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Old June 27th, 2005, 06:46 AM   #41
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Brazil Airline Gol Thrills Investors, Challenges Abound
By Matthew Cowley
24 June 2005

SAO PAULO (Dow Jones)--Brazilian airline Gol Linhas Aereas SA (GOL) has survived one year as a publicly traded company, outshining shareholders wildest dreams, but the firm has its work cut out dealing with soaring oil prices, crumbling competition and, not least, its starstruck investors.

The firm's strong equity base puts it in an enviable position to deal with these challenges, said Gol Chief Financial Officer Richard Lark.

"We are the best-positioned player in the market to capitalize on any situation that might arise," Lark said in a telephone interview with Dow Jones Newswires.

There are plenty of scenarios for management and investors to contemplate, offering both risks and opportunities.

Gol's low-cost, low-fare model, based on the success of Southwest Airlines in the U.S., has thrived since it launched operations in early 2001, while a number of financially weaker rivals in Brazil have perished.

Gol's share of the domestic market has risen to 27% over the last four-and-a-half years, and it recently overtook debt-laden Varig (VAGV4.BR), Brazil's flag carrier, to become the number-two domestic player in Brazil.

However, Gol is still some way behind the largest domestic carrier, TAM SA (TAMM4.BR), which has also capitalized on the industry shakeout, securing a more than 43% market share. TAM operates a traditional airline model, with multiple classes, and a recent share issue of its own has freshened up its balance sheet.

For both Gol and TAM, the future of Varig is one of the biggest uncertainties. The firm has just started a court-sponsored restructuring process to resolve some 9.5 billion reals ($1=BRL2.38) of debt which, in theory at least, should lead to a resurgent, restructured airline, probably with a new owner - or bankruptcy.

While it's too early to know what will happen to Varig, Lark said it's hard to envisage Gol buying the stricken airline, because it doesn't fit with the low-cost model.

Instead, the "boring execution" of Gol's business plan, without changing cost structures, is the best way to ensure success, Lark said.

"Our challenge is to keep driving the costs down to maintain competitiveness, and to be able to always have low fares... because that's how you're going to grow the market," Lark said.

Investors Thrilled, Want More Growth

Gol's investors, which include a broad range of emerging market funds, specialist airline funds, Brazilian institutional investors and individuals in both Brazil and the U.S., have been thrilled by the no-frills experiment.

Gol's American Depositary Receipts have risen from $17 when the firm started trading one year ago to peak at $34.50 earlier this year, before slipping back to current levels around $30. Trading in ADRs averages around $10 million per day in New York.

At the beginning of this month, Gol reaffirmed full-year 2005 guidance of net revenues of approximately 3 billion reals ($1=BRL2.41), up 53% from 2004, and earnings per share of between BRL2.85 and BRL3.15, up 40% from last year.

Gol is the fastest growing company within Deutsche Bank's Latin America coverage of transportation and infrastructure and compares favorably with its peers in the low-cost airline industry around the world.

The bank estimates 50% year-on-year revenue growth this year in Brazilian reals, and sees profits growing at 25% a year for the next three years.

"That rate of growth is every bit as good as the low-cost carriers we have seen in Europe, the U.S. and even Asia," said Deutsche Bank analyst Daniel McGoey, who recommends buying the company's stock.

With such fast growth, some hiccups are unavoidable. Gol suffered some delays in deliveries of aircraft from leasing companies earlier this year, partly slowing its expansion plans.

Investment bank Raymond James & Associates downgraded Gol to market perform from outperform earlier this month, cutting its second quarter earnings estimates twice in a month based on lower capacity forecasts.

Nevertheless, the bank said it still believes "Gol will be one of the most profitable airlines in the world" and will "continue to capture market share in Brazil."

Using Credit Quality To Borrow Cheaply

After the initial public offering and a follow-up share sale in May 2005, Gol has about $600 million in equity and $400 million in cash, Lark said.

"We have one of the best balance sheets in the airline industry in the world," Lark said.

That helps keep down capital costs, which is every bit as essential to the low-cost model as keeping down operating costs, Lark said.

Low borrowing costs are especially important in Brazil, where the central bank's base lending rate is a towering 19.75%.

Good credit quality translates into lower borrowing costs, and the firm plans to use loans to start buying its own aircraft, which in turn saves money from the existing leasing contracts.

The low-cost airline has placed 30 firm orders for Boeing Co's (BA) 737-800 aircraft, which will start arriving in 2006, with options on a further 33 aircraft.

The strong balance sheet also allows Gol to protect itself from crude oil and exchange-rate volatility by using hedging mechanisms, an option which companies with weaker balance sheets don't have, Lark said.

That's an advantage as crude oil prices touched a record-breaking $60 a barrel this week. Gol's jet fuel prices have risen 38% over the last year, partly offset by the 24% appreciation of the Brazilian real in the period, Lark said.

The executive played down concerns about oil prices, saying all Brazilian airlines can pass on a large chunk of fuel price rises to its customers, because nearly 70% of them are less price-sensitive business travelers.

However, higher prices could slow the growth rate in the Brazilian airline industry, he said.

Altering Market Growth Dymanic?

Oil aside, Brazil's domestic airline market is expected to grow between 10% and 15% annually for the next few years as economic growth fuels incomes. The industry's expansion appears to have picked up pace, edging up from around two times the growth rate of Brazil's gross domestic product to closer to three times GDP, Lark said.

Gol believes its low-fare policy, specifically designed to attract new customers who have never flown before, is partly responsible for this new dynamic, though Lark said it's too early to know for sure.

The firm has some innovative plans to continue opening up air travel to more Brazilians, such as developing new mechanisms for allowing customers to buy tickets. Credit cards and other traditional forms of payment are often not accessible to many poorer Brazilians.

"There have to be other ways for Brazilians to buy your product, because of the income situation of the country," Lark said.

Gol's international expansion has recently run into some challenges of its own.

The airline has delayed the launch of its second international route, to Santa Cruz, Bolivia, as it waits for the political crisis in that country to settle, with no clear date for starting.

"Bolivia is ready to go. The operational aspects are ready. It's only just waiting for a bit of clear-up on the political situation," Lark said. The launch could take place "any day, but who knows...it could be on hold for a while."

