employees held protests in the nation's capital yesterday calling for a federal bailout.

Brazil's Civil Aviation Authority shot down a proposed deal that would have let a small local airline, OceanAir, take over some of the unprofitable routes of Viaçao Aérea Rio-Grandense, or Varig, the company's press office said.

The deal was vetoed on the grounds that flight slots and airport space cannot be negotiated, the Varig press office said.

Varig is reeling under an estimated US$3.3 billion in debt and is currently in the restructuring phase of bankruptcy proceedings.

In recent days, the airline has been forced to cancel flights because it cannot meet operating payments. It also risks having its planes grounded for nonpayment of airport fees in Brazil.

Yesterday some 300 Varig employees boarded a chartered jet to Brasilia, the nation's capital, to call on the federal government to bail out the company, which employs 11,000 people.

On Friday, Varig President Marcelo Bottini went to Brasilia to seek a moratorium on debt payments and a cash injection in the company.

However, Brazilian Finance Minister Guido Mantega said separately Friday that there will be no federal cash bailout, causing Varig stocks to slide.

Government officials are still assessing what can be done for the flagship firm.

Varig's former cargo operation, VarigLog, last week offered US$350 million for Varig's commercial operations. VarigLog, which is owned by a group of Brazilian businessmen and US investment fund Matlin Patterson, proposed setting up a new Varig to take over operations, leaving the company's massive debts with the old company.

Meanwhile, Varig is studying plans to cut costs by returning 15 planes to leasing companies. It is currently only running 54 of its 71 planes because it lack funds to maintain all of them. It is also looking at cutting loss-making regional flights