MercoPress. South Atlantic News Agency

Lack of funds grounds Brazil's third largest airline

BRA Embraer 195

Brazil's third-biggest airline, BRA, has suspended operations and sent home almost all its 1.100 employees after hitting financial difficulties. It comes after more than a year of crisis in the country's aviation industry and the near-collapse of Varig, the former flag-carrier that is now a subsidiary of Gol, the second-biggest operator.

BRA said Tuesday night it had requested permission from aviation regulators to suspend all its flights from midnight. It advised passengers not to go to airports but to telephone the company for information. Recent local press reports said the company needed about 30 million US dollars to maintain operations. Last year a group of investors including Goldman Sachs, the US investment bank, and Gávea, a Rio de Janeiro hedge fund led by Armínio Fraga, former president of the central bank, took a minority stake in the company. They are understood to have invested about 70 million US dollars in BRA but to have found it difficult to introduce management changes in the face of opposition from its controlling shareholder, Humberto Folegatti. Apparently Folegatti stepped down from management control of the company last Thursday. BRA, which had nearly 5% of domestic flights in September, was formerly widely regarded as a potential challenger to TAM and Gol, Brazil's two leading airlines. But it recently suspended international flights citing maintenance problems and then cancelled an order for two EMB 195 jets, the latest line of regional jets made by Embraer, the Brazilian manufacturer. The company reportedly tried to transfer its passengers to flights run by other operators on Tuesday but its approaches were rejected. BRA collapse comes at a very complicated time for the Brazilian aviation industry including two serious accidents in September 2006 and July this year in which 350 people were killed.