Formation and Early Years (1927–1943)
Sociedade Anônima Empresa de Viação Aérea Rio-Grandense – VARIG was the first national airline established in Brazil. It was founded on 7 May 1927 in Porto Alegre, by Otto Ernst Meyer-Labastille, a German aviator decorated in the World War I, who immigrated to Brazil in 1921 and noticed how necessary air transportation was for a large country like Brazil. Varig was an off-spring of the German trade company and airline Condor Syndikat, thus sharing the same origin as Syndicato Condor, later renamed Serviços Aéreos Cruzeiro do Sul. Condor Syndikat gave the initial operational and financial support and for a short time Varig and the sister-company Syndicato Condor operated in partnership.
de Havilland Dragon Rapide PP-VAN exhibited at the MUSAL
The first aircraft of VARIG was a ten-passenger Dornier Do J Wal flying boat, transferred from the assets of Condor Syndikat. This aircraft, named Atlântico, was also the first aircraft registered in Brazil as P-BAAA. Operations started on 22 June 1927 with a flight from Porto Alegre to Rio Grande via Pelotas. Varig inherited the route rights from Condor Syndikat which since 22 February 1927 had operated the service.
VARIG slowly but consistently in spite of difficulties added aircraft and destinations to its network initially focusing on the state of Rio Grande do Sul. On 5 August 1942 Varig began its first international route from Porto Alegre to Montevideo using its de Havilland DH 89 Dragon Rapide.
On 1941, as the United States declared war against the Axis and joined the Allies in the conflict, aviation supplies became scarce, particularly in terms of petrol and replacement parts. Because it used mostly German equipment and had a German Manager-Director (President), Varig faced particular difficulties. For this reason, Varig's first Manager-Director Otto Ernst Meyer resigned on 24 December 1941 and shareholders decided that the next Manager-Director had to be a native-born Brazilian. Érico de Assis Brasil was chosen but he died on an aircraft accident shortly after. It was in 1943 that Varig's first employee, Ruben Martin Berta, a descendant of Hungarian and German grandparents, was chosen as Manager-Director, a post he would retain until his death in 1966.
Revenue Passenger-Kilometers, scheduled flights only, in millions
Source: ICAO Digest of Statistics 1950-55, IATA World Air Transport Statistics 1960-2000
One of the first decisions of Ruben Berta was to pursue an expansion plan and to unify the fleet around only one type of aircraft. The chosen one was the Lockheed L-10 Electra. Another ground-breaking suggestion was made on 29 October 1945 when, based on social ideas found on the papal encyclicals Rerum novarum and Quadragesimo anno and on Jean-Jacques Rousseau's The Social Contract, Berta proposed and the assembly approved the transfer of 50% of Varig's shares to a not-for-profit foundation belonging to the employees. The aim of the foundation was to provide health, financial, social and recreational benefits to its employees. Decades later this foundation would be called
Fundação Ruben Berta .
A Douglas DC-3 displayed in Rio de Janeiro
In 1946, with the addition of Douglas DC-3 and later the Curtiss C-46 to its fleet, Varig was able to greatly increase its network by adding cities in the states of Santa Catarina, Paraná, São Paulo, and Rio de Janeiro, facing fierce competition with Real Transportes Aéreos, and SAVAG. On 29 February 1952, Varig bought Aero Geral, a small airline with concessions to fly from Natal until Santos. With this purchase Varig greatly enlarged its operations in Brazil, extending services beyond Rio de Janeiro until Natal along the Brazilian coast and was thus better prepared to compete with Panair do Brasil and Cruzeiro do Sul. In 1949 the Brazilian government granted to Varig the concession to fly to the United States, since the original airline which had the concession, Cruzeiro do Sul, was unable to operate the services. The inaugural flight between Rio de Janeiro-Galeão and New York-Idllwild (later renamed John F. Kennedy International Airport) was on 2 August 1955. The services were operated by three new Lockheed L-1049G Super Constellations. On 30 May 1953 flights to Buenos Aires using Curtiss C-46s started. In January 1956 Varig served 55 cities in Brazil and four abroad, being the second Brazilian airline in terms of passengers transported.
