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Panair Do Brasil - Grounded By Force

Tue Nov 30, 2004 4:59 pm

Hello all,

This is a very interesting article written from a friend for a new book...

by Daniel Sasaki

Panair do Brasil was completely nationalized in 1961, when powerful
Brazilian businessmen Celso da Rocha Miranda and Mario Wallace
Simonsen acquired the last Pan American shares. In April 1964 the
Brazilian civilian government was overthrown by the gathered
military forces, which initiated a harsh dictatorship in the
country. It turns out that the new owners of Panair, who also had
dozens of other companies, including TV Excelsior (Brazil's greatest
network of the time), Comal and Wasin S.A. (coffee export
industries), were bent on supporting civilian leaders. Therefore,
they were against the 'Revolution'.

In mid-1964, there were rumors floating by that Panair was going to
suffer an intervention, under the false pretext that its board of
directors was corrupt and ruthless and that the company was
suffering heavy financial losses. No one knows exactly why - though
there are sound theories - this decree of intervention was turned
into one of temporary cancellation of flight concessions
[operations]. The company was operating normally on February 10th,
1965, when a simple telegram arrived on Santos Dumont Airport,
informing the president of Panair, Paulo de Oliveira Sampaio, that
the lines were being suspended and immediately transferred to Varig.
The news arrived at Galeao Airport just minutes before a Panair DC-8
(PP-PDS) was departing to Frankfurt via Recife-Dakar-Lisbon. The
DC-8 never left the ground in Panair do Brasil colors again. On the
other hand, somehow, Varig had a Boeing 707 (PP-VJA) prepared and
ready to go to Europe. At that time, Varig only flew to the US and
Japan, which raised doubt as to how they managed to replace Panair
so quickly.

While Panair's installations, hangars and agencies were being
surrounded and taken over by armed soldiers, the company gathered
its lawyers to try and protect itself from the arbitrariness [of
these actions]. Still startled by the abrupt and unexplained
cancellation of its flight concessions, the airline filed for
bankruptcy protection after they heard that the Central Bank of
Brazil was going to protest its titles immediately. As a matter of
contextualization, all four major Brazilian airlines of the time
(Panair, Varig, Cruzeiro, Vasp) were in debt with the Government.
Back then, due to the need of national integration, the State
granted subventions [financial aid] to airlines based on the mileage
flown. In 1961, subvention to the [airline] industry consisted in an
annual pack (aid) of US $10 million (being USD $1 = Cr$ 320). By
1964, [the] US$ 1 corresponded to Cr$ 1,850 - yet the annual pack
wasn't updated to meet the companies needs. As a result, ALL of them
ran into debt. As the Government couldn't update those values
because of the general economic crisis, the Central Bank allowed the
industry to declare partial and temporary moratory [authorizing
delay in payment]. Panair was the one which had the lowest debt of
all. Yet, somehow, its titles were being exclusively protested.

In three days the judge denied the protection and turned the request
into insolvency, under the argument that with its concessions
[operations] cancelled, the airline would not have additional income
and, therefore, would not be able to solve future compromises [meet
future obligations], eventually going backrupt. He did not even take
into consideration that Panair do Brasil had other sources of
revenue, for instance, the maintenance service provided in its
advanced hangers to foreign airlines, its strategic Communications
Department, or even its subsidiary Celma, a technological complex of
engines revision [maintenance], which served all airlines that flew
to Brazil, the Brazilian Air Force, and was the only Latin American
maintenance company certified by the FAA to care for US-registered
Crews [of Panair] went into the streets in uniform, to call on
popular support (Panair was extremely well liked for its
philanthropic activity in [the] Amazon and the promotion of
Brazilian Culture outside [the country]. A group of flight
attendants set camp in front of the Government Headquarters in Rio,
determined to remain there until someone answered to them. They were
given tents and blankets by neighborhood residents. The most
prominent pilots, on the other hand, contacted the Red Cross and
other institutions to ask for food donations, as the most humble
employees were already facing huge difficulties due to the sudden
loss of their jobs. Things neared chaos, as suicide and hunger
became commonplace in the hanger at Santos Dumont Airport, where
Panair workers met on a daily basis to organize their resistance.

The situation continued for months and, aside from the public
opinion support, the only thing the State did was expropriate Celma
and other assets without reimbursement. According to Brazilian labor
law (Art. 486 CLT), all 5,000 employees should have been paid
reparations by the Federal Government. But as time progressed and no
on had got anything, Panair, used its own reserves to assist its
dedicated workers, who were taking their children out of school.
After strong resistance because of their aversion to Varig, about
1,000 employees were taken up by that airline. Most of the pilots
went to Europe to fly for TAP and Swissair. The others just managed
[any] way they could. A few hundred ground personnel were admitted
by Rio's Traffic Department.

By 1969, most of the creditors had been paid, which shows the
extraordinary financial potential of the company. The lawyers,
however, noticed that Varig and Cruzeiro - heirs to the DC-8s and
Caravelles, respectively - were paying an irrelevant [ridiculously
low] price for the leasing of the Panair aircraft. When they
[Panair] appealed to the Government, Decree 496 was created on March
11th 1969. It expropriated the airplanes, its components and
equipment [from Panair]. Leasing taxes were kept.

What the Government didn't anticipate is that by expropriating the
planes, it ceased to be a creditor (it demanded NCr$ 70,931,960,41
while the planes and equipment were worth NCr$ 79,684,892,43). The
judge considered the debt paid and excluded the State from the
creditor's list. Then, Panair do Brasil planned its return.
Brazilian law demands the payment of at least 35% visible and [the]
rest in two years. Panair offered to pay 100% of the lasting debts
visible in June 2, 1969. Still not satisfied, the Government, then,
re-evaluated the debt, irregularly adding an extra Cr$
112,547,499,95. In addition, it created yet another juridical
weapon, Decree 669, of July 3rd 1969. In its three short articles,
it forbids airlines to ask for bankruptcy protection and to return
after being shutdown, and it applies to the cases in appreciation
[progress]. The judge accepted the State's new arguments and, as he
denied the company's new plea, he ordered that all its assets be
auctioned and the money reverted to the Government.
The L-049 Constellations, which had been left to rust at Galeao
Airport, were sold like old pans. On July 3rd, 1969, Panair do
Brasil had a juridical death. On that day, perhaps the last
remainder of Brazilian innocence died. As the years progressed, the
dictatorship worsened. Politics may have killed the airline, but it
did not kill its ideals. It's been 40 years and yet, since 1966, the
former employees religiously gather for a reunion in October to
celebrate the company's anniversary.

The bankruptcy was suspended only in May, 1995 -- thirty years
later. By then, Varig had acquired [a] virtual monopoly of
international lines [routes] leaving Brazil and Panair was only a
memory of the good old days. The Rocha Miranda family still waits
for justice.

Best regards,
Daniel Sasaki
Many thanks to Daniel for this in depth article describing the fate
of one of the Great Airlines of Brasil (and a personal favorite of

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