On the other hand, Gol's first international flight, to Buenos Aires, is doing fine. The service launched in December and reached break-even after the first month. The airline plans to add more capacity.

It is also planning to open up routes to Asuncion, Paraguay, and Montevideo, Uruguay, later this year, while for 2006 and beyond, the airline is eyeing new destinations within Argentina, as well as Santiago, Chile, Lark said.

Within three years, international flights will be contributing nicely to Gol's balance sheet. Lark forecast that by then, flights to international destinations could account for 20% of aircraft capacity, as measured by available seat kilometers, up from about 4%-5% today.
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Old July 7th, 2005, 01:38 AM   #42
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Brazil Gol To Launch Low-Cost Airline In Mexico
5 July 2005
By Matthew Cowley and Amy Guthrie

SAO PAULO (Dow Jones)--Brazilian no-frills airline Gol Linhas Aereas Inteligentes SA (GOL) said Tuesday it plans to launch a low-cost airline in Mexico in partnership with Mexican group Inversiones y Tecnicas Aeroportuarias SA, or ITA.

The new airline could begin flying in the first quarter of 2006, Gol said in a statement.

The two partners plan to draw up a shareholders agreement in the next few months and will then seek licenses from Mexican authorities, Gol said.

"Through our Mexican partnership we are planning to introduce a low-cost company in Mexico, to contribute to the development of local industry," Gol President Constantino de Oliveira Jr. said in the statement.

Brazilian financial newspaper Valor Economico reported Tuesday that Gol would own 40% of the Mexican venture, while ITA would hold 60%. Gol declined to comment on the report when contacted Tuesday morning.

ITA is the strategic partner of Grupo Aeroportuario del Sureste SA (ASR), or Asur, which operates nine airports in the southeast of Mexico, including the airport at the Caribbean resort of Cancun. ITA is 49% owned by Denmark's Copenhagen Airports A/S (KBHL.KO) and 51% by Mexican businessman Fernando Chico Pardo.

Analysts welcomed the news but said more details would be needed to properly evaluate the plan.

"At first glance, the news is positive for Gol," said Marcio Correia, an analyst at Banco Pactual in Rio de Janeiro. "The Mexican market seems to have all the characteristics that Brazil had when Gol started operations."

According to Gol, Mexico is Latin America's second- largest airline market after Brazil, transporting 30 million passengers per year on domestic and international routes.

The Mexican market seems ripe for Gol's strategy, which, at least in part, uses lower costs to attract customers who normally use bus companies. Gol began services in 2001 and is now Brazil's second-largest domestic carrier, transporting more than one million passengers per month, of which roughly 70% are business customers.

Mexican airlines transport roughly 18 million passengers a year on domestic routes, while an estimated 2.5 billion trips are made by highway, according to the government-run airline holding company Cintra SA (CINTRA.MX). The potential market for domestic air travel in Mexico is 50 million passengers a year, according to Cintra.

Cintra was created by the Mexican government in 1995 to manage the country's main carriers, AeroMexico and Mexicana. Cintra plans to sell at least 51% of each airline by early 2006.

Participants in Mexico's aviation industry took the Gol news in stride, saying the market attracts foreign carriers because it has great potential.

"Only 2% of the population travels by plane, while in countries like the U.S. and Argentina, it's at least 7%," said Marco Antonio Calva, of the National Aviation Workers Union, which represents ground workers for domestic and international airlines operating in Mexico.

"Mexico really hasn't developed this market," he added.

Airfares from "bargain" carriers in Mexico typically charge more than $200 for short round-trip flights, and officials worry that these operators merely cut corners by using old planes and spending less on training of personnel and on maintenance.

"When you're using 35-year-old equipment, how safe can it be?" asked Raul Ojeda, a senator with the leftist Democratic Revolutionary Party who sits on the congressional transport and communications commission.

Mexicana launched a low-cost carrier last week, Click, that flies between Mexico City and eight other cities. Click offers tickets at a 30% discount or more compared with flights offered on the same routes by Mexicana.

The hub-and-spoke network, though, does little to ease traffic in the busy Mexico City airport. "There are lots of niches to explore in Mexico, like point-to-point flights that don't stop in Mexico City," said Carlos Smith, a pilot and Mexico-based aviation consultant.

In Brazil, Gol has added its own variation to the point-to-point system, by including multiple stops across the country, which increases aircraft utilization rates. While this might not work in more sophisticated markets where customers don't want stops or even connections, the strategy has been a success in Brazil's price-sensitive market, analysts said.

However, Mexico industry participants cautioned that it's difficult for low-cost carriers to take flight in that country, since taxes and airport fees add about $100 to the cost of the average domestic round-trip ticket.

Late Tuesday, Gol's shares were down 0.6% at BRL34.60, while the broader Ibovespa index was down 1.5%.
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Old July 8th, 2005, 06:04 AM   #43
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Brazil's Varig names new president, 2nd since May

RIO DE JANEIRO, Brazil, July 6 (Reuters) - Brazil's struggling airline Varig SA on Wednesday named Omar Carneiro da Cunha president to replace Henrique Neves, who was appointed in May.

Carneiro, currently vice chairman, becomes the eighth president in five years for Varig, which has asked for protection from creditors as it tries to restructure 6.5 billion reais ($2.7 billion) in debt.

Varig Chairman David Zylberstajn, who also was appointed in May, will remain in his current post.

The company's executives and board have frequently clashed over plans to revive the airline, once Brazil's flagship carrier but now vying for second place with discount carrier GO behind market leader TAM.
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Old July 13th, 2005, 08:14 AM   #44
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Jul 12 6:05 PM
Varig Airlines Starts Restructuring Plan

AP - The 60-day period which Varig, Brazil's debt-laden airline, has to present a restructuring plan aimed at recovering its financial health began on Tuesday, local media reported.

The two-month period formally began with the publication Tuesday in the Official Gazette of Rio de Janeiro state of last month's court decision allowing the airline to put together a debt-restructuring plan.

Once its plan is ready, Varig will have an additional four months to negotiate it with its creditors, the Agencia Estado news agency said.

To be implemented, the plan must be approved by 51 percent of the airline's creditors.If approval is refused the company will be declared bankrupt, Agencia Estado said.

