Fred Cox
DC-8 Jet Collection

PANAIR DO BRASIL
ADDITIONAL HISTORY:
THE FINAL DECADE

GROUNDED BY FORCE -
THE TIME WHEN BRAZILIAN INNOCENCE DIED

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 bankrupt. 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 planes.

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 Caravelle's, 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 mine).


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