Three Major Brazilian Airline Companies Facing Financial Troubles LADB Staff

University of New Mexico UNM Digital Repository

NotiSur Latin America Digital Beat (LADB)

6-16-1994 Three Major Brazilian Airline Companies Facing Financial Troubles LADB Staff

Follow this and additional works at: https://digitalrepository.unm.edu/notisur

Recommended Citation LADB Staff. "Three Major Brazilian Airline Companies Facing Financial Troubles." (1994). https://digitalrepository.unm.edu/ notisur/11531

This Article is brought to you for free and open access by the Latin America Digital Beat (LADB) at UNM Digital Repository. It has been accepted for inclusion in NotiSur by an authorized administrator of UNM Digital Repository. For more information, please contact [email protected]. LADB Article Id: 56708 ISSN: 1060-4189 Three Major Brazilian Airline Companies Facing Financial Troubles by LADB Staff Category/Department: Brazil Published: 1994-06-16

The three major Brazilian airlines Viacao Aerea Rio Grandense (Varig), Viacao Aerea Sao Paulo (Vasp), and Transbrasil SA Linhas Aereas (Transbrasil) are in dire financial straits, which is generally attributed to years of economic recession in Brazil, plus increased competition from the expansion of US carriers into Latin American markets. The three Brazilian companies have together accumulated a total debt of US$1.6 billion since 1986 to cover operating losses, according to the Fundacion Getulio Vargas, an economic research institute located in Rio de Janeiro.

Of the three airlines, Varig has reported the most losses, accounting for US$614 million of the total US$1.6 billion. Varig, which began operations 50 years ago, is the oldest Brazilian airline, and it has acquired substantial assets and a significant share of the market. The company has US$86 million in equity, and the value of its business in 1993 totaled US$2.4 billion, up 17.6% over the previous year. Nevertheless, because of huge financial commitments and high operational expenses, its 1993 year-end balance showed US$286 million in losses. In addition to the company's internal problems, since 1990 major US airlines which are fighting their own recession in the US and a resulting drop in passengers expanded into Latin America, seriously affecting Latin American carriers.

The inability of local air carriers, including Varig, to compete with powerful foreign firms has allowed the US companies to easily monopolize air routes to and from the US (see Chronicle 06/03/93). In an effort to turn the tide, on May 17 Varig president Rubel Thomaz announced an aggressive belt- tightening plan that will mean laying off 2,650 employees and reducing the size of the company's fleet of planes. Thomaz said the decision was made after exhaustive financial evaluations and was based on the auditors' advice that cutting back was the only way to avoid bankruptcy. Not surprisingly, the other two airlines have taken similar actions in recent years. In response to its financial crisis, for example, Vasp reduced its fleet of planes from 59 in 1992 to 28 by the end of 1993. The company also reduced its personnel from 7,071 to 5,358.

-- End --