In 1954, sensing the need for more modern aircraft, new Convair 240s were purchased. The addition of the Lockheed Super Constellation and the Convair 240 provoked a deep change of mentality in the culture of Varig, with the introduction of a more cosmopolitan corporate image that would remain until 1996.
On 6 July 1959 Varig, Cruzeiro do Sul and VASP initiated the air shuttle services between Rio de Janeiro-Santos Dumont and São Paulo-Congonhas airports, the first of its kind in the world. The three companies coordinated schedules and operations, and shared revenue. The service was a response to the competition imposed by Real Transportes Aéreos. The idea, baptized as Air bridge (Portuguese: Ponte Aérea), inspired on the Berlin Airlift was so successful that it was abandoned only in 1999. Flights operated on an hourly basis initially by Convair 240 (Varig), Convair 340 (Cruzeiro) and Saab 90 Scandia (VASP). In a few months the shuttle service led by Varig won the battle against Real, which was bought by Varig in 1961. Sadia Transportes Aéreos joined the service in 1968. Between 1975 and 1992 it was operated exclusively by Varig's Lockheed L-188 Electra which for the sake of neutrality did not have the Varig name on the fuselage.
On 19 December 1959 Varig started to fly their new 35-seat Sud Aviation SE-210 Caravelle I between Brazil and New York-Idlewild, stopping at Belem, Trinidad and Nassau; on 2 July 1960, the Caravelles were replaced by the Boeing 707-441, which could fly from Rio de Janeiro-Galeão to New York-Idlewild non-stop. The Caravelles were switched to operate trunk routes within Brazil and to Buenos Aires-Ezeiza and Montevideo.
Between May and August 1961, after a lengthy battle for the Brazilian market, Varig took over the Consortium Real-Aerovias-Nacional, which was in serious economic difficulty. This purchase not only made Varig the largest airline in South America but also granted rights to other cities in Latin America, Miami, the West Coast of the United States and to Japan.
European services started on 10 February 1965. Varig had been lobbying for European concessions for more than ten years, but after the sudden shutdown of Panair do Brasil by the Brazilian military government Varig was granted rights previously held by Panair and was ordered to immediately operate all scheduled services, including Panair's flight scheduled to depart that very night from Rio de Janeiro-Galeão to Recife, Lisbon, Paris-Orly and Frankfurt.
Varig also inherited Panair's two Douglas DC-8-33 and the agreement with TAP-Transportes Aéreos Portugueses to operate the Voo da amizade (English: Friendship Flight) between São Paulo-Congonhas, Rio de Janeiro-Galeão and Lisbon, with stops in Recife and Sal, now using Varig's Lockheed L-188 Electra. Originally started on 30 November 1960 by Panair and TAP, only Brazilian and Portuguese citizens or foreigners with permanent residence in Brazil or Portugal were entitled to the purchase of tickets for these flights, which were extremely popular due to their low fares. Those flights operated until 1967.
On 14 December 1966, Rubem Berta died of a heart attack. The following day the administrative board elected Erik Oswaldo Kastrup de Carvalho, Berta's right-hand and former Panair employee, as Varig's fourth Director-President.
The 1973 oil crisis brought to Varig the need to replace its older generation aircraft with newer ones. For international, the chosen type was the Douglas DC-10, which had its first flight with Varig on 1 July 1974 and this aircraft had the range to serve European destinations including Paris without a refuelling stop en route. In the domestic arena gradually the Boeing 737-200 became the work-horse.
Still as a consequence of the 1973 oil crisis which caused many difficulties to airlines, on 20 May 1975 Varig acquired a controlling interest in Cruzeiro do Sul, which was in a particularly delicate economic situation. Cruzeiro do Sul was fully integrated into VARIG on 1 January 1993.
On 11 November 1975, the Brazilian Federal Government created the Brazilian Integrated System of Regional Air Transportation and divided the country in five different regions, for which five newly created regional airlines received a concession to operate air services. Rio-Sul Serviços Aéreos Regionais S/A was the fourth of those regional airlines to be made operational and it was established by Varig in partnership with Top Táxi Aéreo, Bradesco Bank, and Atlântica-Boavista Insurance. Its services started on 8 September 1976 and its operational area comprised roughly the Southern and parts of the Southeast regions of Brazil. Soon Rio-Sul was operating as Varig's feeder-airline.
