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Brazil's airline rescue plan shrinks further to $680 million

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FILE PHOTO: Man wears a protective mask at Brazilian GOL Airlines check-in at Guarulhos International Airport
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By Carolina Mandl and Rodrigo Viga Gaier

SAO PAULO/RIO DE JANEIRO (Reuters) - Brazilian state development bank BNDES proposed a rescue package worth 4 billion reais ($680 million) for the nation's airlines, less than half the amount initially anticipated, Azul SA's Chief Executive John Rodgerson said on Thursday.

Rodgerson confirmed reports on the rescue size on an analysts' call, saying he was "disappointed" with the value but that he understood Brazil lacked resources for a larger bailout.

It will take some 45 days before Azul receives any funding, he said.

The plan, which first centered around a 10 billion reais credit line, has shrunk in value over time as private lenders balked at extending bigger loans and because the airlines were reluctant to accept larger share dilution, said two sources who declined to be identified as the discussions were private.

Gol Linhas Aereas Inteligentes SA and Azul may now receive 2 billion reais each. It is unclear if a deal will be reached with Chilean LATAM Airlines Group, which has an extensive route network in Brazil, although it has also been offered up to 2 billion reais.

BNDES, Gol and LATAM declined to comment.

Brazil's airlines have been forced to ground most of their fleet due to the coronavirus pandemic, like their peers around the world.

BNDES will provide up to 60% of the amount, while private banks will contribute around 10%, with the remainder expected to come from institutional investors, the sources said, adding that the plan could still change.

Companies will receive the 75% of the funds by issuing 5-year bonds. They will be freed from making interest payments during the initial year. The remaining part of the rescue will come from the issuance of convertible debt.

BNDES, banks and investors in the rescue plan will gain a total return of up to Brazil's interbank benchmark rate plus 14% per year, the sources said. Still, those gains may change, depending on investors' appetite on the day of the pricing.

One of the sources added the rescue plan restricts airlines' dividends, compensation levels and how they use the funds.

BNDES is also in talks with local units of carmakers such as General Motors Co, Fiat Chrysler Automobiles NV, Volkswagen AG and Ford Motor Co about potential aid, but the parties remain deadlocked over the question of collateral.

Carmakers have offered tax credits as collateral for the aid, but BNDES and banks are reluctant to take it, one of the sources said.

Daimler AG Latin America head Philipp Scheimer said on Thursday there was "no easy solution" to resolve the differences.

($1 = 5.8852 reais)

(Reporting by Carolina Mandl in Sao Paulo and Rodrigo Viga Gaier in Rio de Janeiro; Additional reporting by Marcelo Rochabrum and Alberto Alerigi; Editing by Edwina Gibbs and Richard Chang)