Varig aircraft lessor objects to injunction extension, citing unpaid rent and maintenance fees

By Caroline Salls

Pittsburgh, Dec. 15 - Varig SA lessor Aircraft SPC-6, Inc. objected to continuation of the preliminary injunction in the company's Section 304 bankruptcy case in light of unpaid rent and maintenance fees, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of New York.

As previously reported, the injunction prohibits a lawsuit, action, enforcement process or proceeding, or claim or demand of reclamation for any leased aircraft and keeps creditors, employees and utility providers from terminating contracts for goods and services that would "threaten the contemplated restructuring."

The injunction currently expires Dec. 22.

Aircraft SPC-6 said Varig owes it $342,000 for pre-bankruptcy rent and maintenance reserves for airframe, engine and landing gear hours and cycles used on a monthly basis and $509,771 for the same expenses incurred since filing for bankruptcy.

According to the objection, because Varig has continued to operate the leased aircraft continuously during the pre- and post-bankruptcy periods to its benefit and continues to consume the maximum amount of hours and cycles on the aircraft and engines every day, both engines now require extensive maintenance that will cost more than $3 million.

Aircraft SPC-6 said if Varig fails to perform its maintenance obligations, the lessor alone will face the considerable costs.

According to the objection, Varig's foreign representatives announced on Nov. 9 that the company had received all necessary approvals for the purchase by TAP-Air Portugal of VarigLog and VEM for $62 million and that the purchase of credit card receivables for more than $40 million would be consummated within two to three weeks.

The funds were earmarked for "long overdue, and in some cases urgent, maintenance of the aircraft fleet."

Aircraft SPC-6 said Varig's foreign representatives' declarations gave the aircraft lessors reason to be cautiously optimistic.

"Unfortunately, Varig's predictions have not materialized. Instead, its position has deteriorated," the lessor said in the objection.

The company said it also fears for the safety and security of its aircraft.

A hearing on a further extension of the preliminary injunction is scheduled for Wednesday.

Varig, a Rio de Janeiro, Brazil-based air carrier, filed for Section 304 bankruptcy on June 20. Its case number is 05-14400.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.