Brazilian airline Varig, which is on the verge of bankruptcy, was acquired at auction on Thursday by VarigLog, its old cargo subsidiary, for a base price of $24 million, according to EFE news wire. The new owner of Brazilian carrier Varig announced Thursday it was immediately halting all international and national flights except those between Rio de Janeiro and Sao Paulo.

VarigLog, now controlled by U.S. investment fund Mattlin Patterson and Brazilian investors, was the only firm that participated in the auction of what was once Brazil’s flagship airline.

Varig’s recovery plan divided the firm into two parts and at the auction only the so-called “operational Varig” was sold along with its 13 aircraft, the right to use the Varig brand name and its national and international routes.

The part of the firm that was not sold, the so-called “old Varig,” inherits the airline’s other capital assets, as well as its roughly $3.5 billion debt.

The “old Varig,” which remains in bankruptcy proceedings, also retains one aircraft to operate a route between Sao Paulo and northeastern Brazil, and it will have to lay off the majority of its 9,000 employees, since it will function with just 50 workers.

In the complicated financial operation designed for Varig’s sale, some 1,500 “old Varig” employees will be transferred to the “operational Varig,” an option that the firm feels is better than definitive bankruptcy.

The part of the firm acquired by VarigLog also will have to contract for services offered by “old Varig,” including the issuing of tickets and the renting of hangars, to guarantee that part of the company the cash flow it needs to meet its financial obligations.

VarigLog also will have to assume responsibility for the $112 million worth of tickets issued to date by Varig, as well as fulfill its commitments to provide tickets acquired through its “Smiles” travel miles program.

The purchaser of the firm will also have to issue bonds for $46 million with a 10-year recovery term.

“For all those who bet that Varig was going to die, today a new Varig is being reborn. Don’t be afraid. We’re betting on the future,” said airline president Marcelo Bottini after the auction.

The Varig auction was postponed several times in the past few weeks by Rio de Janeiro’s Eighth Business Chamber, which is coordinating the recovery process, due to disagreements among creditors, unions and other interests within the firm.

On June 8, Varig had been purchased for $480 million by the NV Participaciones consortium, but that sale was declared unconsummated a few days later because the winning bidders did not come through on their offer. EFE
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