1 Legal framework
1.1 Which legislative and regulatory provisions govern the aviation sector in your jurisdiction?
The Brazilian Aeronautical Code (Federal Law 7.565/86) is the main statute governing commercial aviation in Brazil. Until 2005 the aviation sector was mainly regulated by the Aviation Civil Department (DAC), which was a department directly subordinated to the Ministry of Aeronautics and mainly comprised of military personnel.
Federal Law 11.182/2005 created the National Civil Aviation Agency (ANAC), which replaced the DAC. ANAC became a functioning entity in 2006 and is an independent regulatory agency of the federal government reporting to the Ministry of Infrastructure. ANAC establishes rules on the certification and control of civil aviation, airport and aeronautic infrastructure. It maintains the Brazilian Aeronautical Register (RAB), a specific register for aircraft in Brazil. The RAB is responsible for the registration of aircraft, the registration of liens and encumbrances over aircraft, and the issuance of registration certificates for Brazilian aircraft.
The Ministry of Defence is responsible for the Brazilian Air Force, the Brazilian Navy and the Brazilian aeronautical sector. Until 2018 airports in Brazil were administrated by Infraero (a public federal administration airport entity) subordinated to the Ministry of Defence. Since 2018, the Brazilian government began to privatise airports and this trend has continued until now.
Other public entities with responsibilities in the aviation sector include:
- the Centre of Investigation and Prevention of Aeronautic Accidents (CENIPA), which is responsible for reporting to the Brazilian Aeronautics Command and for investigating civil aviation accidents and accidents in the Brazilian Air Force, based on the International Convention of Civil Aviation;
- the Department of Control of the Air Space, which is also subordinated to the Brazilian Aeronautics Command; and
- the Brazilian Civil Aviation Committee, which assists the president of Brazil.
1.2 Which bilateral and multilateral instruments on aviation have effect in your jurisdiction?
Brazil has ratified many bilateral and multilateral international treaties. The principal multilateral treaties are as follow:
- the Warsaw Convention (promulgated by Federal Decree 20.704/1931);
- Montreal Protocols 1 and 2 (promulgated by Federal Decree 2.860/1998);
- Montreal Protocol 4 (promulgated by Federal Decree 2.861/1998);
- the Chicago Convention (promulgated by Federal Decree 21.713/1946);
- the Tokyo Convention (promulgated by Federal Decree 479/1969); and
- more recently, the Cape Town Convention (promulgated by Federal Decree 8.008/2013).
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
Once ratified in Brazil, international treaties have the same status as federal ordinary laws. As described in question 1.1, different bodies in Brazil have the responsibility for regulation and control of the different aviation sectors and the enforcement of relevant laws and regulations.
Any conflict in the application of a federal law and a convention should be resolved by application of the concepts of ‘specialty' and ‘more recent law'. Such conflicts are usually brought before the local courts through specific case law. Most of the regulated areas of aviation law fall under the jurisdiction of the federal courts; whereas commercial aviation matters fall under the jurisdiction of the different Brazilian state courts, depending on jurisdictional tests.
1.4 What is the regulators' general approach in regulating the aviation sector?
ANAC and the other public bodies described in question 1.1 issue multiple local regulations and frequently monitor the aviation sector in accordance with their jurisdiction.
2 Licensing and market access
2.1 What licences are required to provide aviation services in your jurisdiction? Does this vary depending on route?
In accordance with Article 181 of the Brazilian Aeronautical Code, national air transport services (which are considered a public service) may be provided only by companies constituted under the laws of Brazil, with their headquarters in Brazil and with their principal place of business in Brazil. Since the enactment of the Federal Law 13.842/2019, Articles 184 and 185 of the Brazilian Aeronautical Code, Brazilian companies interested in obtaining authorisation to operate as a concessionary of public services or non-regular services do not need to submit corporate documents for previous approval of the National Civil Aviation Agency (ANAC). Corporate documents must be approved by the local board of trade (similarly to any other commercial entity in Brazil) only. Once the necessary registrations with the board of trade have been obtained, the company must seek from the Operational Oversight Standards of ANAC the necessary instructions to obtain the operational certification. The aircraft should be registered together with the Technical Administration of the Brazilian Aeronautical Registry (GTRAB). Once operational certification has been obtained, the company will be authorised to request a concession to operate or authorisation to operate, depending on the type of service (ie, regular or non-regular air transport services). The request will be analysed by ANAC's board committee. If the concession or authorisation is approved, the company will sign the concession agreement and the decision will be published in the federal Official Gazette. After publication, the company will be authorised to operate as a concessionary of public services or as a non-regular air transport company, as the case may be.
In accordance with the Brazilian Aeronautical Code, international air transport of public services may be provided by national and foreign companies. To operate regular flights in Brazil, a foreign airline must:
- be designated by its country of origin;
- obtain authorisation to operate as a commercial entity in Brazil; and
- obtain authorisation to operate air services.
Foreign airlines authorised in accordance with the laws of their country of origin to operate as air transport companies can operate in Brazil under valid treaties or bilateral agreements between such states and Brazil or, in the absence of such treaties, in accordance with the general requirements of the Brazilian Aeronautical Code. Foreign companies must obtain overflights and landing permits from ANAC. The request for authorisation must be sent to the Market Access Management (GEAM/SAS) of ANAC in Brasilia or electronically through the ANAC website. All documents issued in another language in another country must be notarised and apostilled in accordance with the Hague Convention or consularised (in the case of countries which are not signatories to the Hague Convention. After apostille or consularisation, documents must be translated into Portuguese by a sworn translator and registered with a notary (in the register of titles and documents with jurisdiction). After GEAM/SAS has conducted its analysis, the company will receive establishment authorisation for the national territory. This does not in itself authorise the company to provide air transport services. Only once the establishment authorisation has been obtained can the company request authorisation to initiate the air transportation services. Such requests are filed either with GEAM/SAS at the headquarters of ANAC in Brasilia or electronically through the ANAC website. The following documentation must also be provided:
- the AVSEC declaration form, in which the air operator confirms its knowledge of the Safety Programme of Air Operators and compliance with the regulatory obligations;
- the air operator's AVSEC professional registration;
- the approval of the operational specifications together with oversight of operational standards;
- its Brazilian tax identification number;
- a certificate of good standing with the Guarantee Fund for the Length of Service (a labour law certificate regarding the company's employees);
- a certificate of good standing establishing the payment of federal taxes and other related tax liabilities; and
- a certificate of good standing of tax and other fines from ANAC.
