Varig injunction extended to Jan. 13; court orders company to pay aircraft lessors

By Caroline Salls

Pittsburgh, Jan. 6 - Varig, SA's preliminary injunction in its Section 304 bankruptcy case was extended until Jan. 13 and the company was ordered to pay overdue post-bankruptcy aircraft rental and maintenance fees, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

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."

Objections to the injunction from lessors Ansett Worldwide Aviation USA, Central Air Leasing Ltd., U.S. Bancorp, Wells Fargo & Co. and Aircraft SPC-6 Corp. were overruled.

However, the court did order Varig to pay the lessors using proceeds in excess of the $62 million already paid to the lessors from Banco Nacional de Desenvolvimento Economical Social's proposal relating to the sale of subsidiaries VEM and Varilog.

The company must also pay the lessors using excess cash flow, the net proceeds payable to the company under an agreement between Varig and GE Commercial Aviation Services LLC, three-quarters of the net proceeds of proposed financing by Banco Efisa for Visanet performed receivables and an additional $5 million.

A hearing on further continuation of the preliminary injunction is scheduled for Jan. 12.

Varig, a Rio de Janeiro, Brazil-based air carrier, filed for Section 304 bankruptcy on June 20, 2005. Its case number is 05-14400.

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