Varig and TAM have already started their integration before deciding on its final form, and Brazil's new government has approved some of their initial steps.
In response to the problem of Brazil's chronically overcrowded skies, the two carriers agreed to reallocate capacity and codeshare on 113 flights affecting nine major domestic routes. At the same time, Varig announced plans to return 13 leased aircraft, including six Boeing 767-200s, to GE Capital Aviation Services (GECAS) as the first step in a major fleet rationalisation.
Brazil's competition watchdog, the administrative council for defence of the economy (CADE), suggested at first that it would be flexible about the merger plans of Brazil's two biggest airlines, but it became concerned when it saw that their interim steps could settle the final shape of the integration before it had a chance to review anything. So it demanded and the airlines agreed to refrain from any irreversible steps before it ruled on their legality.
With this stand-still agreement in place, CADE then reviewed the code-share pact and approved it. But the watchdog has told Varig to delay plans to return any aircraft used on domestic routes, and has ordered both airlines not to share prices or strategic information until it has had time to review their plans. It is also possible that CADEmay make Varig sell one of its regional subsidiaries, either Rio-Sul or Nordeste.
Four days after CADE's order, GECAS seized one of Varig's 767s in Miami. Varig now plans to return the rest, and could also return three Boeing MD-11s to GECAS.
TAM and Varig are ignoring a call from Wagner Cahedo, VASP president, to include his airline in a three-way integration. Cahedo has been repeating this suggestion over several years, but the two other carriers seem no more interested in it now than they have before.
As a next step in their proposed integration, Varig and TAM are discussing how to consolidate operations on three international routes: Miami, Paris and Lima. They hope to reach agreement on the final form of their integration by June.
Source: Airline Business
