Gordon Werner

Transbrasil restructuring good but overdue-analysts

By Nicholas Winning

SAO PAULO, Brazil, Aug 29 (Reuters) - A wide-ranging restructuring plan put forth by Brazil's fourth-largest airline Transbrasil is a step in the right direction, but one that should have been made ages ago, analysts said on Wednesday.

"I think it's an interesting development, but whether it will be too late or not is another matter," said Mauricio Levi, an analyst at airline specialists Fama Investimentos.

On Tuesday, the heavily indebted struggling airline said it was cutting its work force by about one third to 1,899 employees, planned to move its hub to Sao Paulo's city airport and sell and then lease back three Boeing 767 jets.

Transbrasil's President Antonio Celso Cipriani said the plan would allow the company, which has reportedly had trouble paying its staff and covering jet leasing costs, to post operating profits in less than two months.

"Firing a third of employees is very painful but they obviously are doing what they have to to survive," said Robert Booth of Miami-based Aviation Management Services consultancy.

But while Transbrasil's plan showed the airline was finally doing what it could to get out from under its $350 million debt load, analysts warned the move was overdue.

"In terms of cost-cutting, it's a good move," Levi said. "But they should have made the move one year or a year and a half back."

Brazil's "big four" airlines -- flagship carrier Varig , TAM , Vasp and Transbrasil -- have been pummeled by Brazil's economic downturn and an over 20 percent depreciation of the local currency.

"Leaving aside whether the companies are well-managed, the environment has been so turbulent that no airline would have been able to weather the economic swings without a big adverse impact on its balance sheet," said David Treitel, chairman of New York-based air transport consultancy Simat, Helliesen & Eichner (SH&E).

The slide of Brazil's real currency has weighed on the airlines by boosting their dollar debt and the mostly dollar-denominated costs of jet fuel, aircraft leasing and parts, in local terms.

Analysts said moving the airline's hub to Congonhas airport in the heart of Brazil's wealthiest city and away from the international airport of Cumbica on the outskirts could pay dividends by tapping the executive travel market.

But they warned that stiff competition from up-and-coming low-cost airline Gol, as well as the rest of the big four, could leave little room for the firm to charge more for tickets and may even squeeze ticket prices lower.

Analysts also said that before Transbrasil implements its restructuring plan, it must settle some tax issues with the government -- a stumbling block which could delay their mid-September target date for moving to Congonhas.

"They will have to resolve that before doing anything else," Levi said.

Aviation Management Services' Booth said a cleaner balance sheet could eventually open up new partnership opportunities down the line for Transbrasil.

Aiming to help out the troubled industry, the government has said it may consider allowing foreign companies to take a larger stake of Brazilian airlines.

Booth said Continental Airlines, which has a code-sharing deal with Transbrasil, or Delta Air Lines Inc. could be possibly interested in snapping up a piece of Transbrasil.

"Both Continental and Delta are eager to get a bigger foot in the door in Brazil and that may be the way to do it," he said.

(Additional reporting by Carlos DeJuana in Sao Paulo)