Home Business Brazilian aviation defies protectionist winds

Brazilian aviation defies protectionist winds



Although President Trump has criticized free trade policies such as the NAFTA, in Latin America in general and in the aviation sector in particular, we continue to see a variety of important market opening and cross-border developments. In Chile (Sebastian Pineda), Argentina (Mauricio Macri), Peru (Pedro Pablo Kuczynski), Brazil (Michel Temer), we have seen the rise of right-of-center leaders who more openly embrace free trade policies that the US has historically promoted.

Open Skies Agreement Developments in Brazil

Brazil has historically been protective of its local airlines and has been reluctant to embrace the open market approach to international civil aviation known as “Open Skies.”

However, the country, Latin America’s largest with a population of approximately 210 million people, has recently been badly hurt by the Car Wash scandal and economic crisis, and is looking for ways to encourage travel to and investment in Brazil. In 2011, Brazil had signed an Open Skies Agreement with the United States, but the agreement remained subject to Brazilian congressional ratification.

In late December 2017, the lower house of Brazil’s Congress approved an Open Skies Agreement with the United States. The Open Skies Agreement still requires approval of the Brazilian Senate. The agreement has the support of local airlines LATAM, Gol, and Avianca Brazil, which have announced or have potential alliances with their US partner airlines – American Airlines, Delta, and United, respectively. In particular, American Airlines and LATAM are pursuing a regional joint business agreement, which would entail antitrust immunity.

Notably, the US Department of Transportation’s policy is to not approve applications for antitrust immunity in the absence of an Open Skies Agreement. The Brazilian Competition Authority CADE approved the American Airlines – LATAM application for a Joint Business Agreement and Antitrust Immunity in October 2017, although other regulatory approvals remain including for the US and Chile.

In addition, Brazil’s center-right government is supporting separate legislation to remove limits on foreign investment in Brazilian airlines, currently restricted to 20 percent of common voting shares. Such a development would be a startling change, as many countries that embrace Open Skies Agreements such as the US and the European Union, still maintain nationality limitations on ownership of local airlines.