=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2004/12/15/f= inancial1201EST0118.DTL --------------------------------------------------------------------- Wednesday, December 15, 2004 (AP) Brazil's government planning takeover of flagship Varig airline ALAN CLENDENNING, AP Business Writer (12-15) 09:01 PST SAO PAULO, Brazil (AP) -- Brazil's government plans to take over Varig, the country's flagship airline, in a move to keep its planes flying during a restructuring process aimed at paying down the carrier's massive debt, the head of the government's airline regulatory agency said. The plan "in practice will be an intervention, even if that's not the technical name used," federal airport authority president Carlos Wilson Campos said late Tuesday night. The takeover could occur as soon as Friday should President Luiz Inacio Lula da Silva issue a decree that would require the nonprofit Rubem Berta Foundation to surrender control of the airline. The foundation, which represents Varig employees, has an 87 percent stake in the company. Campos said the move would allow thousands of workers to keep their jobs, but did not disclose more details about how it would work and whether Varig would eventually be reorganized or dismantled. Varig and the foundation did not comment. Brazilian Vice President and Defense Minister Jose Alencar, meeting Wednesday with airport authority officials and Varig representatives, declined to confirm whether a presidential decree would be signed soon. But, he said, "The solution for Varig is to keep flying," according to t= he official Agencia Brasil news agency. Varig, whose full name is Viacao Aerea Rio-Grandense has about 100 planes that fly to 110 Brazilian cities and 27 international destinations in 18 other countries. Though the airline has never disclosed its debt, analysts estimate it owes about 6 billion reals ($2.2 billion). Much was accumulated following the 2001 travel drop-off and a steep drop in the value of Brazil's currency, the real, which made it difficult for Varig to pay costs linked to dollars -- including jet fuel and aircraft lease payments. Analysts have predicted Varig routes could be spun off to TAM Linhas Aereas SA and Gol Linhas Aereas Inteligentes SA, Brazil's second and third largest airlines. But TAM and Gol are reportedly reluctant to assume any Varig debt. Varig, which started flying in 1927, is a source of deep Brazilian national pride, so the government might want to keep the company's name alive. One possibility would be the creation of a new company called "Super Varig," according to the Folha de S. Paulo newspaper, which first reported the government takeover plan. The airline on Tuesday won a court decision giving it 2 billion reals ($740 million) in damages for losses from government-imposed price controls on airline ticket prices in the late 1980s and early 1990s. The government said it would appeal to Brazil's Supreme Court, and a ruling is expected next year. Varig shares soared 39 percent Tuesday in Sao Paulo on news of the court decision, and climbed an additional 6 percent in early afternoon trading Wednesday on the takeover report. Tam and Varig announced merger plans last year in a move blessed by the government that would have given the combined company 70 percent of Brazil's passenger air travel market, but shelved the plan later following opposition by Varig's controlling foundation. The two airlines kept a code-sharing agreement in place. ---------------------------------------------------------------------- Copyright 2004 AP