VARIG Announces US$400 Million IT Services Agreement with IBM and SITA

September 29, 1997

RIO DE JANEIRO, September 29, 1997 -- VARIG Brazilian Airline today announced it has signed information technology (IT) services agreements totaling US$400 million with IBM and SITA. The two companies will provide services enabling VARIG to focus on strategic business initiatives and enhance its position as an airline industry leader.

The agreements, the largest of their type completed in Latin America, include a facilities outsourcing contract with IBM and a managed voice and data network services contract with SITA. The IBM and SITA alliance was selected by VARIG after an extensive evaluation of several IT services providers.

"These agreements will enable VARIG to deploy state-of-the-art technology to help reduce our total IT costs, improve cash flow and gain efficiency. It will also enhance the quality of our customer service toward the implementation of the seamless travel concept for our passengers," said Fernando Pinto, president of VARIG. "By teaming with IBM and SITA we also can focus more intently on our core business and work toward extending VARIG's reputation as an industry leader well into the next millennium, especially in the Mercosur."

Under terms of the outsourcing agreement, IBM Global Services will manage VARIG's data center through IBM's MegaCenter at Sumare (SP); provide application development and maintenance for business functions such as accounting, reservations, engineering and logistics; and manage over 6,000 VARIG desktop computers including a single-point-of-contact help desk operation.

"Our agreement with VARIG leverages IBM's worldwide leadership in IT services in a way that will establish VARIG both as a technology and business leader within its industry," said Mario Bethlem, general manager of IBM Brazil. "It also demonstrates IBM's commitment to assist our customers in virtually every major industry to lead in their marketplace and utilize technology for leading-edge business solutions."

SITA will integrate VARIG's domestic data network with SITA's global network. VARIG's users will benefit from improved availability, performance and quality of service, while also enabling migration from proprietary protocols to the latest industry standard protocols and speeds required for airline communications.

"This agreement with VARIG gives SITA unparalleled domestic and global coverage and credibility in both Central and South America. It also confirms our position as the air transport industry's preferred telecommunications provider with a single, seamless global network," said Pedro Castelo-Branco, SITA vice president, South and Central America. "This is the latest development in SITA's longstanding relationship with VARIG and shows our commitment to providing the network speed, reliability, and advanced technologies required for VARIG's future success."

The outsourcing agreement leverages IBM's portfolio in the travel and transportation industry and is the first signed by a Brazilian airline. The agreement also adds to other recent IBM airline industry contracts including Cathay Pacific, Air New Zealand, Ansett, and the Russian airline reservation system called ITCS Sirena 3.

VARIG's choice of SITA as its network outsourcing partner follows recent decisions by American Airlines, the SABRE Group, Lufthansa, British Airways, Gulf Air and Galileo to outsource their networks to SITA. These agreements clearly underline SITA's capabilities in providing national and international outsourcing solutions to the air transport industry.

About VARIG Founded May 7th, 1927 in Porto Alegre, in the southern state of Rio Grande do Sul in Brazil, VARIG was Brazil's first airline and today is the largest in Latin America. Together with its sister companies RIO-SUL and Nordeste, VARIG services 96 cities in Brazil and 35 foreign destinations in 24 countries throughout America, Europe, Asia, and Africa. VARIG has a fleet of 83 jets and a commercial structure that encompasses 300 sales offices worldwide. 1996 revenue was US$3.1 billion, with a total of 10 million passengers and over 1.2 million tons of cargo. Next October 26th, VARIG will join the Star Alliance, the world's largest operational agreement among airlines. Under this agreement, VARIG will become allied with international megacarriers like United Airlines, Lufthansa, SAS, Air Canada, and Thai Airways.

About IBM IBM has been established in Brazil since 1917, with manufacturing facilities in Sumare (SP) and sales operations throughout the country, both through branches as well as an extensive channel structure. IBM Global Services delivers strategic IT solutions that help customers to transform their businesses, improve time to market, and increase shareholder value. With 1996 revenue of US$22.9 billion and 120,000 professionals in 164 countries, IBM Global Services is the world's largest IT services provider. IBM's Global Travel and Transportation Industry Solutions Unit provides a broad range of products, services and integrated solutions to all segments of travel and transportation, including hotels, airlines, and other travel-related services.

About SITA SITA, founded in 1949, is an international company owned by the world's air transport industry. SITA provides an extensive range of telecommunications and information processing services to over 630 organizations. The quality, economic competitiveness and worldwide coverage of these services have made SITA a recognized industry leader. SITA employs over 4,300 people around the world and recorded corporate revenues of US$953 million in 1996. SITA and Equant, in a joint venture, own and operate the world's largest telecommunications network, which covers over 225 countries and territories and has more than 120,000 user connections worldwide. The network offers a broad range of voice and data solutions to multinationals in a variety of industries, with local support available from over 150 help desks around the world. As a single global network, services are fully managed from end to end. These services are offered on an international scale and include global voice services, business intranet and Internet solutions, high- performance remote access services to corporate information over local dial-up lines, and many wide area network systems and services.