This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ For Third Time in a Year, Brazilian Airline Loses Chief April 18, 2003 By TONY SMITH SÃO PAULO, Brazil, April 17 - The management of Varig, Brazil's flagship airline, has been thrown into turmoil by the departure of its third chief executive in less than a year, further endangering the government's efforts to spare the struggling airline from bankruptcy through a merger with its main rival, TAM Linhas Aéreas. Manuel Guedes resigned as president and chief executive of the airline late Wednesday, and said in a message to employees that he was leaving "at an opportune moment" after preparing Varig for restructuring. But analysts said that he had been forced out after clashing with the new chairman of Varig's board, Gilberto Rigoni, who opposes the merger. "He was technically a good manager, was trying to get the company to grow again and was for the merger," Carlos Albano, air transport analyst at Unibanco in São Paulo, said of Mr. Guedes. "But it looks like he found himself on collision course with the board." The 80-year-old airline, whose formal name is Viação Aérea Rio-Grandense, is one of Brazil's best known companies globally. But it has struggled financially for years, and now owes some $1 billion to the government and to suppliers like Boeing, GE Capital and the state oil company, Petrobras. Two of Varig's aircraft have been seized at foreign airports in recent months because it had not kept up lease payments, and it has returned several more to their owners more or less voluntarily, damaging the company's reputation and embarrassing some in the government. There is general agreement here that Varig's best hope for salvation is a merger with TAM, and as a first step, the two carriers started sharing ticketing and coordinating flights on some domestic routes last month. Those steps helped Mr. Guedes cut some flights and increase load factors on others to keep the company aloft for the moment. But he was not able to overcome stubborn resistance to the planned merger mounted by the Ruben Berta Foundation, a nonprofit trust that is meant to represent the interests of Varig's approximately 18,000 employees. The foundation now holds a controlling stake in Varig's shares. Under the merger plan, elaborated by the São Paulo investment bank Fator, the foundation would wind up holding just 10 to 20 percent of the combined company's shares, analysts said. The foundation nominated Mr. Rigoni as chairman of the board to fight the plan. But analysts say the airline has little hope of survival without state aid, and the government has said it will supply none unless the merger goes forward. The defense minister, José Viegas, who is responsible for overseeing the merger, met with Mr. Rigoni on Wednesday and said afterward, "A merger is the only real way out." Mr. Viegas criticized the airline's management for sowing "confusion, with various people within Varig, thinking and saying different things." But the government has also sent some mixed signals that appear to have encouraged opponents to the merger. José Dirceu, chief of staff for President Luiz Inácio Lula da Silva, said recently that Brazil should not allow companies in strategic sectors, like airlines, to go bankrupt. Still, most government officials back the merger plan, which would create the largest airline by far in Latin America, one that would have a better chance to compete with foreign rivals on international routes. Because much of Varig's debt is owed to the government or to state-controlled entities like Petrobras and Banco do Brasil, Mr. Viegas has considerable leverage over the airline and the foundation. As a last resort, the government could revoke Varig's permits and ground it. People close to the merger talks say that Varig's creditors want to keep it flying. Boeing, for example, has so far been lenient with Varig, because the airline's main regional rivals, TAM and LAN Chile, are both stalwart customers of Boeing's main competitor, Airbus Industrie. Mr. Viegas said that TAM "has not caused any problems" in the talks and is "committed to the merger." But executives said that without Mr. Guedes in the picture, the talks could sour quickly, and Varig may fall into receivership before the deal can be completed. Analysts say that both airlines stand to gain from a merger. TAM's balance sheet is clean - its only significant debts are aircraft leases - but like Varig, it has been hit hard by the slump in air travel and a sharp slide in the value of the Brazilian currency, the real, which makes its dollar-priced fuel bills and lease payments harder to pay. A merger would yield substantial cost savings by eliminating overlapping routes and flights. Varig has the advantage of a well-known brand and a presence in world markets, but its finances are so chaotic - it has yet to report its 2002 results, for example - that many analysts now say it may collapse before a merger can be completed. "It's been critical for some time," Mr. Albano said. "All they need is for one creditor to say, `That's enough,' and the company will be forced to stop flying." By blocking the merger, he said, the Ruben Berta Foundation seemed to "prefer to see the company go bust." http://www.nytimes.com/2003/04/18/business/worldbusiness/18VARI.html?ex=1051674313&ei=1&en=94d9a4724888460f HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2003 The New York Times Company