Varig's single largest creditor is the Brazilian state. Other creditors include the airline's pension fund, Aerus, as well as firms that lease aircraft to the stricken company, including units of General Electric Co., Boeing Co. and Goodrich Corp., along with International Lease Finance Corp., a unit of American International Group Inc.

Varig officials were not immediately available for comment.

On June 22, a Brazilian court accepted Varig's petition to begin a financial restructuring process under the new bankruptcy law.

Varig sought protection from creditors under the new bankruptcy law _ which took effect June 9 _ as it struggles to resolve debts totaling around 9.5 billion reals ($4 billion).
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Old July 13th, 2005, 11:02 PM   #45
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Brazil Airline WebJet Launches Service Seeking Mkt Niches
12 July 2005

SAO PAULO (Dow Jones)--The first flight of Brazilian low-cost airline WebJet took off Tuesday, as the latest firm to enter Brazil's increasingly competitive market launched services with an investment kitty of around $10 million.

WebJet is backed by a venture capital fund managed by Brazilian asset manager RealAssets Consultoria e Administracao de Ativos, RealAssets's founder, Mauro Molchansky, told Dow Jones Newswires. Just part of the venture capital has been invested in WebJet's launch to date, he said.

"WebJet is structured to be a small company, operating on routes with strong demand from passengers," Molchansky said.

The airline wants to tap the growing demand for air travel in Brazil, which has been boosted by economic growth and lower prices. According to the air industry regulator, the Civil Aviation Department, or DAC, Brazil's domestic market grew 14.5% in the first half of the year, reaching 15.2 million passengers.

By year-end the firm expects to have generated revenues of 100 million Brazilian reals ($1=BRL2.34), and in the first twelve months of operations it expects to handle 500,000 passengers, or about 3% of the domestic market.

The airline started operations with one leased aircraft from the 737-300 range of U.S. aircraft manufacturer Boeing Co. (BA), and aims to add another aircraft in the next few weeks and several more aircraft by year-end, Molchansky said.

This modest start reflects the company's strategy of offering the lowest fares on high-demand routes, but away from the traditional shuttle routes, which are already extremely competitive, he said.

"We are not competing on the shuttle services, where the competition is intense," Molchansky said. "We are going to segments where there isn't such intense competition and where there is demand to be met."

That means the firm isn't expecting the sort of spectacular growth achieved by the main low-cost operator in Brazil, Gol Linhas Aereas Inteligentes SA (GOL). Gol began operations in 2001 with six aircraft, and today has a fleet of more than 30, with expected revenue of BRL3 billion for 2005.

WebJet is aiming for "gradual and consistent growth, only in areas of high demand," Molchansky said.

WebJet is based in Rio de Janeiro and will initially fly a circular route from the Galeao airport to Brasilia, Sao Paulo and Porto Alegre, before returning to Rio de Janeiro, Molchansky said. By year-end, the firm expects to add other destinations including Curitiba, Florianopolis, Salvador, Recife and Belo Horizonte.

The company steers customers toward its Web site and call center for sales, but also sells tickets at its airport counters.

Two established rivals in the local market have already reacted to WebJet's low fares, cutting prices on competing routes. Brazil's flagship airline, Viacao Aerea Riograndense SA (VAGV4.BR), or Varig, cut the price of some seats on its aircraft by 80%, while the largest domestic carrier, TAM SA (TAMM4.BR), cut prices on flights to Porto Alegre.

Gol realigned its prices in March and said it isn't planning any more changes for now.

All these carriers will face a number of new challengers in the domestic market in coming months. At least eight airlines have expressed plans to launch or expand services this year and next.
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Old July 18th, 2005, 03:43 AM   #46
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Brazil's Varig restarts talks with Portugal's TAP
14 July 2005

RIO DE JANEIRO, Brazil (AP) - Brazil's Varig airlines has restarted talks with TAP Air Portugal in an effort to save the debt-laden Brazilian carrier from bankruptcy, a company top executive said Thursday.

Varig's chairman David Zylberstajn told the Estado news agency that TAP had hired the investment bank J.P. Morgan as a financial adviser for a deal in which the Portuguese carrier would buy a 20 percent stake in Varig.

Varig's press office in Rio confirmed Zylberstajn's remarks and said the carrier was in preliminary talks with other possible investors.

Saddled with over 9.5 billion reals (US$4 billion, euro3.3 billion) in debt, Varig filed for bankruptcy protection on June 17 to avoid the seizure of 11 of its 82 jetliners by a division of American International Group Inc.

But the bankruptcy filing effectively voided talks with TAP Air, seen as a lifeline for Varig after years teetering on the brink of insolvency, with its domestic market share eroded by competition from low-cost carriers.

"Varig had to abandon the agreement with TAP when it started the judicial recovery process in June," Zylberstajn told Estado. "But TAP never gave up on Varig."

On July 12, a Rio bankruptcy court gave Varig 60 days to present its restructuring plan.

Zylberstajn said the current proposal would create a new company, to be called Nova Varig, with the participation of national and international investors.

Under the plan, Varig's current controlling shareholder, the Rubem Berta Foundation, would hold no more than 10 percent of the new company.

The foundation, which represents Varig employees, had blocked previous attempts to restructure the airline. But on Wednesday it agreed to relinquish control and hired Lufthansa Consulting to draw up a restructuring plan.
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Old July 25th, 2005, 04:48 PM   #47
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TAP to make new bid for stake in Brazil's Varig in September

LISBON, July 25 (AFP) - Portuguese flag carrier TAP will make a new bid to buy a 20 percent stake in Brazil's heavily endebted Varig in September, after the troubed airline tables its restructuring plan, TAP president Fernando Pinto said Monday.

The proposal will be more complex than the initial bid because it will have to be submitted to Varig's creditors, he told daily Portuguese newspaper Diario de Noticias.

"TAP will only invest in Varig after the firm is restructured," he said.

"The idea is to present it (the bid) in September," he added.

TAP and Varig had been discussing a plan which would see the Portuguese airline invest an undisclosed sum in Varig in exchange for a 20 percent stake in the Brazilian carrier, the maximum allowed under Brazil's laws.

But the talks effectively ended when Varig filed for bankruptcy protection on June 17 to prevent some of its 82 planes from being seized by creditors.

