Varig pass-through trustees ask court to vacate preliminary injunction after company emerges in Brazil

By Caroline Salls

Pittsburgh, Jan. 9 - Varig SA pass-through trustees U.S. Bank, NA, U.S. Bank Trust NA, Wells Fargo Bank Northwest NA and Wells Fargo Bank NA objected to continuation of the company's preliminary injunction and asked the court to vacate the injunction because the company has emerged from bankruptcy in a Brazilian court.

According to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York, since the injunction granted under a judicial recovery proceeding in Brazil is expiring under its own terms, the bankruptcy court injunction must also be vacated.

In addition, the trustees said they "have borne the risk of Varig's failure" for more than six months and have been compelled to provide involuntary post-bankruptcy financing at great expense, without a bond, based largely on the hope ticket of future third-party financing.

The trustees contended that Varig remains in default of its obligations under the relevant leases and has failed to meet the requirements of the court orders regarding rent, maintenance and return conditions.

According to the objection, these failures demonstrate that the court should enforce its prior orders requiring a definitive contingency plan that provides for deregistration, assembly and repatriation of the aircraft.

"Varig should not be permitted to take unfair advantage of U.S. courts to deprive the trustees of their contractual and legal rights and remedies," the trustees said in the objection.

The trustees said Varig has used their aircraft, valued in excess of $200 million, to generate significant revenue, while the trustees have not received their scheduled payments and have been kept in the dark regarding the maintenance status of their aircraft.

Varig's injunction, which 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," was extended to Jan. 13 on Friday, and the company was ordered to pay rent and maintenance fees due on the aircraft.

A hearing to consider further extension of the injunction is scheduled for Thursday.

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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