MercoPress. South Atlantic News Agency

Eleven bidders show interest

Eleven companies have shown interest in acquiring the routes, planes and offices of Brazil's embattled Varig airline, the carrier said yesterday.

Potential bidders include local companies TAM SA, Gol Linhas Aereas Inteligentes, OceanAir and WebJet, as well as Aero-Lb, a consortium including Portuguese airline TAP.

Varig on yesterday opened a data room, where interested parties can review the company's business records ahead of Tuesday's auction.

Varig ? Viacao Aerea Rio-Grandense ? has been struggling for years, with debts of about eight billion Brazilian reals (USUS$3.5 billion).

The proceeds of the auction will be used to pay debts on operating expenses to allow the airline to continue flying. The auction, originally scheduled for July, was moved ahead because the airline was in danger of shutting down.

Varig's domestic and international operating assets ? which include a fleet of 72 jets, of which only 47 are in operation ? will be put up for sale for a minimum price of US$860 million.

The buyer would form a new company, leaving most of the company's debts with the old company.

As a second option, Varig could auction off domestic routes for a minimum price of US$700 million, again leaving the debt with the old company, which would also remain responsible for international operations.

However, if no bid comes within 10 percent of either minimum price, a second round of bidding will be held with a reduced minimum price of USD $125 million.

But creditors are considering legal action to block the sale, which could scare off potential investors, analysts said.

The National Airports Authority Infraero, federally owned bank Banco do Brasil and BR Distribuidora, the distribution wing of state-controlled oil giant Petroleo Brasileiro, or Petrobras, contend that the second-round minimum price is insufficient to pay off Varig's operating debts.

Meanwhile, foreign-based leasing companies are pressuring a New York court to allow them to repossess their planes currently in Varig's service. Judge Robert Drain of a U.S. Bankruptcy Court in Manhattan was to rule yesterday whether leasing companies can seize their planes from Varig.

And federal prosecutors have appealed a court decision that the government must pay Varig 4.5 billion reals (USUS$1.96 billion) in compensation for losses arising from airfare price controls between 1986 and 1991.

Varig remains Brazil's leading airline on international routes, but has fallen behind TAM and Gol domestically as cash-flow problems have forced it to reduce operations.