The company must also appoint a legal representative in Brazil, which can be a company or an individual that will represent the company in the Brazilian territory.
Foreign non-regular air transport companies are also allowed to obtain authorisation to operate in Brazil through specific procedures defined by ANAC.
2.2 What nationality requirements must be satisfied to obtain a licence?
As described in question 2.1, concessions and authorisations from ANAC to provide air transport public services in Brazil are granted only to companies established under the laws of Brazil and with their main registered office in Brazil.
Foreign companies must obtain overflight and landing permits from ANAC. Foreign airlines authorised in accordance with the laws of their country of origin to operate as air transport companies can operate in Brazil under valid treaties or bilateral agreements between such states and Brazil or, in the absence of such treaties, in accordance with the general requirements of the Brazilian Aeronautical Code.
2.3 What financial requirements must be satisfied to obtain a licence?
In 2019 the Brazilian government passed Federal Law 13.842/2019, which amended the Brazilian Aeronautical Code, enabling national air public transport companies to have 100% foreign capital stock. This rule changed the prior legislation, which required that up to 80% of the voting capital stock of air companies be held by Brazilian nationals. There are no other specific financial requirements or authorisations of establishment in Brazil.
Although there is no specific financial requirement for international companies to obtain authorisation in Brazil, such companies must comply with any financial requirements of their local governments to operate in Brazil.
2.4 What other requirements must be satisfied to obtain a licence? Do specific requirements or restrictions apply to foreign operators?
Brazilian companies have much more flexibility in obtaining concessions to operate. Commercial air companies that provide concessionary services and non-regular companies must obtain operational authorisations under Regulamento Brasileiro de Aviação Civil (RBAC) 121, while non-regular air taxi companies must follow RBAC 135, both issued by ANAC.
In general, a foreign air transport company that intends to operate in Brazil must:
- be designated to operate in Brazil by its respective government;
- obtain an establishment authorisation in Brazil (following Articles 206 to 211 of the Brazilian Aeronautical Code); and
- obtain an air operator's certificate (following Articles 212 and 213 of the Brazilian Aeronautical Code).
The designation is a diplomatic act between governments, while the requests for authorisation referred to in the second and third points above are acts of the designated company.
Article 206 of the Brazilian Aeronautical Code sets out the principal requirements, among others, for the establishment of a foreign company in Brazil. The company must be properly incorporated and in good standing in accordance with the laws of its country, and provide the following documents:
- a full copy of the bylaws or equivalent constitutional documents of the company;
- a list of shareholders or stockholders of the social capital of the company, indicating, when applicable, the name, profession and domicile of each, including the number of shares or capital stock participation in accordance with the type of company;
- a copy of the board resolutions or equivalent legal instruments on the establishment of the company in Brazil and establishing the social capital destined for operations in the Brazilian territory;
- the latest financial statement published in its country of origin; and
- the instrument approving the legal representative in Brazil, with express powers to accept certain specific conditions to the authorisation established by the local Government.
Article 212 of the Brazilian Aeronautical Code also sets out the main requirements for a foreign company to obtain authorisation to operate in Brazil and authorisation to operate in its country of origin and in Brazil granted by the local authorities in its country of origin. Among other things, the following should be provided:
- the operational and technical plan in accordance with the applicable regulations;
- the intended fees applicable between stops in Brazil and other stopovers of its services abroad; and
- the intended period of operation.
2.5 What is the procedure for obtaining a licence?
Please see questions 2.1 to 2.4.
3 Safety and maintenance
3.1 What key safety requirements apply to operators in your jurisdiction?
The safety requirements are set out in Regulamento Brasileiro de Aviação Civil (RBAC) 121 for regular and non-regular services, and specifically for non-regular air taxi services in RBAC 135, both issued by the National Civil Aviation Agency (ANAC).
RBAC 121 and Supplemental Instruction 119-001 set out the rules for the operation of public transport in aircraft with a maximum certified configuration of more than 19 passenger seats or a maximum paid cargo capacity over 3,400 kilograms. The aircraft should be registered together with the Technical Administration of the Brazilian Aeronautical Registry.
RBAC 135 sets out the rules for the operation of public transport in aircraft with a maximum configuration of up to 19 passenger seats or a maximum paid cargo capacity of up to 3,400 kilograms, and for helicopters.
Air space safety is also regulated by the Department of Control of the Air Space (DECEA) and the Centre of Investigation and Prevention of Aeronautic Accidents (CENIPA) (see question 1.2), which issue directives on the procedures for identifying and managing risk in the aviation sector.
3.2 What key maintenance requirements apply to operators in your jurisdiction?
The maintenance requirements are also described in RBAC 121 and RBAC 135 in accordance with the capacities described in question 3.1.
3.3 Do these requirements differ depending on whether the operator is providing commercial, cargo or private services?
Yes. Please see question 3.1.
3.4 What are the potential consequences of breach of the safety and maintenance requirements?
The consequences set out in the Brazilian Aeronautical Code vary depending on the type of breach. They include:
- monetary penalties;
- detention, seizure or blacklisting of an aircraft; and
- suspension and/or revocation of air transport permits.
Article 188 of the code also states that the executive power (comprising the government and its entities) can intervene in air transport companies whose operational, financial or economic situation might compromise the safety of air transport. Aviation authorities can also request police assistance if necessary.
