BRAZIL'S VASP, LOCAL INVESTOR BUY ECUADOR'S GROUNDED AIRLINE

BRAZIL'S VASP, LOCAL INVESTOR BUY ECUADOR'S GROUNDED AIRLINE

The government of Ecuador has sold its flag carrier, Ecuatoriana de Aviacion SA, to VASP/Ecuador, a consortium of the Brazilian airline Viacao Aerea Sao Paulo SA, known as VASP, and Ecuadorean investor Juan Eljuri.

VASP/Ecuador was the winning bidder for a 50.1 percent stake in Ecuatoriana, which stopped operating in 1993. The VASP/Ecuador bid, valued at about $32.9 million, included about $10.5 million in cash to the Ecuadorean government, and $64.2 million in resources for the airline, to be contributed over the next five years.Those resources will include working capital, aircraft-rental subsidies, flight and operating systems, financial systems, marketing, management, maintenance and the reservation system.

A consortium formed by Prudential Securities Inc., Aviation Management Services and Simat, Helliesen & Eichner Inc. advised the Ecuadorean government on the sale.

Despite the fact that Ecuatoriana has not flown a single passenger in two years, investor interest in its privatization was intense, the financial advisers said. The valuation of Ecuatoriana as a percentage of annual revenue was one of the highest of any Latin American airline privatization in recent years, they said.

Christian Slavin, a director in the mergers and acquisitions group at Prudential Securities in New York City, said the airline was attractive not only because of its extensive route rights, which include every major country in South America, several major U.S. and European cities, and Mexico, Central America and the Caribbean, but also because Ecuatoriana was free of any

financial or contractual liabilities.

He added that structuring the bid process, to credit potential buyers both for the cash paid to the Ecuadorean government and for resources invested to revitalize the airline, also heightened the carrier's appeal.

Ecuadorean law requires the government to sell an additional 24.9 percent of Ecuatoriana through one or more public offerings, after a minimum of 180 days from the closing of the VASP/Ecuador purchase.