Richard Furey is a Partner in the Structured Finance Group of Holland & Knight LLP. Lucas Scaff is an Associate in the Sao Paolo office of Machado Meyer Sendacz Opice and a foreign lawyer intern at Holland & Knight LLP.
On March 1, 2016, Brazilian President Dilma Rousseff enacted Provisional Measure 714 (Medida Provisoria), increasing the percentage – from 20 percent to 49 percent -- of voting shares in Brazilian airlines and air taxi companies permitted to be held by non-Brazilians. According to the Measure (PM 714), non-Brazilian individuals and companies would now be permitted to hold up to 49 of shares with voting rights in Brazilian airlines and air taxi companies. This relaxation of limits on foreign investment is viewed by many observers as a timely decision for the Brazilian airline sector which continues to deal with increasing operational costs and diminishing passenger demand.
History of Decision
The decision of the Rousseff government in PM 714 comes after many years of expectations and discussions among Brazilian politicians, economists and aviation executives.
The issue of foreign investment limits in key sectors of the economy has been a hot topic in Brazil since the 1990s. Gradually, Brazilian lawmakers have been relaxing – and in some cases extinguishing -- such limitations in specific sectors. Proponents of the these government actions cite the benefits of increased foreign investment such as the of the greater availability of capital to Brazilian industries and the fostering of competition resulting in the improvements and enhancements of goods and services offered to consumers.
Discussions Within the Aviation Sector
As recently as July 2014, President Rousseff had vetoed a measure that would have eliminated altogether Brazil's statutory limitation on foreign investment in Brazilian airlines and air taxi companies; instead the veto maintained the 20 percent limitation on foreign investment in the sector.
President Rousseff appears to have changed her mind by permitting the investment limitation to increase to 49 percent. However many in the Brazilian aviation market view Rousseff's action as a conservative measure and instead advocate a complete elimination of the limitation. For example, the Brazilian Senate formed a special commission to review the current Brazilian Aviation Code and propose revisions that would update and streamline the current Code. The Commission's latest proposed version of the new Aviation Code excludes any limitation on foreign ownership of voting shares.
PM 714 also creates the possibility for a foreign company to acquire up to 100 percent of the capital of a Brazilian airline through bilateral reciprocity agreements which make it possible for a Brazilian company to also acquire 100 percent of an airline in that country.
What is a Provisional Measure? Is it a Law?
As a provisional measure, under Brazilian law, PM 714 will be valid for a period of 60 days (subject to certain possible extension) by the end of which time the Brazilian Congress must approve or reject PM 714, or amend its provisions, subject to presidential veto.
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