Varig was Latin America's largest airline — then it was split and sold for parts

Varig was founded on 7 May 1927 in Porto Alegre, Brazil — the oldest airline in the country and for decades the largest in Latin America. From 1965 until the 1990s it was Brazil's dominant carrier, benefiting from a protected market and close ties to the military government. In 1945 its controlling shareholder became the Fundação Ruben Berta, a not-for-profit employee foundation that held 87% of the shares — an ownership structure that insulated management from market discipline for decades.

Deregulation in 1990 broke the model. The Brazilian government opened international routes to competitors VASP and Transbrasil, and foreign carriers entered the market. Varig lost its effective monopoly. Costs that had been sustainable in a protected market became a structural disadvantage. The arrival of low-cost carrier Gol in 2001 and a fare war with VASP accelerated the decline. By 2001 Varig had lost its top domestic market share to TAM for the first time since 1961; by 2004 it had fallen to third place behind TAM and Gol.

The financial damage was severe. Varig reported its first net loss of R$148.6 million in 2000, followed by a record loss of R$523 million in 2001. The September 11 attacks worsened the situation. Year-long merger talks with TAM ended unsuccessfully in 2004. Varig sold its VEM maintenance division in November 2005 and its VarigLog cargo unit in December 2005 to raise cash, but it was not enough. On 17 June 2005 Varig filed for judicial reorganization — bankruptcy protection — in Brazil.

When no buyer emerged for the whole company, the court split Varig in two on 20 July 2006. The 'old' Varig kept the debts and was left to liquidate; the 'new' Varig held the brand, route rights and Smiles loyalty program. 'New' Varig was sold at auction to Volo do Brasil for R$52.3 million (about US$24 million), then resold to Gol Linhas Aéreas in March 2007 for US$320 million. Gol cut 60% of the staff. 'Old' Varig was declared bankrupt on 20 August 2010, and the RG code and Varig callsign were retired on 19 October 2008.