Agreed on the donor bike. I'm fixing my wife's Varsity and replaced the wheels and rd with some off a newer Schwinn. I also replaced the cables and housing. The old Varsity's are pretty easy to work on. I don't think i needed any special tools, other than a freewheel tool.

Are you just trying to get the bike rideable, upgrade it, or restore it back to it's glory days? If you want to just make it rideable and enjoyable without spending a lot of money, switch out the wheels and rusted/shot components with parts from a donor bike. You'll spend a little more on tires, comfortable bar wrap and seat, but it will be worth it if your dad likes it.

Upgrading and lightening the bike will get costly. The bottom bracket will need a conversion kit, the stem and seat post are not a standard size, and the rear triangle will have to be widened to accept a modern cassette style rear wheel.

One last comment, are the handle bars bent in a little bit, or is it just a trick from the photograph? Best of luck, and keep us posted!