Brazil judge annuls Varig sale, new move next week

By Denise Luna - Reuters

RIO DE JANEIRO, Brazil (Reuters) - The Brazilian judge in charge of Varig airline's bankruptcy proceedings on Friday annulled the results of a June 8 auction after the buyer -- which represented a group of Varig employees -- failed to make a $75 million downpayment.

NV Participacoes was the sole bidder at the auction, offering a total of 1 billion reais ($450 million), far below the stipulated minimum price of $860 million.

Judge Luiz Roberto Ayoub said the future of Viacao Aerea Rio-Grandense (Varig), now operating under bankruptcy protection and with most of its flights grounded, would be decided next week at a meeting with public prosecutors and accountants.

The options include bankruptcy, a new auction or taking bids from interested companies for Varig creditors to evaluate, the judge told a news conference whilst about a hundred Varig employees protested outside.

The judge said he would issue fresh guidelines on Monday.

"If the proposal of VarigLog is in line with what was approved in the previous general meeting, then a new meeting won't be held," Ayoub said, referring to an informal offer made by Varig's former freight delivery unit on Thursday.

VarigLog, bought in early 2006 by Brazilian investment company Volo and U.S. investment fund Matlin Patterson, offered an immediate $20 million and a total $485 million for Varig.

However the judge warned that if bankruptcy was demanded by a creditor, he would analyse the request and could eventually approve such action.

On Wednesday, Varig won a reprieve from a New York bankruptcy court which extended an injunction stopping creditors from seizing 25 of Varig's planes until July 21. But the court set a condition that Varig should be prepared to return the planes if the bid failed.

Varig President Marcelo Bottini said VarigLog's offer and Varig's fate were in the government's hands.

"The ball is now in the government's court. It wanted a market solution and we found one ... the government will decide," Bottini told reporters after the judge's decision.

Bottini said Varig's fleet will on Saturday increase to 31 from about 20, following talks with leasing companies and VarigLog.

He added that Varig staff, who have not been paid for two months, will also receive part of their salaries.

On Friday Varig cancelled 189 flights, mostly on domestic routes. An estimated 28,000 passengers are stranded overseas.

Brazil's government has five airplanes ready in Rio de Janeiro to bring Brazilian passengers back if needed, an air force spokeswoman said.

Varig, formerly Latin America's largest carrier, has more than 7 billion reais ($3.1 billion) debt and has been under bankruptcy protection for more than a year.

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