Earlier this month a Brazilian court gave Varig, which has debts of over two billion dollars (2.4 billion dollars), a 60-day period to table a restructuring plan. Varig's single largest creditor is the Brazilian state.

TAP offers some 40 weekly flights from Portugal to Brazil, a Portuguese colony until the 19th century. It relies on Varig, one of Latin America's largest airlines, to offer its passengers connecting flights within Brazil.

The Portuguese carrier is the European airline with the most regular flights to Brazil and it wants to become a hub for travel from the continent to the country, which is becoming an increasingly popular destination for European tourists.

Varig has suffered financial problems for years due to growing competition in its domestic market from low-cost airlines and rising costs.

Both TAP and Varig are members of the Star Alliance, the world's largest airline partnership, which is led by Germany's Lufthansa and United Airlines.
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Old July 26th, 2005, 01:06 AM   #48
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Brazil Airline TAM To Begin New York Flights In November
25 July 2005

SAO PAULO (Dow Jones)--Brazilian airline TAM SA (TAMM4.BR) Monday said it will begin flights to New York's John F. Kennedy airport in November, after receiving authorization from the Brazilian government.

The date for starting the flights, as well as the number of flights per week, is to be established in August, the company said in a statement.

TAM said it expects to receive another A330 aircraft from Europe's Airbus (ABI.YY) in October, which will be used on the New York route.

TAM, Brazil's largest domestic carrier, already has international long-haul flights to Miami and Paris. Within Latin America, its destinations include cities in Argentina, Bolivia, Chile, Paraguay and Uruguay.

On Monday afternoon, TAM's shares were trading at 19.25 Brazilian reals ($1=BRL2.42), down 1.8% from Friday's close, while the main Ibovespa index was down 2.8%.
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Old August 5th, 2005, 03:25 AM   #49
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Brazil TAM 2Q Net Loss BRL24.7M Vs BRL206.5M Pft
4 August 2005
Dow Jones International News

TAM said earnings before interest, tax, depreciation, amortization and aircraft rental costs, or EBITDAR, totaled BRL170.9 million, down from BRL201.3 million a year ago, due to higher fuel costs, partly offset by the appreciation of the Brazilian currency.

TAM carried 4.48 million customers during the quarter, up 47.5% from 3.04 million in the second quarter of 2004. Domestic passengers totaled 4.11 million and grew slightly faster than international services, which accounted for the remaining 369,000 passengers carried during the quarter.

TAM said it had 76 aircraft operating during the second quarter, compared with 70 aircraft in the second quarter of 2004. Furthermore, the daily aircraft utilization rate increased to 10.6 hours, up from 8.7 hours a year ago.

TAM said its average load factor, or aircraft occupancy rate, rose to 66.5% during the quarter, compared with 61.9% a year ago.

Revenues from cargo totaled BRL99.1 million, 38% from a year ago, while the firm's revenues from sublet aircraft slipped as it brought aircraft back into its own service.

TAM said costs increased to BRL1.24 billion, up 26.4% from a year ago, due to a 60% increase in fuel costs, a 51% increase in marketing costs and a 32% increase in personnel costs.

The airline said total debt fell to BRL509 million at the end of the second quarter, down from BRL609 million at the end of the first quarter, due to the appreciation of the Brazilian real and the payment of short-term loans and debentures.

The company's guidance for 2005 is to maintain an average 43.5% share of the domestic market, compared with an average 42.7% in the first half of the year.

Tam said it wants an average load factor equal to or higher than 68% for the full year, and wants to lift its aircraft utilization rates to between 11.5 and 12.5 hours per day by December.

The company expects to add another five aircraft during the second half of the year, to end the year with 81 aircraft, of which eight would be the larger A330 aircraft of Airbus (ABI.YY), mainly used for international flights, 53 would be A320s or A319s used on local routes, and 20 would be Fokker 100s.
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Old August 9th, 2005, 12:48 AM   #50
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Brazil Airline Varig Recovers Some Market Share In July
8 August 2005

SAO PAULO (Dow Jones)--Brazil's struggling flagship carrier, Viacao Aerea Riograndense SA (VAGV4.BR), or Varig, recovered some of its share of the domestic market in July and regained second place, according to figures from Brazil's civil aviation department, or DAC.

Varig, which filed for protection from creditors June 17, saw its share of the domestic market move up to 26.5% in July, from 26% in June, but was still down from 29.5% a year ago.

No-frills airline Gol Linhas Aereas Inteligentes (GOL) saw its share of the domestic airline market slip to 26.4% in July, down from 28.8% in June and up from 21.7% a year ago. The startup airline had held second place in the domestic market since April.

TAM SA (TAMM4.BR) maintained a firm grip on first place with market share of 44.6% in July, up from 42.6% in June and 37.1% a year ago.

The total number of passengers transported on domestic routes during July, a busy month in Brazil for winter holidays, reached 3.44 million, up 26% from June 2004, according to DAC's figures.

Gol put in the best performance in terms of occupancy rates on domestic routes, averaging 80% load factor for its aircraft during July, compared with 77% in June. Both TAM and Varig also improved, reaching 79% and 77% load factors, respectively, the DAC said.

In the first seven months of 2005, Brazilian airlines transported 18.7 million passengers on domestic routes, up 16% from the same period a year ago, according to DAC.

In the international market, Varig continued to lose ground against its Brazilian rivals. Its share of the international market fell to 76.9%, down from 82% a year ago, while TAM's share rose to 20.9%, up from 17.5% a year ago.

On Monday, TAM said it has started selling tickets for its inaugural flight to New York City's John F. Kennedy airport, scheduled for November 10.

Gol, which began international operations in December with flights to Buenos Aires, Argentina, saw its market share remain steady from June, at 2.1%.

Brazilian carriers transported 2.4 million passengers on international routes in July, up 7.6% from a year ago.

Gol's occupancy rates on international flights strongly recovered in July, hitting 85% load factor, while Varig reported 81% and TAM reported 80%, the DAC said.

