Judge Luiz Roberto Ayoub said on Friday the TGV workers' group, which had made the sole bid for Varig airlines at a bankruptcy auction on June 8, failed to make the $75 million first deposit required under the auction's rules.

There are an estimated 28,000 people abroad with Varig tickets between this week and June 30. Among them are 13,000 in Europe, many of them Brazilians in Germany for the World Cup.

On Friday, the Brazilian air force put five planes at the government's disposition should it need to rescue stranded passengers.

By annulling the bid, Ayoub said he would refer the case to prosecutors and the company's bankruptcy administrators to decide whether to liquidate the company, order a new auction or hold meetings between creditors and the company.

Drama extended

Ayoub said the fate of the company would only become clear next week, further extending a drama that has dragged on for most of the month.

On Wednesday, the 79-year-old Viacao Aerea Rio-Grandense SA, or Varig, suspended indefinitely the majority of its flights. On Friday, Varig had cancelled a total of 142 flights by 2pm local time (1700 GMT), according to the national airport authority.

Ayoub confirmed that a company called Volo do Brasil had offered $500 million for the airline if TGV's bid is rejected. Volo earlier this year purchased Varig's cargo subsidiary unit, VarigLog.

But Ayoub said that proposal was not within his jurisdiction since it wasn't made at the auction.

Oddly structured

TGV's $449 million offer for Varig was far below the minimum bid set at $860 million. The bid was oddly structured, offering about half of the amount in new unsecured bonds in Varig.

Many questioned whether the consortium, formed by Varig workers and unidentified partners, had the money to cover the sale.

Other domestic and international airlines have geared up to take over Varig's routes if the company is broken up, but there could be an overwhelming crush of passengers trying to get back to Brazil if the carriers can't meet the demand.

Authorities insisted that some airlines were accepting government pleas to honour Varig tickets, making it possible for Brazilians who got stuck overseas to return home - despite delays that sometimes last days.