Avoiding the word 'merger', Brazil's two major carriers have signed what they call an irreversible agreement to integrate.
The deal calls for a holding company to own the shares of both airlines. In turn, the holding company will be majority owned by the government and those creditors who capitalise their debts. TAM shareholders will own 35% and Reuben Berta Foundation, Varig's major shareholder, will own only 5%. The limited scope of its stake sparked much of the power struggle that has plagued the foundation for the past 18 months.
The accord clears the way for financial aid from BNDES, the government-owned development bank, in the form of preferential loans or guarantees of up to $600 million. Varig owes at least $800 million to creditors, including the state-owned fuel supplier, air traffic control and airports. Varig and TAM are asking BNDES to provide guarantees to creditors until their integration is complete. The agreement calls for that completion within 120 days, extendable for another 90 days. Once integration is achieved, BNDES will provide another $400 million in start-up capital.
But the plan still faces antitrust hurdles. Together, Varig and TAM control 67% of the domestic market. They have already merged some flight operations by rationalising capacity and codesharing on major domestic and several cross-border routes. Brazil's antitrust agency, while promising to be 'lenient', still has not approved a final integration. A court has now stopped the two airlines from merging operations further without the antitrust agency's consent.
Source: Airline Business
