Empty Pockets.

Brazil's main international airline, Varig, is facing an imminent cash shortage that could lead to the grounding of more aircraft or even the entire fleet.

Varig last week asked the Brazilian government for financial support, either through additional loans or a temporary waiver on payments due the state-owned airport authority and fuel supplier. Brazil's airport company Infraero gave the airline until late last week to resume payments for ground-handling services and landing fees.

The airline has been facing the constant threat of aircraft seizures and shut-down for months, as it failed to pay its bills to lessors and other creditors. Varig owes its main pension fund 2 billion reals ($940 million) and last month did not make a scheduled payment of 9 million reals. Its total debt is estimated at around 7 billion reals. The airline is understood to have grounded 17 aircraft because it cannot afford to pay for necessary maintenance of them.

A court-supervised bankruptcy restructuring is continuing,which includes a Chapter 11 filing in the U.S. Bankruptcy Court for the Southern District of New York. The court last month extended an order to allow Varig to keep using a number of leased aircraft until Apr. 28. The airline had argued that operating the leased aircraft was a key element of a restructuring plan approved by its creditors as part of the Brazilian bankruptcy filing.

Varig is the only South American Star Alliance member, and is key for the group in the region. But to date, Star has made no indication it will come up with financial support. Star Alliance chief executives met late last week in Zurich and Johannesburg to welcome Swiss International and South African Airways to the group.

"Our cash flow is very limited as a result of the low travel season," CEO Marcelo Bottini said last week. Varig has no further access to credit lines and has already tallied many advance payments on receivables, so it has to live on its daily income. Commenting on the possible loan, Bottini said, "we are hopeful that the government will consider this. We would be able to repay the line in the second half of the year." According to Brazilian union officials, the airline is asking creditors to waive due payments for 60 days to allow cash reserves to build up.

SEPARATELY, Varig's former cargo subsidiary, VarigLog, offered to buy the passenger airline for $350 million last week. Earlier this year, to bolster Varig's cash reserves, VarigLog was sold to U.S. private equity fund Matlin Patterson and Volo do Brasil, a group of Brazilian businessmen. The Volo do Brasil group suggests cutting 5,000 of the airline's 10,700 jobs, reducing the fleet to 48 aircraft from the current 70 and focusing on its international network. Of the $350 million, Volo do Brasil says the airline should use $200 million to pay off debt and $100 million to complete maintenance work on grounded aircraft.

The plan has drawn mixed reactions. "The company has reached a critical point. Without a cash injection, they will simply stop," Sao Paolo-based analyst Marcelo Ribeiro says. Varig's CEO Bottini urges that "we need a solution on the investment issue very soon." But union representatives call the proposal "a disaster." Varig is still majority-owned by its workers, represented by the Rubem Berta Foundation, which has so far blocked the airline's sale to avoid job cuts.

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By Jens Flottau, FRANKFURT