In February 1979, Carvalho left the Presidency of Varig due to serious illness, being succeeded by Harry Schuetz for a short time, by Hélio Smidt, Berta's nephew, in 1980, and by Rubel Thomas in 1990.
The 1980s were marked by a modernization of the fleet, growth in the number of destinations and increasing financial problems originated in high inflation and in a foreign currency crisis. Furthermore, with the end of the military régime and the return to democracy in 1985, Varig lost its intimate connection with the ruling powers. In 1990, with a gradual deregulation promoted by the Federal Government, VASP and Transbrasil were authorized to fly to international destinations, breaking an almost-monopoly held by Varig since 1965 (Cruzeiro do Sul was the only exception). More international carriers were also authorized to fly to Brazil, greatly increasing competition. Slowly Varig began to lose its financial health, aggravated by the early 1990s world recession and administration problems. In 1988, a few years after the inauguration of São Paulo-Guarulhos International Airport, Varig decided to move its operational hub from Rio de Janeiro to São Paulo.
In June 1995, Varig bought 49% of the shares of Pluna Uruguayan Airlines.
In an attempt to solve its increasing problems, Carlos Willy Engels became president in 1995 and in 1996 he was succeeded by Fernando Abs da Cruz Souza Pinto, who would be the last president of the consolidation phase in the history of the company. He developed an ambitious project to bring financial and operational health back to the company. The two most visible milestones of this project were the new corporate image launched on 15 October 1996 - the first change since 1955 - and the membership of Varig on Star Alliance, as of 22 October 1997. Varig was its sixth member airline, and first to join after it was launched only 5 months earlier.
In spite of some success in the re-organization of the company, Pinto did not have full support of Ruben Berta Foundation, the controller of Varig and, as a consequence, he left the Presidency of Varig on 28 January 2000. That same year he became the CEO of TAP Portugal and successfully re-organized that airline. Pinto was succeeded by Ozires Silva, former president of the Brazilian aircraft manufacturer Embraer.
Decline and Final Split (2000–2006)
The administration of Ozires Silva, which lasted for only 2.5 years, started with major restructuring in the company, aiming at making Ruben Berta Foundation more powerful and the President-Director weaker. Also, on 28 January 2000, all cargo operations were united under a new airline named VarigLog. Even so, the airline presented at the end of the year, for the first time in its history Exposed Net Assets of BRL148.6 million - that is, the amount of debits was greater than the amount of credits and assets. One year later, it would reach BRL523 million.
In 2001, Varig saw the birth of a new competitor in the Brazilian market: Gol Airlines and increasing competition of VASP and Transbrasil fighting for survival by dumping fares. Furthermore, for the first time since 1961, Varig lost the first place in the domestic market share in terms of passengers/km for TAM Airlines. Later in the year, the September 11 attacks further increased operational and economic difficulties of Varig.
In 2002, Ruben Berta Foundation merged the administration of Varig and its subsidiary Rio Sul Serviços Aéreos Regionais (which included the brand Nordeste Linhas Aéreas Regionais). The three brands were used separately with Rio-Sul and Nordeste providing feeder services to Varig.
Year-long discussions to merge Varig with TAM Airlines ended unsuccessfully in 2004 and the same year Varig fell to third place in the Brazilian domestic market share, behind TAM and Gol.
VARIG applied to the Commercial Bankruptcy and Reorganization Court in Rio de Janeiro on 17 June 2005, for the commencement of "judicial reorganization" proceedings pursuant to the New Bankruptcy and Restructuring Law of Brazil (Law 11.101). The request was granted on 22 June 2005. VARIG continued to provide services despite its financial troubles.
In order to raise funds, the Bankruptcy and Reorganization Court decided to sell two of Varig's subsidiaries:
After two unsuccessful attempts to auction the airline as a whole, the bankruptcy court decided to split the airline in two different judicial entities, informally known as "old" Varig and "new" Varig:
- The first portion, formally called Nordeste Linhas Aéreas S/A and informally known as "old" Varig, comprised the brand Nordeste, one aircraft, debts, liabilities, legal disputes, various assets, concessions and properties of the original Varig. Since "old" Varig, could not use the name Varig anymore, the company used the brand-name Nordeste for a while and in 2008 it began using the name Flex Linhas Aéreas.
