RIO DE JANEIRO, Brazil, March 7 (Reuters) - Rio Sul, a subsidiary of leading Brazilian airline Varig (VAGV4), plans to reduce its fleet and domestic destinations in a bid to cut costs, the subsidiary's spokesman said late on Wednesday. The company also plans to swap 16 Brazilian-built Embraer (EMBR4)(ERJ) aircraft leased from Brazil's National Economic and Social Development Bank (BNDES) for an unspecified number of larger Boeing 737-700 (BA), he said. "We still do not know what size the fleet will be or the destinations that will be cut, but they will drop before the end of the year," the spokesman said, adding that three Boeing 737-700s were due to be delivered in coming months. "The BNDES leasing is very high and we are not going to renew it," he said. The Embraer planes cost about $150,000 per month, he said. The move is Varig's latest effort to cut costs after being hammered by a general slump in the global aviation market due to the world economic slowdown and the September 11 attacks in the United States. The Rio Sul belt tightening comes after Varig announced it was slashing 10 percent of its 17,500 workforce, plans to trim debt to between $300 million and $400 million this year and began a drive to find new domestic and foreign partners to inject cash into the airline. Brazil's airline industry has also had to endure a hike in spending as a 16 percent depreciation in the local currency, the real , magnified the unavoidable dollar-denominated costs of jet fuel and plane leasing in local terms. Varig, a member of the Star Alliance headed by United Airlines, a unit of UAL Corp. (UAL), was already wallowing in debt before the aviation crisis struck and has posted multimillion reais losses for successive quarters. Rio Sul, which holds about 7.5 percent of the Brazilian airline market, currently operates one Boeing 737-700, 16 Boeing 737-500, three Boeing 737-300, and 11 of Embraer's 50-seater ERJ-145, and smaller Brasilia's.