Three of Brazil's major carriers are hoping to wipe huge tranches of debt off their balance sheets, following Transbrasil's victory over the government in a dispute over fare freezes.
Varig and Vasp are waiting for joint compensation of US$5 billion against the government, after the supreme court rejected an appeal against a ruling in favour of Transbrasil. All three carriers are claiming compensation relating to government-imposed price freezes between 1986 and 1992 (see features starting on p67). Transbrasil claims the tariffs meant it could only cover between 40 and 60 per cent of costs during this period.
Transbrasil chairman Omar Fontana expects compensation to reach $720 million. Fontana does not expect to receive the money before November, as the government is stalling while it negotiates with Vasp and Varig, which filed identical cases shortly after Transbrasil.
The government is trying to negotiate down Varig's $2.8 billion claim and Vasp's demand for $2 billion compensation. Brasilia is offering to cancel the airlines' debts as part of the settlement, reveals José Martinelli, consultant at EuroLatin. The cases should be settled by the year-end.
While the amount may still be undecided, the airlines are confident that compensation is on its way. 'The court has to decide in Vasp's favour as our law suit is identical to the one won by Transbrasil,' says Elias Gédéon, assistant to Vasp's president, adding that the compensation will 'radically change Vasp's balance sheet.' Indeed, the cash infusion would wipe out the debt of all three carriers. At the end of 1996,Vasp had long-term debts of $1.2 billion, Varig $2.2 billion and Transbrasil $240 million.
Lois Jones
Source: Airline Business