3.5 What best practices in relation to safety and maintenance should operators consider adopting in your jurisdiction?
ANAC, CENIPA and DECEA (see question 1.2) have collaborated to improve safety control in the air space. The aviation authorities in Brazil follow the directives of the International Aviation Organization (International Convention of Civil Aviation) in accordance with the Chicago Convention.
Brazilian companies should follow all directives of each of these bodies.
4 Consumer protection
4.1 What rights do passengers enjoy in your jurisdiction in relation to: (a) Flight delays or cancellations? (b) Overbooking? (c) Denied boarding for other reasons? (d) Baggage delay, damage or loss? and (e) Disabled access?
(a) Flight delays or cancellations?
In accordance with the Brazilian Aeronautical Code (Articles 229 to 231) and National Civil Aviation Agency (ANAC) regulations, passenger material rights are as follow:
- From one hour's delay onwards: Airlines must provide communication to passengers (internet, phone calls).
- From two hours' delay onwards: Airlines must provide food (eg, vouchers, snacks, drinks).
- From four hours' delay onwards: Airlines must provide material assistance with accommodation or, if the passenger is in his or her home town, a transfer home and back again to the airport for the next available flight. The airline may also refund the ticket price, including fees, in which case it is not obliged to provide this material assistance described above.
If the flight is cancelled during any stopover, the airline may:
- reimburse the ticket costs, including fees, and return the passenger to the airport of origin, and provide the other material assistance described above;
- refund the amount paid for the next leg to the final destination, in which case it is not required to provide the material assistance described above;
- board passengers on the next available flight to the final destination, either of its own or of another operator, and provide the material assistance described above;
- arrange for the conclusion of the trip by another mode of transport (eg, bus, shuttle, taxi), and provide the material assistance initially described above; or
- reschedule the flight without any cost, in which case it is not obliged to provide the material assistance initially described above.
In the case of international flights, the limitations of the Montreal Convention apply.
Notwithstanding the above, the Brazilian courts are very protective of consumers and often award damages for pain and suffering to passengers on a case-by-case basis.
The same assistance as described in question 4.1(a) is applicable in case of overbooking. However, as soon as the airline verifies the possibility of overbooking, it must invite volunteers to agree to board another flight in exchange for compensation (eg, money, extra tickets, air miles). If no passengers accept this invitation, the airline must offer them the alternative of boarding other flights and reimbursement plus material assistance.
(c) Denied boarding for other reasons?
The same rules as set out in question 4.1(b) are applicable in case of denied boarding for other reasons (eg, operational safety, change of aircraft).
(d) Baggage delay, damage or loss?
In accordance with the Brazilian Aeronautical Code, the Montreal Convention and ANAC, the rules and procedures are as follows.
Baggage loss: The passenger must communicate with the airline, preferably at the counter for assistance in the disembarking area, with his or her baggage ticket in hand. Once the airline finds the baggage, it must send it on to the address which the passenger has given. The baggage may be temporarily lost for a maximum period of seven days for national flights or 21 days for international flights. If the baggage is considered totally lost, the airline must indemnify the passenger within seven days.
If the passenger is not in his or her home town, the airline must also provide compensation for emergency costs for the period for which the baggage is lost.
In accordance with ANAC rules, airlines are free to define the way in which compensation will be paid and the daily limits thereof. Article 260 of the Brazilian Aeronautical Code, applicable to domestic flights, states that the carrier's liability for loss of or damage to baggage is limited to the equivalent amount of 150 national treasury obligations (a monetary reference of value).
Airlines usually follow the rules of the Brazilian Aeronautical Code or the Montreal Convention when offering compensation in extrajudicial and judicial procedures. However, in Brazil, there are legal discussions on the application of the Brazilian Aeronautical Code (for domestic flights), the Montreal Convention (for international flights) and the Consumer Code (Federal Law 8.078/90) which invites litigation, as more particularly described in question 4.5.
Damaged baggage: The passenger should notify the airline as soon as possible and in any event within seven days of receipt of the damaged baggage. The airline must repair the damage or replace the baggage with equivalent baggage if repair is impossible. Again, with regard to the amount of compensation, ANAC allows the airline to decide how best to proceed.
(e) Disabled access?
ANAC Resolution 280/2013 specifies the rights of passengers with special needs (PNAE) and passengers with reduced mobility, who should be accompanied if:
- they are travelling in a stretcher or incubator;
- as a consequence of mental or intellectual limitations, they cannot clearly understand flight safety instructions; or
- they cannot attend to their physiological needs without assistance.
The airline must provide a companion without additional cost or allow the PNAE to choose a companion, whose ticket will be charged at up to 20% of the price paid by the PNAE. Any special requests of the companion should be responded to within 48 hours. The companion must be at least 18 years of age, must satisfy the conditions to assist a PNAE and must fly in the same cabin. Assistance dogs are also allowed by ANAC.
4.2 Are airfares regulated in your jurisdiction? What other requirements apply to the pricing and sale of flights?
Federal Law 11.182/2005, which created ANAC, also established the pricing freedom principle in Article 49. ANAC monitors and provides updated public reports on the airfares charges by Brazilian airlines from time to time.
4.3 What other marketing and advertising requirements apply to operators in your jurisdiction?
Code-sharing operations are legalised in Brazil. A company that is interested in obtaining a code-sharing authorisation must submit this request electronically through the ANAC website. The company must have a legal representative nominated to represent it before ANAC. Foreign companies should send a copy of their operational certificate to ANAC. This is usually a quick procedure, with authorisation generally issued by ANAC within 15 businesses days. The following legislation applies to code-sharing operations:
- Ministerial Ordinance 70/DGAC of 1999, issued by the Ministry of Aeronautics;
- Ministerial Ordinance 0649/SAS of 2016, issued by ANAC; and
- Resolution 400/2016, issued by ANAC.
