The rapid deterioration of VASP has complicated plans by Brazil's government for Varig's rescue.
Cabinet members had hoped to unveil a restructuring of Brazil's major airline Varig by the end of the year, but nobody foresaw that VASP, the country's fourth- largest carrier, would deteriorate so quickly that its survival could demand immediate help.
The first sign of the depth of VASP's problems came in late September as employees protested that they were not being paid. Flight cancellations caused by unscheduled maintenance exacerbated the situation, and VASP then laid off 380 staff and suspended 11 domestic routes. The crisis escalated as airport and fuel suppliers demanded cash payment and called for VASP's bankruptcy. Whether it will still be flying by year-end is uncertain.
What is certain is that the question of Varig's rescue was overshadowed by broader questions about the role of Brazil's government in commercial aviation generally. Officials now speak of industry-wide restructuring, with proposals to suspend competition laws, subsidies for missionary routes, and compensation for past losses under an anti-inflation law that capped air fares. Yet, such steps alone will not solve the problems at either Varig or VASP.
Brazil's government seems willing to go farther to help Varig. One of the strongest signs is that the government airport agency helped to provoke the current VASP crisis by insisting on being paid in cash.
Defence minister Jos‚ Viegas, whose portfolio includes civil aviation, assures legislators that under no circumstances will the government let Varig die. That commitment, he explains, is because "Varig is a symbol of Brazil". He makes no similar promises about VASP.
When Viegas sketches plans for saving Varig, he stresses that it now is operating profitably, but is being "asphyxiated" by its debts. Brazil's development bank and other agencies, Viegas says, are willing to participate in financing "reasonable schemes". Taken together, these signs point to a strong government tilt in favour of Varig.
DAVID KNIBB SEATTLE
Source: Airline Business
