MercoPress. South Atlantic News Agency

Brazilian president says gov't can help salvage Varig

Brazilian President Luiz Inacio Lula da Silva said Friday that the government can provide the funds needed to prevent troubled air carrier Varig from shutting down.

The president, universally known as Lula, said the government did not plan to directly inject funds into the cash-strapped airline, but could keep the airline going by providing loans to a company interested in acquiring Varig.

"I've said publicly that the government is not going to put public money (into the airline). What we can do is finance (a deal to) save Varig," Lula said in reference to ongoing negotiations for the sale of the company.

He said a market solution as opposed to a government bailout was the answer to the airline's financial crisis.

Varig, which has close to 11,000 employees, has debts of some $4.3 billion, most of which is owed to public entities. In past weeks, the airline acknowledged that it lacked the funds to meet daily expenses, including fuel costs and the price of renting terminal space at airports.

"Varig, like other Brazilian companies, became a sort of national passion," said Lula. "But these things can't be handled with one's heart," but instead the problem must be considered as one of a private company with problems, he said.

The president said he agreed with the stance of Rio de Janeiro Judge Luiz Roberto Ayoub, who is in charge of the airline's legal proceedings. The company entered a court-supervised recovery process last June after being unable to pay its suppliers.

According to the judge, Varig cannot be considered completely bankrupt since it is still a viable company and could be acquired by a firm interested in infusing it with capital.

Earlier this month, 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 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.

Varig was Brazil's largest airline until recent years. Although it is still the nation's leader in international flights, with 32 percent of the total, it has fallen to third place in terms of domestic flights in recent months and has grounded several of its planes for lack of ability to pay maintenance costs.