Code-sharing arrangements and other joint ventures or acquisitions among airlines are subject to the control of the National Administrative Body of Economic Control, as further outlined in question 9.
Advertising requirements should follow the general rules of the Brazilian Civil Code and the Consumer Code. Article 18 of the Brazilian Civil Code provides that personal information cannot be used in commercial advertising unless expressly authorised by the person. Articles 30 to 36 of the Consumer Code prohibit misleading, unfair or false advertising. The airline may be forced to comply with any false or misleading offer published in an advertisement. A party aggrieved by any of these advertising practices can demand losses and damages in court, and can additionally claim moral damages (pain and suffering), as outlined in question 4.5.
4.4 What requirements apply in relation to the retention and protection of passenger data in your jurisdiction?
Data protection is governed by Federal Law 13.709/2018, which is not restricted to airlines. This law became partially effective on 28 December 2018 only in relation to Articles 55-A to 55-L, Article 58-A and Article 58-B. Article 55 created the National Authority of Data Protection and Article 58 created the National Body of Personal Data Protection and Privacy. The effective date of the other parts of the law has been postponed until 3 May 2021. If Law 13.709 becomes effective in its entirety and in its current form (as it may be revised), the following rules should apply in relation to data protection and privacy.
Companies should have clear privacy policies available to consumers (on their websites). Private companies should observe some legal principles in activities of processing personal data, such as good faith, finality, adequacy, necessity, free access, data quality, transparency, safety, protection, non-discrimination, responsibility and legal reporting. Processing personal data can occur only with the consent of the person, to comply with any legal or regulatory requirements, among others defined in law. International sharing of personal data is permitted only if the foreign recipient meets the same requirements as apply to its Brazilian counterpart. Any party that prejudices someone in any way due to the illegal use of personal data shall be liable to remedy the damage.
Penalties relating to the infringement of personal data are already set out in the Federal Constitution, the Civil Mark of Internet, the Brazilian Civil Code, the Consumer Code, the Information Access Law and the Statute of Children and Adolescents. Any person injured or any company prejudiced by the illegal use of personal data or private information can seek losses and compensation for damages in court, in addition to the possibility of criminal penalties imposed by local authorities.
4.5 What other general consumer protection requirements are of relevance for operators in your jurisdiction?
Federal Law 8.078/90 specifically protects consumers' rights. Once ratified and effective in Brazil, conventions such as the Montreal Convention have the status of ordinary federal law. The Consumer Code and the Montreal Convention have the same level of applicability. Compensation paid under the Consumer Code is much more favourable to consumers than that paid in accordance with the limitations of the Montreal Convention. As a consequence, it is difficult for airlines to estimate the amount of indemnification they might be obliged to pay for passenger claims. In addition to material damages, the Consumer Code establishes another type of indemnification, called ‘moral damages' (similar to ‘pain and suffering' in common law jurisdictions). In accordance with the Consumer Code, passengers should be indemnified for both all material damages (which are usually higher than the limitations of material damages under the Montreal Convention) and ‘moral damages'. The Consumer Code does not define the concept of ‘moral damages' and legal scholars have a considerable amount of room to interpret the meaning of this term. Therefore, courts have wide latitude to interpret the concept of moral damages as they see fit in each case, which is generally more favourable to consumers. The concepts cover everything from simple annoyance to humiliation or embarrassment, and any loss or damage which cannot be accounted for is generally converted to moral damages.
In Brazil, there are special courts that deal with consumer cases. No fees are paid to file suit in these special courts. The value of claims heard in such summary proceedings is limited to 40 minimum wages (around $8,000). If the amount of the claim is less than 20 minimum wages (around $4,000), there is no need to retain a lawyer to file the complaint. Consumers generally prefer to claim in these courts, as the decisions issued are much more favourable to consumers than those secured through administrative claims with the airline. The passenger can also choose to file suit in the ordinary civil courts, where there is no limit on the value of the claim, but court fees must be paid. As a consequence, it is very difficult to estimate the amount of total indemnification that an airline might pay for passenger claims.
Most judges in lower courts do not apply the limitations set out in the Montreal Convention. Until 2017, almost all case law relating to conflicts between the application of the Consumer Code or the Montreal Convention were decided in favour of the Consumer Code. However, in 2017 the Superior Federal Court (STF) decided that the Montreal Convention must prevail over the Consumer Code in cases involving passenger claims for damages. The decision was based on Article 178 of the Federal Constitution, which says: "The law shall rule over the air, aquatic or land transportation observing the agreements made by Federal Union, regarding international transport in accordance with the reciprocity principle." However, some members of the judiciary and legal scholars found it unclear as to whether the decision encompassed both material and moral damages or was restricted to material damages, allowing discretion in moral damages. Lower court judges are not obliged to follow the STF's decisions (although in theory they should), so many consumer cases have since been decided more favourably for consumers. However, there has also been a trend in the other direction and many judges in lower courts have been applying the limitations of the Montreal Convention for material damages. Discussions in the lower courts are ongoing as to whether the STF decision covers moral damages or is limited to material damages only. While some judges have been applying the limitations defined in the Montreal Convention, others still award moral damages.
4.6 How are consumer complaints in relation to aviation services handled in your jurisdiction?
Please see question 4.5.
5 Accidents and liability
5.1 What is the applicable aviation liability regime in your jurisdiction?
Title VIII of the Brazilian Aeronautical Code governs the aviation civil liability regime in Brazil, which is divided into passenger, cargo, free air transportation, third-party liability, collision, liability of aeronautic constructors and infrastructure entities, and insurance liability. Generally, the Brazilian Aeronautical Code considers null and void any clause disclaiming or limiting the liability of the carrier which precludes the minimum cover set out in the Brazilian Aeronautical Code. Limits to liability will not apply if the damage or loss was caused by wilful misconduct or gross negligence of the carrier.
