Although it had been remarkably well-run for most of its life as a state-owned company, by the 1980s VASP was being plagued by inefficiency, losses covered by state capital injections, and a bloated payroll for political reasons. Under the Brazilian government's neoliberal policies newly introduced at the time, VASP was privatized in 1990. A majority stake was bought by the VOE/Canhedo Group, a company formed by the Canhedo Group of Brasília and VASP employees.
Under the command of its new owner and president, Wagner Canhedo, VASP quickly expanded operations in the country, and created international routes, being the second Brazilian company to do so after 1965. However, after many years of mismanagement, financial losses, soaring debt and bad credit, in 2002 it cancelled all of its international operations to concentrate in the domestic market. By that time, VASP had plummeted from the second to the fourth position in the Brazilian airline market, flying an aged fleet of Boeing 737s (most of them of the obsolete -200 series) and Airbus A300s.
The company faced its worst crisis in 2004, which led to the suspension of service to many Brazilian cities and the cancellation of flights. As a result, VASP - once a proud, competitive airline - had its domestic market share reduced to 10%. On 27 January, 2005, Brazil's then civil aviation regulator, DAC, grounded the airline from operating scheduled services pending a financial investigation. VASP was allowed to operate charter services until April 2005, giving it a chance to prove its financial stability in order to retain its air operator certificate.
As of December 2007, VASP is still not flying. The company's only activity is providing maintenance services to other airlines (in spite of all of VASP's troubles, its maintenance expertise and personnel never ceased to be held in very high regard). It has been operating under the new Brazilian bankruptcy law since July 2006, and had its recovery plan approved in 27 August 2006. VASP had planned to fly again in late 2007, but this did not happen, and there are no signs that it will happen in the near future.