For the first seven months of the year, Brazilian carriers transported 14.7 million passengers on international routes, up 11.8% from the first seven months of 2004, the DAC said.
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Old August 13th, 2005, 05:52 AM   #51
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Brazil Aircraft Co Embraer 2Q Pft BRL166.7M Vs BRL382.1M
12 August 2005

SAO PAULO (Dow Jones)--Brazilian aircraft manufacturer Empresa Brasileira de Aeronautica SA (ERJ), or Embraer, Friday said its second-quarter net profit slumped due to the appreciation of the local currency against the dollar, and lower sales to commercial airlines.

The world's fourth-largest aircraft manufacturer reported a net profit of 166.7 million Brazilian reals ($1=BRL2.37) for the second quarter of 2004, down 56% from BRL382 million in the second quarter of 2004, and down from BRL234.8 million in the first quarter.

The result was slightly lower than the BRL178.3 million average forecast from a survey of four analysts by Dow Jones Newswires.

"The current period of our economy with a strong appreciation of the real against the dollar had an intense impact on the numbers," Embraer said in a statement.

More than 90% of Embraer's sales are generated in dollars. The firm said the real averaged BRL2.48 per dollar during the second quarter, 18.7% stronger compared with BRL3.05 in the second quarter of 2004.

Net revenues plunged 36% to BRL1.94 billion, but came in above the BRL1.83 billion expected in the survey. [ 12-08-05 2257GMT ]

Embraer's gross profit fell to BRL474.8 million, compared with BRL1.06 billion a year ago.

Earnings before interest, tax, depreciation and amortization, or EBITDA, fell to BRL204 million, down 67% from a year ago, and lower than the BRL314.3 million expected by analysts.

This pushed the firm's EBITDA margin over net revenues, a measure of profitability, to 10.5%, down from 18.6% a year ago and significantly lower than the 17.2% analysts were expecting.

Embraer said working capital needs increased in the second quarter of 2005 as it starts production of the 175 and 190 lines of aircraft. As a result of higher inventory and high accounts receivable levels, Embraer recorded a net debt position of BRL552.1 million at the end of June, up BRL95.6 million from the end of March.

"As the number of deliveries increases and customer financing structures are finalized, we expect to reduce our inventory and accounts receivable levels by the end of the year, which should positively impact our cash position," Embraer said.

Embraer had already reported that it delivered 30 aircraft during the quarter, the same as in the first quarter. It reiterated its plans to deliver 85 aircraft during the second half of the year.

The company said inventories increased to $1.74 billion at the end of June, up from $1.57 billion at the end the first quarter.

Meanwhile, Embraer said it believes it is still in the running for a contract with Lockheed Martin Corp. (LMT) to supply the U.S. Army with a new spy plane, known as Aerial Common Sensor.

Lockheed had originally selected Embraer's ERJ 145 aircraft, but modifications to the project led it to look at alternatives, including the Gulfstream G550 and the Bombardier Global Express.

"We believe Embraer has the flexibility and technological capability to provide the customer with an adequate solution to cope with the new scenario," the Brazilian firm said.
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Old August 13th, 2005, 05:53 AM   #52
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Brazil Airline Varig 2Q Net Loss BRL342.4M Vs BRL393.9M
12 August 2005

SAO PAULO (Dow Jones)--Brazil's flagship airline, Viacao Aerea Riograndense SA (VAGV4.BR), or Varig, Friday said net losses were reduced during the second quarter, compared with a year ago, despite a slowdown in revenues, as the firm benefitted from exchange rate variations.

The firm reported a net loss of 342.4 million Brazilian reals ($1=BRL2.37) for the second quarter, compared with BRL393.9 million in the second quarter of 2004.

Net revenues were 3.6% lower from a year ago, at BRL2.02 billion, while flight revenues were down 11.6% at BRL1.8 billion in the same period.

The company blamed strong competition and lower prices for the drop in revenues, partly offset by better operating performance.

Costs increased 6.5% to BRL1.68 billion, due to higher fuel consumption and higher fuel prices, Varig said in a statement. [ 12-08-05 2153GMT ]

The firm said financial costs fell to BRL53.6 million during the quarter, down from BRL270.8 million a year ago, primarily due to gains from foreign exchange variations. Brazil's real appreciated about 14% during the quarter.

Varig ended the quarter with 88 aircraft in its fleet, down from 92 a year ago, with 77 passenger jets and 11 cargo jets.

The firm, which began a court process to restructure its overwhelming debts June 17, said its contracted debt load was BRL5.6 million at the end of the quarter, compared with BRL5.69 at the end of the first quarter.

Government-related entities account for 64% of the contracted debt, while General Electric Co. (GE) is owed BRL256 million, Varig said. The airline pension fund, Aerus, is owed BRL1.06 billion.

The airline's total debt load, including off-the-books liabilities, is estimated at more than BRL9 billion.

Varig is scheduled to present a debt-restructuring plan to the court in Rio de Janeiro by mid-September.
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Old August 24th, 2005, 01:27 AM   #53
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Brazil TAM Eyes Airbus, Embraer For New 100-Seat Planes
By Matthew Cowley
23 August 2005

SAO PAULO (Dow Jones)--Brazilian airline TAM S.A. (TAMM4.BR) is evaluating aircraft from Airbus (ABI.YY) and Embraer (ERJ) to replace its aging fleet of Fokker jets, according to TAM's chief financial officer, Libano Barroso.

By year-end, the company should decide whether to replace its Fokker 100 aircraft with either the Airbus's A-318 or Embraer's 190 model, Barroso said in an interview with Dow Jones Newswires Tuesday.

Embraer has the best 100-seaters in the market, because they were specifically designed for that purpose and are more economical than the heavier A-318, he said.

However, "it all comes down to price," Barroso added. "In the future, we may be a company that is just Airbus, or Airbus and Embraer."

TAM is already Airbus' largest customer in Latin America, with some 47 A-320 and A-319 aircraft for local routes, and six of the larger A-330 aircraft for long-haul flights.

The airline has firm orders for 30 more A-320s, with options on a further 20, and Barroso said the company has signed a memorandum of understanding with Airbus to replace the A-330 aircraft with larger A-350s, which are still under development, in 2012.

TAM is also expanding its fleet to meet rapid growth in the local market. According to Brazil's Civil Aviation Department, or DAC, the market grew 16% in the first seven months of 2005, one of the fastest rates in recent years.

