According to the Brazilian Aviation Code (Código Brasileiro de Aeronáutica – CBA), the exploration of public air services in Brazil depends on: (i) the prior concession in the case of regular air transportation; or (ii) authorization in the case of non-scheduled air transport or specialized services.

Until recently, the CBA restricted the participation of foreign residents in the airline companies that operate in Brazil to 20% of the voting capital. However, by means of Provisional Measure No. 714, of March 1st, 2016, the Brazilian government amended the CBA and increased this limit to 49%. This Provisional Measure came into force on March 2nd, 2016, date of its publication in the Official Gazette of the Union (Diário Oficial da União – DOU).

From now on, the concession or authorization will be granted to any Brazilian airline company with head office located in Brazil and having at least 51% of its voting capital held by Brazilians, and this limitation will also prevail in any future capital increase.

The transfer to a foreigner of the shares with voting rights that are included in the limit of 49% depends on the approval by the aeronautical authority. If the final sum of shares held by foreigners does not exceed 49% of the capital, other foreign individuals or legal entities may acquire the new shares resulting from the capital increase.

Observed the principle of reciprocity, air service agreements entered into by the Federative Republic of Brazil may provide for a limit of voting shares held by Brazilians below 51%, and this arrangement will only be valid between the contracting parties.

The Ministry of Finance reported that this change is a priority for the Civil Aviation Department of the Presidency of the Republic and aims to encourage the entry into the country of new sources of funds to capitalize on the air transport sector. The Brazilian airline companies have been suffering losses caused especially by the appreciation of the dollar against real[1].

This modification in the CAB may facilitate the admission of new companies in the air transport sector, which will increase the conditions of competition and is extremely desirable for all the stakeholders. According to the Ministry of Finance, the change in the law will enable: (i) the capitalization of the airline companies, which will have an additional financial breath; (ii) the entry of new companies in the sector; and (iii) more competition with its beneficial effects on the society.

[1] Gol recorded in the third quarter of 2015 losses valued at R$ 2.13 billion. In the same period Latam (company that brings together the operations of Chilean LAN and Brazilian TAM) had a loss of US$ 113.3 million.

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