Chase Manhattan Bank has entered the fray on a $2.7 billion debt restructuring by Brazil's Varig SA, the largest airline in Latin America.

The bank was hired Tuesday as financial adviser to Varig's pilots union, which is seeking a role in the restructuring effort. Bankers Trust is advising Varig management.

Varig initiated talks with its creditors in March, when it suspended its debt and lease payments.

The airline has been hurt by increased competition in its North American routes, excess aircraft orders, and high employment levels.

Agreement Reached

On Thursday, Varig said it reached agreement with one of its creditors - International Lease Finance Corp. - on a restructuring of eight aircraft leases.

Among the airline's other creditors are Citicorp's Citibank unit and Brazilian and Japanese lenders.

Earlier this month, Varig said it was laying off 2,600 employees, or more than 10% of its workforce, but more job cuts appear necessary.

Chase officials said Varig's pilots union would consider various concessions to help the airline return to financial health. But the pilots also want to make sure that the sacrifices are not one-sided, the Chase officials said.

It's unclear, though, whether wage cuts and the like would be of much help. The main problem at Varig appears to be employment levels, not wage levels, some observers say.

Varig workers beneficially own 87% of the airline's voting stock, which is held in trust by a nonprofit foundation managed by airline employees.

Other Unions

For now, the pilots are the only one of Varig's unions to have hired a financial adviser. There are also unions representing the airline's flight attendants, flight engineers, and ground crews.

The other unions have apparently agreed for the time being to follow the lead of the pilots union.

As part of its agreement with International Lease Finance, Varig said it will return three Boeing aircraft within the next four months. Leases for five other aircraft will be restructured.

Varig chairman Rubel Thomas said the agreement "accommodates Varig's need to reduce excess capacity in its fleet as part of its restructuring efforts."

The $2.7 billion of debt and leases that is being restructured includes some off-balance sheet obligations. Included in the debt are four Eximbank financings, totaling some $750 million.

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