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Last Updated: Tuesday, 13 September 2005, 08:55 GMT 09:55 UK
Revamp planned for Brazil's Varig
Varig plane
A new division would keep Varig's planes flying
Troubled Brazilian flagship airline Varig says it plans to split in two and cut 13% of its 12,000-strong workforce in an effort to stave off bankruptcy.

The plan was unveiled by Varig chairman David Zylbersztajn to tackle a debt burden of 7.7bn reais ($3.3bn; 1.8bn).

It involves transferring most of Varig's operations and assets to a new firm that will shed much of the debt.

The airline has suffered financial problems for years because of rising costs and growing low-cost competition.

Temporary split

Varig presented its restructuring proposals to a bankruptcy court in Rio de Janeiro that had given it 60 days to come up with a recovery plan.

The idea is for Varig's creditors to exchange their debts for a stake in the new company, to be named Nova Varig, which will manage most of the company's operations including its regional subsidiaries Rio Sul and Nordeste.

Once the debt problems had been resolved, Nova Varig would be merged back into the old firm, which would manage the debts and debt negotiations in the meantime, the company said.

Varig's main shareholder at present, employee organisation the Rubem Berta Foundation, which currently owns 56% of the airline, would end up with a minority stake.

Varig has called a creditors' meeting on 24 September to outline the plan to them.

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