To Be Split Into Two Companies

What's this? A rather abrupt about-face by creditors of the financially waterlogged Brazilian flag carrier Varig.

One day after they turned down an offer from the company's one-time cargo-wing, VarigLog, creditors have now given their okay to the sale of the airline for a combined half-billion dollars.

"Today a new Varig is reborn," the airline's chief executive, Marcelo Bottini, said to an audience of about 1,000 Varig employees who attended the auction.

The move comes on the very day Varig assets were to go up for auction, and the airline was set to fade into aviation history... another footnote in the post-9/11 era.

Under the program, the Volo do Brasil investment group -- representing Variglog -- bought Varig for $24 million... and pledged to invest another $485 million to resurrect the 79-year-old airline. That's on top of the $20 million the group has spent keeping Varig flying in recent weeks... money that is now considered a down payment, of sorts.

The task of rebuilding Varig won't be easy... and, in the end, it won't be the same airline.

Reuters reports that under the deal, Volo will get most of Varig's routes, as well as most of its planes -- which has dwindled to 13 aircraft, from 60 just a few months ago. It will also take over Varig's "Smiles" frequent flyer program, which has six million members.

What Volo WON'T get, however... not that they mind... is the debt load Varig incurred, that led to its filing for bankruptcy protection. That pricetag -- more than $3.1 billion -- will be paid back by long-time shareholder the Ruben Berta Foundation

It will not, however, inherit Varig's crushing debt load of more than $3.1 billion. That will have to be paid back by another company run by Varig's long-time controlling shareholder, a nonprofit group called the Ruben Berta Foundation.

In the end, VarigLog was the only bidder for the whole kit-and-kaboodle. There were auctions... but no one else came to bid.

FMI: www.varig.com