Passengers: In accordance with the Brazilian Aeronautical Code, the carrier is liable for damages arising from accidents causing death or injury to passengers during execution of the transport, including transportation, boarding and disembarking. Carriers are also liable for damages caused by flight delays and cancellations. Carrier liability extends to crew, directors and other employees flying in a business capacity with the carrier, in addition to other liabilities under labour laws. The code uses as its standard index the national treasury obligation (OTN), currently equivalent to $0.049. Article 257 limits carriers' liabilities to 3,500 OTNs for each passenger and crew member in case of death or injury arising from a transportation accident. This limitation is reduced to 150 OTNs in case of transportation delay. The air carrier and the passenger are free to mutually agree higher limitations. If a passenger transport contract is concluded with one and executed by another (excluding code-sharing arrangements), the carriers will have joint liability.
Baggage: See question 4.1(d).
Cargo: Article 262 of the Brazilian Aeronautical Code limits the carrier's liability for loss of or damage to cargo to an amount equivalent to 3 OTNs per kilo, except for cargo with a declared value through payment of the respective supplemental fee. The code also provides that carriers have joint liability before the consignor and the consignee.
Free air flight services: Free air flights are flights for which the passenger is not charged. Article 267 of the Brazilian Aeronautical Code provides that in case of private flights, the owner of the aircraft is liable for damages caused to the passengers and crew on board, and to any third parties on the ground. The liability in case of free transportation provided by air carriers with public service transport liabilities is identical to the general passenger liability for charged flights.
Third parties: Carriers also have liability to third parties on the ground. In accordance with Article 269 of the Brazilian Aeronautical Code, the carrier's liability is limited to:
- 3,500 OTNs for aircraft with a maximum take-off weight of 1,000 kilograms (kg); or
- for aircraft with a maximum take-off weight of more than 1,000 kg, 3,500 OTN plus one-tenth of the value of each OTN per kg exceeding 1,000.
Collision: This covers damages caused as a consequence of a collision between two or more aircraft in flight or during manoeuvres on the ground, and damages caused to third parties or items on board by another aircraft during flight. Liability for damages due to collision rests with the operator or the owner of the aircraft. The operators have joint liability against third parties. The limitations are the same as those applicable to passengers, baggage and cargo. Such limitations do not apply if the collision is caused by wrongful misconduct or gross negligence.
5.2 What insurance requirements apply to operators in your jurisdiction?
Articles 281 and 282 of the Brazilian Aeronautical Code state that certain insurance is mandatory. The statutory insurance required does not conform to industry standards and is a minimum liability insurance requirement only.
In the case of Brazilian aircraft, operators must purchase all of their primary insurance from Brazilian underwriters. Brazilian primary insurers were required to offer 40% of all reinsurance risks to Brazilian-based reinsurers. As a matter of market practice (most likely due to lack of capacity), Brazilian reinsurers did not take up all of the 40% offered to them.
Airlines and providers of aircraft maintenance services should also obtain insurance covering maintenance operations.
5.3 What body is responsible for investigating accidents in your jurisdiction and what procedure will it follow in doing so?
The Centre of Investigation and Prevention of Aeronautic Accidents (CENIPA), which is subordinated to the Brazilian Aeronautics Command, is responsible for investigating civil aviation accidents and accidents in the Brazilian Air Force.
In doing so, CENIPA follow the rules of the International Convention of Civil Aviation (in accordance with the Chicago Convention).
5.4 What reporting requirements apply to accidents and incidents in your jurisdiction?
Brazil follows the recommendations of Article 13 of the Chicago Convention. Accidents and incidents are investigated by CENIPA (as defined in question 1.1). Penalties and punishments are applied by ANAC or the police, as the case may be. CENIPA has no jurisdiction to punish airlines for an accident. In case of an accident outside Brazil, the local authorities where the accident took place have jurisdiction to investigate, with the technical support of the other nations involved. ANAC maintains updated publications of accident reports on its website.
6 General operation
6.1 What requirements apply to charter services in your jurisdiction?
Charter services are considered non-regular air transport services. The requirements discussed in question 2 are applicable to non-regular companies.
6.2 What requirements apply to the carriage of cargo in your jurisdiction?
In accordance with Section 175 of the Brazilian Aeronautical Code, only the providers of concessionary air transport public services can provide cargo carriage in Brazil. As a consequence, they should adhere to the requirements discussed in question 2 applicable to concession holders for public services.
Foreign air cargo companies may provide services in Brazil as ‘offline companies'. Offline companies do not have authorisation to operate or provide air transport services in Brazil, but are allowed to sell airway bills through the use of other air companies capable of operating as air cargo companies in Brazil. Offline cargo services are governed by Article 214 of the Brazilian Aeronautical Code. Authorisation is subject to the rules of the Ministry of Aeronautics. Authorisation will not be granted to companies incorporated in countries that do not grant reciprocity to similar companies in Brazil. The company should designate a legal representative in Brazil with full powers to deal with all matters in Brazil, including the power to be sued in the company's name and to receive summons in Brazil. The offline company must further have an International Air Transport Association code to issue airway bills in Brazil. The requirements to apply for offline authorisation are as follows:
- opening a branch in Brazil;
- registering the branch with the Federal Revenue; and
- designating a legal and tax representative in Brazil.
6.3 What environmental requirements apply to operators in your jurisdiction?
The main environmental controls that apply to airline operators in Brazil relate to gas and fuel emissions and noise.
As Brazil is a member of the Chicago Convention, the International Convention of Civil Aviation rules have been adopted in the Brazilian National Civil Aviation Agency (ANAC) (Regulamento Brasileiro de Aviação Civil (RBAC) 34) requirements for aircraft engines and auxiliary power unit emissions and fuel venting, as stated in Annex 16 Volume II of the Chicago Convention.
Also, through RBAC 38, ANAC establishes the requirements for carbon emissions in accordance with Annex 16, Volume III of the Chicago Convention, which describes aircraft carbon emission requirements, aircraft flight manual requirements and evaluation methods.
