Plane orders have fallen heavily

US aircraft maker Boeing is considering buying into struggling Brazilian airline Varig when it merges with local rival Tam - a move that is sure to cause controversy in the industry.

Boeing has reportedly said it would consider turning the debt owed by Varig into shares in the new venture.

The move might be Boeing's only way of realising some of the money owed by Varig, which is weighed down by heavy debts and an accounting scandal that discovered wrong bookings worth $370m.

But analysts say the unusual deal could spark a furore with rivals and shareholders.

"There's likely to be a royal punch-up between Airbus and Boeing," an ABN Amro analyst told BBC News Online.

Cashing in

Under the merger proposal, Varig's creditors - including Boeing's financial arm Boeing Capital - will end up with an equity stake in the new joint company, according to the Reuters news service.

Maybe others too will come in and take a more financial role Kevin O'Toole, Airline Business Magazine

The offer is being seen by some as a last resort.

"Our business is to sell airplanes, not to have stakes in airline companies," said Ricardo Caveiro, Boeing's head of sales for Latin America.

But analysts say it could mark the beginning of a new trend in the troubled airline industry as manufacturers help airlines stay afloat.

"Maybe others too will come in and take a more financial role," Kevin O'Toole, editor of the Airline Business magazine told BBC News Online.

Mr O'Toole pointed to General Electric Capital Aviation Services, which has built up a large leasing businesses with clients such as Air Canada and US Airways.

"Before airlines were huge asset risks," said Mr O'Toole.

"But now they're shifting some of the risk to others."

Back scratching

Airline manufacturers have been increasingly offering financial assistance to airlines for the past decade.

Analysts said extending payment dates, offering extremely favourable deals and providing some debt has become a common way of securing new aircraft orders.

The last thing you want is the market flooded with used kit, stranded in the desert somewhere ABN Amro analyst

And as the industry struggles further with a downturn in travel after September 11, ongoing terrorist threats and now the Sars virus, the funding is becoming essential for the both industries to survive.

"It is in their interests to build a long term relationship," an ABN Amro analyst told BBC News Online.

"If you've stuck with them in the bad times, they're more likely to place orders in the good times.

"And the last thing you want is the market flooded with used kit, stranded in the desert somewhere."

'Rumpus'

But taking an equity stake is still an usual move and could be taking the relationship too far for some of Boeing's rivals.

Varig is in poor financial shape

Airbus and Boeing have long been competitors for the same business and analysts suggested the Varig deal could cause " a real rumpus" if it gave Boeing a preferential relationship with the Brazilian group.

"I wouldn't think Boeing shareholders would like it much either," said ABN Amro's analyst.

"If it's not going to pay, it's bad news.

"But it's in the nature of aircraft financing to have regular squabbles," he added.

Joining forces

Varig and Tam, Brazil's two biggest airlines, announced in February that they would look at joining forces.

Between them they have debts of $1.3bn but Varig is believed to be in a worse financial situation than its rival.

Earlier this year, GE Capital reclaimed some of the planes it had leased to Varig because of unpaid bills.

Boeing has taken no such action so far.

"We are partners, we have a long, long relationship," Mr Caveiro told journalists.