TAM's growth was even faster, with its market share burgeoning to 44.6% in July, up from 31.7% in July 2004. Barroso attributed much of this growth to picking up nearly 90% of customers from Vasp, a rival airline that stopped flying in January, weighed down by debts.

The airline forecasts it will average a 43.5% market share for the whole of 2005.

This achievement was significant given the competition from startup rival Gol (GOL), the investor darling in the aviation market, and Brazil's largest airline, Varig (VAGV4.BR), which has been partly distracted by its debt restructuring process.

Second Half Of 2005 Seen Stronger Than First

Rapid customer growth helped TAM's balance sheet during an intensely competitive second quarter, Barroso said. Starting in March, and deepening in April, domestic airlines slashed prices to help buoy sales during what is traditionally the weakest quarter.

TAM expects a robust rebound in the second half of the year, with revenues per passenger, flight capacity and aircraft utilization already higher in July than the average during the first half of the year, and higher still in August, Barroso said.

By year-end, TAM expects the domestic airline industry to have grown about 14% in terms of passengers transported, nearly three times faster than current forecasts of 5% growth in gross domestic product.

For 2006, TAM sees that falling back to between 6% and 7.5% growth, returning to the industry's traditional growth rate of about twice the GDP growth, Barroso said.

TAM is also keeping its planes in the sky for more hours per day, Barroso said. The company hit more than 11 hours per day in August, up from 10.6 hours in the second quarter and 8.7 hours in the second quarter of 2004.

The domestic market will remain TAM's main focus, with international operations limited to specific markets where the company identifies potential for business travelers, Barroso said. Tourism, for now, is not attractive, he added.

"We won't do flights that aren't profitable, or leisure flights; our policy is defined," Barroso said.

To this end, TAM is launching a service to New York in November, and has identified London and Frankfurt as possible new markets, on top of its existing routes to Paris and Miami, he said.

Varig Restructuring Expected To Be `Rational'

The future of Varig remains a significant uncertainty for the Brazilian airline industry. Varig carries total liabilities of some BRL9 billion and is operating under court protection from creditors. It is scheduled to present a restructuring plan to the court by mid-September, which analysts say will either cure the problems, or send it into bankruptcy.

Barroso said TAM does not expect Brazil's government to provide any special priviledges for what is considered the country's flagship airline.

"The government is going to operate within the limits of the legally permitted rules. I don't believe the government is going to create any subsidy," Barroso said. "The government will be rational."

Meanwhile, TAM itself is emerging from a turbulent period. The airline decided in 1997 to expand its air taxi operations into regular commercial flights, backed in 1998 by fresh capital from private equity funds.

But the events of Sept. 11, 2001, followed by extreme economic volatility in the run-up to the 2002 presidential elections in Brazil, meant the company suddenly had too many aircraft. Furthermore, the unexpected death of company founder Rolim Amaro in a helicopter crash in 2001 left the family owned company shaken.

The new management undertook a significant restructuring program, including the early termination of a number of lease contracts, and an operational overhaul.

This process culminated in May with what was effectively an initial public offering of shares by TAM. The company raised BRL380.4 million for itself, and about BRL160 million for investment funds managed by Credit Suisse First Boston (CSR). As a result, TAM's free float was raised to 21.4% from under 1% previously.

The new capital has freshened up TAM's balance sheet and has given it cash to invest in new aircraft.

Barroso said his broader aim now is to reduce the company's leverage, to between 75% and 80% of book value, from 89% at present. This will either be through the accrual of the firm's own profits, or a new share sale, he said.

TAM's preferred shares, meanwhile, began trading at BRL18, and are currently at around BRL25.50, outperforming the broader Ibovespa stocks index over the period.

UBS, an investment bank, recommends buying TAM's shares, which are the top pick in its Latin American airlines portfolio, and has a 12-month price target of BRL30 for them.

"We believe TAM offers a compelling combination of near-term earnings momentum and long-term earnings growth, improving returns and, above all, overly discounted valuation multiples," the bank said in a recent report.
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Old August 27th, 2005, 06:55 AM   #54
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Workers At Brazil Airline Varig Object To Cargo-Unit Sale
26 August 2005

SAO PAULO (Dow Jones)--Brazil's national federation of civil aviation workers, or Fentac, has objected to plans by the country's largest airline, Varig (VAGV4.BR) to sell its cargo unit, Variglog, a union spokesman said, confirming local press reports.

Fentac, which represents all the aviation unions and consequently a large share of Varig's workforce, said it has also asked the Rio de Janeiro court handling the airline's debt-restructuring process to freeze any asset sales, the spokesman said.

Furthermore, the federation has asked the court to remove Varig's management team because of fraud in the restructuring process, the spokesman said.

Fentac President Celso Klafke was scheduled to hold a press conference later Friday to provide further details.

According to Varig, the deal with U.S. private equity firm Matlin Patterson Global Advisers LLC, which includes the Variglog sale, will provide about $103 million in cash to cover overdue debts which threaten to shut down its operations.

"Entering into this transaction is presently the only viable alternative available to the airline on the very short term," Varig said in documents filed with a New York bankruptcy court.

Varig is preparing a plan to restructure its balance sheet, which is weighed down by total liabilities of more than 9 billion Brazilian reals ($1=BRL2.40). The airline has hired Lufthansa Consulting, investment bank UBS and Brazilian private economic research institute Fundacao Getulio Vargas to work on the plan.

Matlin has offered to buy 95% of Variglog's shares for $38 million. It will also prepay $50 million of Varig's receivables from airfare sales through Visa cards, and will provide a $15 million loan as an advance on the credit card receivables.

Varig said it is in arrears on the payment of approximately BRL28 million to its employees, and the risk of a workers' strike is "imminent." The airline is also overdue on a further $20 million owed to aircraft and engine leasing firms, which may try to seize their assets.

On Aug. 17, the International Lease Finance Corporation asked the New York court for immediate repossession of all aircraft leased to Varig, the documents said. Judge Robert Drain is scheduled to hear the request on Aug. 31.

ILFC said in court documents that Varig has defaulted on payments since the restructuring process began on June 17, and that leased aircraft have been "improperly maintained and/or damaged" by Varig and its subsidiaries.