Regarding noise standards, Brazil has adopted, through RBAC 36, 14 Code of Federal Regulations Part 36, which describes the standards for noise emissions by aircraft and the minimum requirements for a certification of airworthiness.
6.4 How are aviation services taxed in your jurisdiction? Do any special tax regimes apply to this sector? What indirect taxes are of relevance to operators?
Different taxes apply to aviation services, including:
- social security contributions due to the federal government;
- income taxes to be paid at source;
- tax on commerce and services (ICMS), which is similar to value added tax;
- withholding taxes due under lease payments remitted to lessors abroad;
- municipal service tax; and
- airport fees.
All taxes must be paid by the operators. Rarely, if ever, will the lessor or owner of an aircraft be liable for taxes or fees in Brazil.
ICMS: ICMS is applicable in a variety of circumstances. ICMS is not a federal tax. Each Brazilian state is allowed to collect ICMS and can establish its own tax rate. ICMS is applicable to:
- the acquisition of title to imported aircraft, engines or parts;
- the transportation of cargo;
- fuel; and
- air tickets.
Each state is free to reduce the applicable ICMS rate or grant an exemption. Fuel costs account for around 32% of the costs of airlines in Brazil. ICMS may be charged on fuel at a rate of up to 25%, although usually states reduce the applicable rate. ICMS is levied on aviation fuel at a rate of 12% in the state of Sao Paulo and at between 7% to 10% in the state of Rio de Janeiro, depending on the category of aircraft.
Service taxes: These are collected by the municipality on sales concluded by travel or cargo agencies. Again, each municipality is free to reduce the applicable rate or grant an exemption.
Import taxes: For most commercial aircraft, the applicable rate of import-related taxes is zero, so in practice, no such tax is effectively due. Technically, there is a difference between a zero-rate tax and a tax exemption. An additional tax on imports (COFINS) initially was not applicable to aircraft imports; but following a change in law in 2013, the Brazilian Federal Revenue (SRF) began to assess COFINS tax on aircraft imports as from the last quarter of 2014. Airlines have challenged these assessments in relation to the import of commercial aircraft under lease agreements. To date, most airlines have avoided paying COFINS; however, this is on the basis of interim judicial rulings, rather than a final decision on the merits of the applicability of COFINS. If and when applicable, COFINS will be levied at a rate of 1% of the value of the aircraft at the time of import.
Remittance of payments under lease agreements: Lease payments made to lessors incorporated in jurisdictions that are not considered ‘tax havens' under Brazilian law are exempt from withholding taxes. The lessee may have to withhold Brazilian income tax at the rate of 15% on payments of interest (eg, default interest). Lease payments made to lessors incorporated in jurisdictions that are considered ‘tax havens' under Brazilian law are subject to Brazilian income tax withheld at source (ie, withheld in Brazil), at the rate of 25% of the amount of the payment. This tax is commonly referred to as ‘withholding tax'. Other than the foregoing, there are no applicable income, withholding or other taxes.
‘Tax havens' are defined as jurisdictions with annual corporate income tax rates of under 20%. The SRF also publishes a list of countries that are deemed to be ‘tax havens' for tax purposes. In September 2016 the SRF added Ireland to its list of tax havens. The result is that, as from 1 October 2016, rent payments remitted to Irish lessors are subject to the 25% withholding tax. After the Brazilian airlines strenuously lobbied the government to remove Ireland from this list of tax havens, on 13 October 2016 the SRF issued a new instruction (IN1664) exempting commercial aircraft lease payments to lessors located in tax haven jurisdictions. Thus, the SRF created a safe harbour for Brazilian airlines to lease aircraft from jurisdictions such as the Cayman Islands, the British Virgin Islands and Cyprus, all of which have been on the list of tax havens for years. It is doubtful, however, that the airlines will change their practices and begin to lease from those jurisdictions. The 13 October regulation is effective for leases dated through and including 31 December 2019 and for payments due through the end of calendar 2022.
IN 1664 did not resolve all of the issues raised by the characterisation of Ireland as a tax haven. For example, Ireland is still on the Brazilian tax haven jurisdiction list. IN 1664 merely exempted certain lease payments from the consequences of that determination.
Finance leases: On 27 November 2019 the Brazilian federal government issued an executive order that has the potential to change the tax treatment of aircraft leasing. This executive order became effective on 3 January 2020, following publication of a separate determination from the Ministry of the Economy. It is our reasoned opinion that the executive order will not affect payments to be made by a lessee pursuant to lease agreements entered prior to 1 January 2020. If any such leases are novated, however, we recommend a review of the withholding tax rules applicable at that time. The executive order must be approved by the Brazilian Congress in early May to remain effective. At the time of writing (early May 2020), a member of Congress has requested that a vote be scheduled; however, this vote has not yet taken place.
Based on the executive order, the following rules shall apply:
- Leases executed prior to 31 December 2019: no withholding tax.
- Leases executed between 1 January 2020 and 31 December 2020: 1.5% withholding tax.
- Leases executed between 1 January 2021 and 31 December 2021: 3% withholding tax.
- Leases executed between 1 January 2022 and 31 December 2022: 4.5% withholding tax.
The executive order is very new and the language used therein has raised some doubts. For example, it is unclear whether the rules will apply to all leases or to finance leases only; although we think it is intended to cover all leases. There are also some doubts as to whether they will apply irrespective of whether the lessor is located in a tax haven.
Brazilian tax law is extremely complex and this information is provided as a guideline only. The applicable taxes are constantly changing and specialist advice should be sought when attempting to establish the precise Brazilian tax and applicable rates.
6.5 What is the applicable employment regime in your jurisdiction and what specific implications does this have for operators in the aviation sector?
Employment is heavily regulated in Brazil. The general employment regime in Brazil is regulated by Law-Decree 5.452/43 – the Consolidation of Labour Laws (CLT). The CLT was amended in 2017 by Federal Law 7.813. The CLT governs most of the penalties due by companies (not only airlines) in case of non-compliance with the legislation, which vary depending on the type of infringement. The competent bodies which enforce the employment laws and issue penalties against non-compliant companies are the labour regional stations in accordance with Article 156 of the CLT.
