MercoPress. South Atlantic News Agency

Former subsidiary offers $400 mil for Brazil's Varig

Directors of Brazil's troubled flag carrier, Varig, must decide whether to ratify a deal to sell the airline to one of its former subsidiaries for $400 million.

Creditors and union had rejected an earlier $350 million offer from VarigLog, the country's biggest air cargo firm.

The latest offer from Varig's onetime cargo subsidiary was presented Thursday night at a meeting of unions representing the airline's nearly 11,000 employees.

The parties signed a preliminary agreement in which the unions committed to cutting employees' salaries by 30 percent and to promoting the elimination of 2,900 jobs.

Varig, operating under bankruptcy protection since last June, sold VarigLog in January to Marco Antonio Audi's Volo Brasil, in which U.S. private equity fund Matlin Patterson holds a minority stake.

Airline union President Selma Balbino, who attended the meeting Thursday, said that reaching an agreement with VarigLog was a matter of considerable urgency.

"It's hard to say this: either Varig closes down or it gets saved with fewer employees, and will have the possibility of growing in the future," she said.

The first VarigLog offer called for up to 5,000 layoffs along with pay cuts for those lucky enough to hang onto their jobs.

The deepening crisis, which Wednesday continued down a slippery slope with a court order freezing Varig's assets, precipitated Thurday's meeting.

The employees' decision to accept firings and salary cuts could mean the end of one of the main hurdles for the company, which on May 7 will celebrate its 79th anniversary. The new agreement could be submitted this Monday for the consideration of the Rio de Janeiro court that is that is overseeing Varig's recovery plan.

Varig, with debts of 7 billion reais (about $3.25 billion), said last week that it had run out of operating funds, though the airline's planes continue to fly their routes.

Earlier this week, Brazil's social security ministry took control of the Aerus pension fund, which serves workers in the aviation sector.

The ministry said that the move was aimed at "protecting the interests of the participants" and preventing use of pension money to shore up the finances of Varig.

Some of the troubled carrier's employees proposed dipping into Aerus for that purpose in a letter sent Tuesday to the federal government.

Aerus is already one of Varig's biggest creditors, with the airline's owing the fund roughly 2.3 billion reais ($1 billion) in the form of employee pension contributions that the carrier improperly retained.

Seeking to stave off bankruptcy, Varig chief Marcelo Bottini last week asked the airline's state creditors to accept a debt-repayment moratorium of 3-6 months, but the government has yet to respond.

Several Cabinet ministers say that President Luiz Inacio Lula da Silva is prepared to do what he can to save Varig, short of pumping public money into the company