TAP-Portugal in Talks to Buy Varig Stake, Denies Interest in Merger

TAP-Portugal is in talks with heavily indebted Brazilian carrier Varig to buy a stake in the airline, Latin America´s largest, but has no interest in a merger, TAP president Fernando Pinto said.

He told Lisbon-based news radio TSF that TAP, Portugal´s biggest airline, wanted to acquire 20 percent of Varig, the maximum allowed under Brazilian law for a foreign company.

"They will always be two independent companies, there is not the slightest chance of a merger, that is not the idea," said Pinto, who is Brazilian and a former president of Varig.

Varig announced in Brazil earlier on Monday that it had signed a memorandum of understanding with TAP which may lead to the Portuguese airline making an investment in the firm.

TAP said in a statement that it had decided to open talks with Varig because the airline´s controlling shareholder, Fundacao Ruben Berta, had announced that it wants to cede control of the troubled carrier.

Earlier this month Portuguese business daily Jornal de Negocios, citing TAP documents, reported that the state-owned airline had proposed a financial restructuring plan to Varig which would see it acquire a 20 percent stake in the firm as well as control of the airline.

The report said the plan would see Varig change its corporate structure and bring more investors into the airline, whose debt stood at around 2.3 billion dollars (1.8 billion euros) at the end of 2004.

TAP offers some 40 weekly flights from Portugal to Brazil, a former Portuguese colony, and relies on Varig to offer its passengers connecting flights within the Latin American country.

The Portuguese carrier is the European airline with the most flights to Brazil and wants to become a hub for travel from the continent to the country, which is becoming an increasingly popular destination for European tourists.

TAP and Varig are members of the Star Alliance, the world´s largest airline partnership, which is led by Germany´s Lufthansa and United Airlines.