Infrastructure / Government, Contracts and Projects

The Provisional Presidential Decree N. 714 / 2016, issued by president Dilma Roussef last week, increases the limit for foreign capital in Brazilian airline companies from the current 20% to 49%. Limit for foreign capital may be even higher than 49% depending on reciprocity agreements to be negotiated on a case by case basis with foreign governments. The transaction through which foreigners purchase voting shares in Brazilian airlines is subject to prior approval by the aeronautics authority.

Other relevant changes brought by the Provisional Presidential Decree can be summarized as follows:

- Extinction of the Additional on the Airport Tariff - Ataero as of January 1st, 2017, with the consequent determination that the National Agency of Civil Aviation (ANAC) raises airport tariffs to incorporate the amount corresponding to the Ataero;

- Amendment of the law which created Infraero, a federal public company set up to operate airports in Brazil, in order to: (I) authorize its contracting by the Federal Union in a direct manner, without the need of a public procurement proceeding; (II) authorize Infraero to set up subsidiaries and participate, jointly with its subsidiaries, with minor or controlling positions, of other public or private companies.

The Provisional Presidential Decree has immediate effects, but will only be converted into law if it is approved by Congress, within a 60-day period, which can be extended by an equal period. In case Provisional Presidential Decree is not converted into law within this period, it will loose its validity. The effects of the acts practiced during the validity of the Provisional Presidential Decree may be preserved as legal, depending on a case by case basis.

With the Provisional Presidential Decree, the Federal Government enforces some measures long discussed and that may have a positive impact in the development of the air sector in Brazil.

Particularly with the increase of the limit for foreign capital in Brazilian airlines, the Government intends to foster foreign investments in the Brazilian commercial aviation, facilitating and increasing the national and international routes and bringing new players to the sector. According to ANAC, more than 97 million passengers were transported in domestic flights during 2015. Also according to the agency, the demand for international flights grew 14% in 2015 in comparison with 2014.

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