Paul Lewis/RIO DE JANEIRO
Varig wants to make more cuts in the size of its fleet. The Brazilian flag carrier has opened talks with leasing companies to reschedule payments after a two-month suspension, as it continues to battle the fallout from the country's economic crisis.
The airline has been severely hit by the triple effects of increased costs, a massive drop in revenue and the loss of rolling credit as a result of Brazil's recent currency devaluation. "All three of these things have combined to make life very hard for us," says Varig president Fernando Pinto, speaking exclusively to Flight International.
He reveals that overall revenue in March fell to $144 million, compared to $229 million for the same period last year. About 70% of Varig's earnings are derived from international traffic, of which 80% comprises Brazilians who have been forced to curtail travel by a weaker real. In addition, says Pinto, "there has been a huge impact on domestic revenue".
Varig has tried to counter this by abandoning services to Atlanta, Orlando, Porto, Washington DC and Zurich, in addition to earlier cutting Amsterdam and Hong Kong (Flight International, 31 March-6 April). This has allowed Varig to withdraw all four of its McDonnell Douglas DC-10-30s, one of which has already been returned to its lessor. The rest are for sale. The airline is also disposing of six of its 17 Boeing 737-200s.
This equates to a 6% cut in seat capacity, but still falls short of what is needed. International traffic has dropped 17% and domestic traffic 13%, which in turn has pushed load factors down to 60%. "Looking forward, there must be more reductions so that we can get to something like a 70% load factor. That's our goal internationally," says Pinto.
Varig, accordingly, is planning to dispose of another six aircraft and eventually reduce its total fleet to 75, but has not decided on which type. Its fleet today numbers 95 aircraft, including 13 Boeing MD-11s, 22 Boeing 767s and 33 737-300s. Two-thirds of Varig's fleet is leased and the reduction in the value of the real has pushed its monthly equipment expenditure up to $40 million.
Lease payments are restarting after a two-month suspension, says Pinto. The carrier wants to reschedule these payments and has opened talks with 20 leasing companies, including Boeing, General Electric Capital and International Lease Finance. Additional remedial measures include axing a further 2,300 of Varig's 17,800 employees over the next two months.
Source: Flight International
