LAN's interest in Brazil's New Varig has spawned a broader proposal to take over the struggling airline.
TAM senior officials and members of the Amaro family have visited the Cueto family that controls LAN to discuss a joint purchase offer for New Varig. The two families historically have been close and their airlines have co-operated before on such undertakings as a joint Airbus order.
LAN's $17.1 million loan to New Varig in January gives it a right to convert that loan into New Varig shares up to the 20% cap allowed for foreigners under Brazilian law. According to local sources, TAM is proposing that TAM and LAN buy a larger stake in New Varig, which they apparently could as long as LAN does not own more than 20% of the voting rights.
At this point it is not known whether they would attempt to buy all of New Varig, how they would divide stakes between them, or what the attitude of Brazil's competition agency would be to such a takeover.
US hedge fund Matlin Patterson now owns 20% of New Varig through Varig-Log, which owns New Varig. Unless Matlin Patterson were willing to sell, LAN would be unable to buy because of the foreign cap.
Matlin Patterson appears willing to sell and even suggested that LAN approach GOL about a joint bid for New Varig. But GOL claims it is not interested because it wants to focus on its fast-growing and successful low-cost model, including expansion to other Latin American countries.
Nonetheless, insiders suggest that TAM's interest in a joint purchase of New Varig is driven at least in part by a desire to block GOL from doing the same thing. Aside from any takeover, TAM is also looking at New Varig's overseas routes. New Varig is expected to abandon its Frankfurt route because leases on two Boeing MD-11s are expiring and no commitments for replacement aircraft are in place. TAM is interested in the route, but would need an interline deal to handle the substantial volume of Brazil-Europe traffic that connects through Frankfurt.
Other overseas routes could become available in June when New Varig's use-or-lose deadline on them expires. Varig previously served eight European destinations. It is now only serving Frankfurt although it had hoped to re-launch flights to London and Madrid.
Source: Airline Business