ILFC said its employees have seen Varig "removing and cannibalizing" parts of its aircraft for use in replacing failing parts on other aircraft.

Meanwhile, Varig said that since June 17, its main suppliers, including oil firm Petrobras (PBR), Shell Brasil, Esso, Infraero and IBM, have refused credit and began demanding payment up front.

Furthermore, credit-card administrators in Brazil, which account for about 35% of Varig's sales, started demanding increased escrow deposits, reducing the firm's cash flow by BRL25 million per month.

New York's southern district bankruptcy court has not yet ruled on Varig's request to recover $5.1 million from GE Commercial Aviation Services LLP, or Gecas, which had said Varig had broken terms of a May 2004 financial agreement and therefore triggered a default.

The airline reiterated its belief that it is "operationally viable, which is to say that the sum total of its revenues is surely higher than the sum total of its expenses."

Variglog has 18 aircraft, all of them under leasing agreements entered into with international lessors. The unit also pays about $9 million per month to Varig for room on its passenger aircraft. Under the agreement with Matlin, this deal will remain in place until Dec. 31.

Variglog reported a loss of BRL17.2 million in 2004, BRL11.6 million in 2003 and BRL131.4 million in 2002.

Variglog's valuation was $100 million, including debts of BRL45 million, and the unit needs an investment of $15 million to overhaul grounded aircraft, Varig said.
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Old August 30th, 2005, 01:04 AM   #55
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Brazil Court Stops Airline Varig From Selling Cargo Unit
29 August 2005

SAO PAULO (Dow Jones)--A Brazilian court Monday suspended the sale of the cargo unit of the country's largest airline, Varig (VAGV4.BR), to U.S. private equity firm Matlin Patterson Global Advisers LLC, a court spokesman told Dow Jones Newswires.

Judge Giselle Bondim Lopes Ribeiro, of the federal labor court in Rio de Janeiro, suspended the sale at the request of the national federation of civil aviation workers, known as Fentac, which claims the sale of VarigLog was fraudulent and harmful to workers.

"I accept (Fentac's) allegations and rule that the company shouldn't be sold," the judge said in the written sentence.

The court said VarigLog's value is estimated at $300 million, which is three times higher than the $100 million valuation agreed by Varig and Matlin Patterson.

The deal with Matlin, which includes the VarigLog sale, would generate a total of about $103 million in cash to cover overdue debts which threaten to shut down its operations.

A number of creditors, primarily aircraft and engine leasing firms, claim Varig has defaulted on payments and have asked a bankruptcy court in New York to freeze the airline's planes. The court is scheduled to hear the complaints on Aug. 31.

The cash-flow problems threaten to derail Varig's plan to restructure its balance sheet, which is weighed down by total liabilities of more than 9 billion Brazilian reals ($1=BRL2.34).

The airline has hired Lufthansa Consulting, investment bank UBS (UBS) and Brazilian private economic research institute Fundacao Getulio Vargas to work on the plan, which is scheduled to be presented to a Rio corporation court by mid-September.

Matlin has offered to buy 95% of VarigLog's shares for $38 million in cash. It will also prepay $50 million of Varig's receivables from airfare sales through Visa credit cards, and will provide a $15 million loan as an advance on the credit card receivables.

Varig declined comment when contacted, saying it hasn't yet been formally notified of the decision.
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Old August 30th, 2005, 04:27 PM   #56
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Brazil Varig Has No Alternative To Cargo Unit Sale -Report
30 August 2005

SAO PAULO (Dow Jones)--Brazil's flagship carrier Viacao Aerea Riograndense SA (VAGV4.BR), or Varig, could halt operations if local courts maintain a suspension of the sale of the company's cargo unit, Varig Chairman David Zylberstajn said in Tuesday's edition of local newspaper O Estado de Sao Paulo.

"Varig has no Plan B; these people are playing with fire," said Zylberstajn, referring to the National Federation of Civil Aviation Workers, known as Fentac.

Fentac represents a large share of Varig's employees.

On Monday, a local court suspended the sale of cargo unit VarigLog to U.S. private equity firm Matlin Patterson Global Advisers LLC, at the request of Fentac. The court accepted Fentac's allegations that the sale was fraudulent and harmful to workers.

Last week, Varig announced a deal with Matlin that includes the sale of VarigLog. The deal would generate about $103 million in cash to cover overdue debts, which threaten to shut down Varig's operations. However, the court said VarigLog's value is estimated at $300 million.

Matlin has offered to buy 95% of VarigLog's shares for $38 million in cash. It will also prepay $50 million of Varig's receivables from airfare sales through Visa credit cards, and will provide a $15 million loan as an advance on the credit card receivables.

Varig has said the sale of its cargo unit is the only alternative to resolve its short-term cash difficulties. A number of creditors, primarily aircraft and engine leasing firms, claim Varig has defaulted on payments and have asked a bankruptcy court in New York to freeze the airline's assets. The court is scheduled to hear the complaints on Aug. 31.

The cash-flow problems threaten to derail Varig's broader plan to restructure its balance sheet, which is weighed down by total liabilities of more than 9 billion Brazilian reals ($1=BRL2.385).
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Old September 1st, 2005, 01:59 AM   #57
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Brazil's Gol Says 3Q Loads Up - Demand, Competition Strong
31 August 2005

RIO DE JANEIRO (Dow Jones)--Brazilian low-cost airline Gol Linhas Aereas Inteligentes has seen strong load factors on its aircraft during the third quarter, and yields are recovering, albeit slowly, the airline's top finance executive said Wednesday.

"Load factors are very strong, but yields are recovering slowly," said Gol's chief financial officer, Richard Lark.

"Demand is very good. Demand is such that yields could improve even further," Lark said, speaking on the sidelines of a seminar in Rio de Janeiro.

The company had expected both yields and loads to rise during the third quarter compared with the second quarter, but prices have lagged as the market remains intensely competitive.

"There is a lot of price competition going on in the market right now," said Lark.

Earlier Wednesday, TAM SA (TAMM4.BR), the largest carrier in the domestic market, said it was cutting prices by up to 85% on certain routes in the run-up to the country's Sept. 7 Independence Day holiday.

Meanwhile, competition has also hurt the airline's ability to pass on oil- price rises to consumers, Lark said.