Aeronauts and aviation professionals are subject to specific legislation. Aviation professionals are governed by Decree 1.232/1962. The decree defines ‘aviation professionals' as workers who do not fall within the category of aeronauts and who provide paid services on the ground for air transport companies. Aviation professionals provide the following services:
- maintenance services;
- operational services;
- auxiliary services; and
- general services.
The maximum permitted working hours per week are capped by law at 44 hours, with daily breaks between journeys, up to a maximum 176 hours per month. Time breaks vary in accordance with the types of journeys. Article 38 of the decree establishes the benefits of maternity leave. In addition to the rules under the CLT and Decree 1.232, labour conventions which are agreed – usually for a period of two years each – between the labour union that represents the commercial airline industry and the labour union representing aviation professionals. Aviation professionals for air taxi companies have agreed specific labour union conventions with the national aviation professionals' labour union. Aviation professionals are not obliged to contribute to the labour union. However, agreements under the conventions must be observed by employers and are applicable to all employees, regardless of whether they contribute to the labour union of the category. The current convention, valid for 2019/2020, establishes a penalty of $25 in favour of each employee in case of breach of the convention by the employer, in addition to any penalty applicable by the Ministry of Employment in accordance with the CLT.
Until 2017, aeronauts were governed by Federal Law 7.183/1984. In 2017 a new Law 13.475 was published, which revoked the previous legislation. The principal changes introduced were as follow:
- The number of mandatory days off was increased from eight to 10 per month, or nine if agreed under the applicable convention;
- At least two of those days off must be a Saturday and Sunday in the same weekend.
- The limits on the total number of hours for each type of journey and total number of landings were reduced by one hour and one landing. Employers can opt to increase each of these totals by one, in which case an additional two hours of rest will be necessary.
- The total number of permitted monthly flight hours per aeronaut per month was reduced to 80 hours from 85 and training periods are now regarded as paid hours.
Aeronauts that fall under the category of air taxi companies have specific treatment under Law 7.813 and relevant conventions.
These are general guidelines and are subject to constant change. Employment issues should be carefully analysed and specific advice sought for each individual case.
7 Ownership, financing and leasing
7.1 What body administers the aircraft register in your jurisdiction?
The Brazilian Aeronautical Register (RAB) is a specific register for aircraft in Brazil. The RAB is responsible for the registration of aircraft, the registration of liens and encumbrances over aircraft, and the issuance of registration certificates. The RAB is maintained by the National Civil Aviation Agency.
7.2 What are the formal and documentary requirements for registration?
Generally, aircraft lease agreements, assignments, assumption agreements, novations and mortgages must be registered with the RAB. Such documents are usually written in English. Any document written in a language other than Portuguese must be translated into Portuguese by a licensed translator in Brazil. Such translations are called ‘sworn' translations.
As of 16 August 2016, documents that are signed outside Brazil in a state that is a signatory to the Convention Abolishing the Requirement of Legalisation for Foreign Public Documents of 5 October 1961 (Apostille Convention) must bear a certificate called an ‘apostille', issued by the competent authority of the original state.
Any documents signed in a state that is not a signatory to the Apostille Convention must be legalised by the Brazilian consulate responsible for the jurisdiction in which the document was signed. In most cases the consulate will require local notarisation as a prerequisite to legalisation. In some cases the apostille of a government officer is required for legalisation. The rules of the various consulates vary.
Documents signed in Brazil by attorneys in fact pursuant to notarised and apostilled or legalised powers of attorney need not be legalised. The RAB requires the signature of two witnesses on all documents submitted for registration. Documents signed in Brazil with a digital signature that complies with Brazilian law are treated as notarised and do not require further notarisation. Exceptionally, during the COVID-19 crisis, until the time of writing the RAB has been accepting powers of attorney that have been notarised, but not yet apostilled. Such powers of attorney must be apostilled in due course, but registrations can be completed prior to such apostille.
Specifically for bills of sale, the RAB also requires the signature of representatives of both the seller and the buyer. However, the RAB has not applied this policy to bills of sale for new aircraft – the RAB has accepted such bills of sale when signed by the manufacturer only.
7.3 What is the process for registration?
The RAB's filing system is electronic.
The documents listed in question 7.2 must be filed with the RAB. Once filed, priority will be protected by a receipt issued by the RAB. From the date this receipt is issued, such priority will prevail over any subsequently filed documents relating to the aircraft; however, if the RAB issues any requirement for the submission of additional documents which is not satisfied within the stipulated timeframe, the priority created by the RAB filing receipt may be lost. Confirmation of registration is documented in the form of a certificate to be issued by the RAB.
Documents that are digitally signed in a particular format are accepted by the RAB without notarisation. Not all digital signatures are acceptable. The Brazilian government has published several standards in this regard. These standards usually require pre-registration of the signatory's personal details and the issuance of a small device (ie, a token) to authenticate a signature. The popular DocuSign platform does not meet the Brazilian requirements.
7.4 Is registration of real estate rights, transactions and encumbrances mandatory? What are the consequences of failure to register?
The Brazilian Aeronautical Code stipulates that rights in rem over aircraft are governed by the nationality of the aircraft. Therefore, we recommend that a bill of sale for an aircraft registered with the RAB be governed by Brazilian law. A bill of sale that is expressed to be governed by New York or English law might not effectively transfer title. In some cases, second bills of sale governed by English or New York law are executed outside Brazil. We have no objections to this approach; but equally, we can offer no opinion on bills of sale governed by the laws of other countries.