- The second portion, formally called VRG Linhas Aéreas and informally known as "new" Varig, is a brand new airline which comprises the brands Varig and Rio-Sul, Varig's route rights, all aircraft but one and the Smiles mileage program. "New" Varig was auctioned on 14 July 2006 to Volo do Brasil (owner of VarigLog) and legal procedures finalized on 20 July 2006;
Since 23 October 2007, the former Viação Aérea Rio-Grandense S/A was judicially known as Nordeste Linhas Aéreas S/A, and operated under the brand-name Flex Linhas Aéreas. On 18 August 2009, the National Civil Aviation Agency of Brazil renewed the authorization of Flex to operate non-regular passenger, cargo and postal services. Therefore, Flex operated flights on behalf of other airlines, as contracted.
Between 17 June 2005 and 2 September 2009, "old Varig" remained in Recovery Order in the 1st Business Court of Rio de Janeiro, under the leadership of Judges Luiz Roberto Ayoub and Miguel Dau. After the bankruptcy protection was lifted, the administration of the airline could have returned to its original owner,
Fundação Ruben Berta, which still owed 87% of the shares of Varig. However, Fundação Ruben Berta preferred to keep a judicial administrator.
In September 2006 "old" Varig sold its participation in PLUNA (49% of the shares) to the Uruguayan Government.
On 31 January 2007, Varig Brazilian Airlines ("old" Varig) was suspended from membership in Star Alliance for not fulfilling membership pre-requisites, and on 19 October 2008, the IATA code RG and the callsign Varig officially ceased to exist.
As a result of accumulated debts, on 20 August 2010, at the request of the airline administrator, the 1st Business Court of Rio de Janeiro declared Flex bankrupt and initiated the process of liquidation. However, on September 10, the bankruptcy process was suspended at the request of Ruben Berta Foundation and the company returned in practical terms to recovery order status until the validity of the bankruptcy is judged.
VRG Linhas Aéreas S/A was fully integrated in Gol Airlines.
On 21 July 2006, the "new" Varig canceled all its flights, except for Rio de Janeiro-São Paulo shuttle service, which remained in operation through an agreement with "old" Varig. On 28 July 2006, "new" Varig announced that it would cut 60% of its staff.
Between September and November 2006, "new" Varig announced its intentions to gradually resume some international and domestic flights. On 14 December 2006, the National Civil Aviation Agency of Brazil issued the final certificate to "new" Varig, making it fully operational. Soon after the certificate was granted, orders for 16 aircraft were announced, to bring the fleet to 31 aircraft and the operational agreement with "old" Varig expired.
Before and after relaunch in December 2006, "new Varig" struggled greatly to find a strategic partners, due to lack of credibility, affecting aircraft contracts, network and personnel inherited from "old" Varig. "New" Varig was facing monthly losses as high as US$20 million, and MattlinPatterson was unwilling to invest more money in the company, putting "new" Varig in extreme economic difficulties.
On 28 March 2007, Gol Airlines purchased "new Varig" (VRG Linhas Aéreas) for US$320 million, and announced that VRG Linhas Aéreas, the operator of the brand VARIG, would continue to operate under its original name. The transaction was completed on 9 April 2007.
The new owner radically restructured the fleet, the network, eliminated the First Class cabin from the aircraft, and gradually transformed the brand Varig into the arm of Gol Group specialized in international scheduled and charter medium and long-haul destinations. On 23 October 2007, Varig's new corporate image was unveiled, stressing the orange colour of Gol.
On 29 September 2008 Gol was merged into VRG Linhas Aéreas and thus VRG Linhas Aéreas became an airline with two different brands: Varig and Gol. As a consequence, on mid-April 2009, Varig's booking systems were integrated into Gol's and the Smiles frequent flyer program was reformulated to include Gol. In June 2009, "new" Varig ceased to operate its own flights and started to use Gol's flight numbers.
From 2006 to 2009 "new" Varig was obliged by contract to purchase a minimum of 140 hours/month of services from "old" Varig. Therefore, some of VRG Linhas Aéreas flights operated with Gol flight numbers were actually flown with chartered aircraft from Flex Linhas Aéreas.