Since its launch in 2001, the company has usually been able to pass on about 80% of oil price rises, but in the first half of this year it was only able to pass on about 50%, he said.
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Old September 2nd, 2005, 03:47 AM   #58
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Brazil Crt Lifts Injunction On Sale Of Varig Unit
1 September 2005

SAO PAULO (Dow Jones)--A Brazilian court Thursday lifted its injunction preventing Brazil's struggling flagship airline Viacao Aerea Riograndense SA (VAGV4.BR), or Varig, from selling its cargo unit, the court said in a statement.

The Rio de Janeiro labor court said it lifted the injunction issued Monday after another court, which is handling Varig's broader debt-restructuring process, said the cargo unit, VarigLog, as well as aircraft maintenance unit VEM, are included in the process.

The planned sale of 95% of shares in VarigLog to U.S. private equity fund Matlin Patterson still requires the authorization of Rio de Janeiro's 8th corporate court, which is managing the debt restructuring.

Varig last week said it expects to receive up to $103 million from the deal with Matlin Patterson, and some of the proceeds would be used to pay debts with leasing firms accrued since it filed for protection from creditors on June 17.

Matlin plans to pay $38 million in cash for VarigLog, and will advance up to $65 million in receipts from Varig credit card sales.

"The sale of the logistics and cargo subsidiary will give Varig room to breathe," Varig's president, Omar Carneiro da Cunha, said in a statement. "Varig urgently needs cash to keep going during this period of recovery, which runs until December."

The executive sought to allay employees' concerns about the impact of the restructuring process.

"We will restructure the company always seeking to reduce the losses for creditors, including labor debts," the company's president, da Cunha said.

Thursday's court decision was the second boost in two days for Varig, and helps pull the airline back from the brink of having its operations grounded.

On Wednesday, a court in New York handling claims by international leasing firms against Varig gave the airline until Sept. 20 to settle outstanding payments.

The court decisions give Varig more time to prepare its broader plan in Brazil to restructure some 9 billion Brazilian reals ($1=BRL2.36) of liabilities, without the threat of having its operations shut down.

Varig filed for protection from creditors on June 17, and has until mid-September to present its restructuring plan to the Rio de Janeiro court.

Part of the debt-restructuring plan is expected to include the inclusion of new equity partners at Varig, and the airline has already held talks with TAP Air Portugal (TPA.YY) and a number of other groups.
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Old September 9th, 2005, 08:02 AM   #59
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Brazilian gov't to finance domestic Embraer sales

SAO PAULO, Brazil, Sept 8 (Reuters) - Brazil's state-owned development bank is preparing to loan money to a domestic airline to buy passenger jets from home-grown plane maker Embraer, the bank's president said on Thursday.

"For sure (the loan) will be ready by November," Guido Mantega, president of BNDES, as the development bank is known, said at a news conference in Sao Paulo.

Mantega did not say who the potential buyer would be, but executives at TAM Linhas Aereas , the country's leading airline, have expressed interest in buying planes from Embraer in the past.

TAM Chief Executive Marco Antonio Bologna said in June that the carrier wanted to expand its fleet to serve more regional routes, and that Embraer's next-generation planes would be ideal for the task.

TAM currently flies 21 aging Fokker 100s on regional routes.

Embraer, short for Empresa Brasileira de Aeronautica, is the world's fourth-largest civil aircraft manufacturer, with clients in Asia, Europe, North America and the Middle East. It specializes in long-range regional jets in the 70- to 110-seat niche, and also makes military aircraft and private jets.

But for all its success overseas, Embraer has been unsuccessful at selling passenger jets in Brazil, in large part due to high interest rates and a heavy tax burden.

Instead, most Brazilian airlines are Boeing Co. and Airbus customers, giving them access to cheaper credit in foreign markets where they tend to pay interest based on the London interbank offered rate, or Libor.

To make it feasible for Brazilian airlines to buy Embraer planes, Mantega said the BNDES would align its long-term interest rate with international borrowing costs, also based on Libor.

Embraer's main rival in the regional jet market is Canada's Bombardier Inc. , which currently only makes stretched versions of its old-style 50-seat commuter planes that seat up to 86 passengers.
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Old September 10th, 2005, 09:45 AM   #60
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Brazil Airline Varig Reports BRL508.7M Net Loss Jan-Jul
8 September 2005

SAO PAULO (Dow Jones)--Debt-laden Brazilian airline Viacao Aerea Riograndense SA (VAGV4.BR), or Varig, Thursday reported a net loss of 508.7 million Brazilian reals ($1=BRL2.322) for the first seven months of 2005 compared to a loss of BRL542.1 million in the same period of 2004.

Net revenue during the seven months ended July was BRL4.1 billion, up from BRL3.9 billion a year ago, while costs rose 16% to BRL3.2 billion, Varig said.

The company's financial costs fell 47% to BRL215.8 million, primarily due to BRL100 million in foreign exchange gains. The Brazilian real has appreciated significantly during 2005, reducing the cost of U.S. dollar-denominated debts.

In a statement, Varig said it will be reporting financial results on a monthly basis as part of the court-managed financial restructuring process that began on June 17.

Varig started the debt restructuring process to prevent creditors from seizing its aircraft. The company has total liabilities of more than BRL9 billion, and the restructuring plan is expected to either revitalize the struggling airline or hasten its bankruptcy.

By mid-September, Varig is scheduled to present its debt restructuring plan to the court. If authorized, the plan would then be put to creditors for their approval.

Meanwhile, a Brazilian press report Thursday said that a number of groups have presented financing plans to Varig or to the court handling the debt restructuring process.

According to the Estado news agency, a group of Italian and U.S. private equity investors have offered to invest up to $1.2 billion to buy control of Varig from the Fundacao Rubem Berta, which owns a majority of the airline's shares.

The investors are looking at a four- to five-year turnaround for Varig, according to the news agency.

Meanwhile, Brazilian businessman Nelson Tanure, owner of the Jornal do Brasil and Gazeta Mercantil newspapers, is reported to have offered to invest $90 million in Varig.

Earlier this year, TAP Air Portugal said it was interested in buying Varig shares up to the 20% maximum limit on foreign ownership of an airline imposed by Brazilian law.
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