Varig lessor granted $50,000 per day payments on unreturned aircraft

By Caroline Salls

Pittsburgh, May 31 - Varig SA aircraft lessor International Lease Finance Corp. obtained partial approval of its request to find the company in contempt of a court order to keep current on all aircraft rent and maintenance payments, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The motion was granted to the extent of imposing a fine of $50,000 per day against the company beginning on May 23 until the company takes appropriate action in the Brazilian court to seek the issuance of all necessary documents and orders to permit the export of International Lease Finance's 737 aircraft.

In addition, International Lease Finance, "having established a basis for an award of compensatory damages with respect to the failure to properly return the 737 aircraft," can seek a hearing on related damages.

Otherwise, the motion was denied.

According to International Lease Finance's motion, on Sept. 20 the court ordered the company to stay current on the aircraft payments, but the company has failed to pay more than $2 million in rent on some of its aircraft, has failed to maintain the aircraft and has failed to return one aircraft after the lease ended and other aircraft after lease agreement defaults.

International Lease said it is entitled to have all of its aircraft returned to it.

Varig's preliminary injunction has been extended several times throughout its Section 304 bankruptcy case, amid objections from International Lease and other lessors who said the company has failed to pay rent and maintenance fees on the aircraft.

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."

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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