In order to be effective and enforceable in Brazil, estate rights, transactions and encumbrances over aircraft should be registered with the RAB. The procedures for registration are set out in question 7.2. Mortgages should be governed by the laws of Brazil and registered with the RAB. The validity and effectiveness of mortgages and bills of sale are conditioned on their registration with the RAB. The consequences of failure to register mortgages or transfers of title by bills of sale are, respectively, the absence of encumbrance and non-acquisition of ownership.
7.5 What operational requirements are of relevance for aircraft lessors and financiers in your jurisdiction?
Operational requirements should be complied with by operators, not lessor or financiers.
7.6 What rules govern the detention and seizure of aircraft
The authorities have not attempted to seize the commercial aircraft of Brazil's major airlines.
In a few isolated cases the Brazilian Revenue Service (SRF) has sought to confiscate private or corporate aircraft due to violations by lessees of customs and import regulations. In such cases the SRF has not offered compensation to the owners. The SRF's expectation was that the Brazilian lessees would indemnify the owners. These cases are uncommon. However, there is a danger that a leased commercial aircraft may become subject to such an initiative on the part of the SRF, in which case the owner might have to make a claim under confiscation insurance or proceed against the Brazilian lessee or the SRF.
In general, the Brazilian government is required to pay compensation for confiscation of assets. The reason why compensation was not offered in the cases mentioned above is that they were based on alleged violations of laws or regulations.
8.1 How are airports owned and regulated in your jurisdiction?
Until 2018, airports in Brazil were managed by Infraero, a public federal administrative body which was subordinated to the Ministry of Defence. In 2018 the Brazilian government began to privatise airports and this trend continues today. Concessions for the administration of airports are awarded through public tenders.
8.2 What requirements must be satisfied to obtain airport authorisation in your jurisdiction? What is the procedure for obtaining authorisation?
Airport authorisations are granted by the National Civil Aviation Agency (ANAC) through public tenders. The requirements for bidders are formalised in the notice of action. The public tender should comply with:
- Federal Law 9.491/1997 on the Brazilian National Programme of Decentralisation;
- Federal Law 8.987/95 on concessions and permission of public service providers; and
- Federal Law 8.666/93 on public tenders.
The latest notice of action imposed on bidders the following requirements, among others:
- guarantees for payments due under the concession agreement to ANAC;
- a declaration of solvency;
- a statement letter confirming their submission to Brazilian laws and waiver of any claims through diplomatic channels;
- a financial capacity statement; and
- a negative tax and labour statement.
8.3 What key safety and maintenance requirements apply to airports in your jurisdiction?
The administrator of an airport is liable for damages to passengers and cargo in the same way as air transport carriers in case of accidents caused by the fault of the operator. Airport administrators should obtain insurance policies to cover at least the minimum cover required under Articles 257, 260, 262, 269 and 277 of the Brazilian Aeronautical Code (see question 5.1) or required under the concessionary agreement.
8.4 What requirements can airports impose on operators that use their facilities?
Usually, administrators should follow the local requirements imposed by aviation authorities such as ANAC, the Department of Control of the Air Space (DECEA) and the Centre of Investigation and Prevention of Aeronautic Accidents.
8.5 How are the following regulated in your jurisdiction: (a) Airport charges? (b) Slot allocation? (c) Air traffic control? and (d) Ground handling?
(a) Airport charges?
Airport charges are regulated by ANAC. Federal Law 6.009/1973 established the following airport charges, which are still valid:
- domestic boarding;
- international boarding;
- warehousing; and
- cargo handling.
The authority will specify the applicable charges depending on airport category. There are three categories of airport management in Brazil:
- management by Infraero (see question 1.1);
- management by private joint ventures under concession agreements; and
- management by states of municipalities under a delegation agreement executed with the Ministry of Infrastructure.
In all cases, the amounts charged as airport fees are subject to ANAC's regulation.
(b) Slot allocation?
ANAC is responsible for slot allocation in Brazilian Level 3-coordinated airports. Currently, there are five Brazilian airports in this category:
- Congonhas (CGH/SBSP);
- Guarulhos (GRU/SBGR);
- Pampulha (PLU/SBBH);
- Recife (REC/SBRF); and
- Santos Dumont (SDU/SBRJ).
ANAC also exercises regulatory oversight over slot allocation in Level 2-coordinated airports categorised as relevant airports by ANAC, as follows:
- Brasília (BSB/SBBR);
- Confins (CNF/SBCF);
- Florianópolis (FLN/SBFL);
- Fortaleza (FOR/SBFZ);
- Galeão (GIG/SBGL);
- Porto Alegre (POA/SBPA);
- Salvador (SSA/SBSV); and
- Viracopos (VCP/SBKP).
However, slot allocation in these Level 2 airports is coordinated and planned by the respective airport administrator. Also, Level 1 airports managed by Infraero must follow the ANAC guidelines and deadlines as applicable to Level 2 and Level 3 airports.
(c) Air traffic control?
Air traffic control and management services are performed by DECEA (as defined in question 1.1). Since 2010, DECEA has been a member of the Civil Air Navigation Services Organization. The air navigation charges were established by Article 8 of the Federal Law 6.009/73. The air force commander has the legal authority to set and adjust the air navigation charges periodically. The latest ordinances enacted on air navigation charges and tariffs were Ordinance 1.911/2019 and Ordinance 402/ 2020.
Currently, three types of air navigation charges are levied on aircraft owners or operators:
- the tariff for use of air navigation communications and aid on the route;
- the tariff for use of air navigation communications and radio-aid in the approach control area; and
- the tariff for use of air navigation communications and radio-aid in the aerodrome control area.
On 19 November 2019 the Brazilian Congress enacted Law 13.903, authorising the constitution of a state-owned company called NAV Brasil to perform air navigation services. According to this law, NAV Brasil will be established in order to manage, operate and commercially exploit air navigation services and infrastructure, to the extent delegated by the air force commander. As of the time of writing, NAV Brasil has not yet been constituted.
(d) Ground handling?
Ground handling falls under the definition of ‘aviation ancillary services' under Articles 102, 103 and 104 of the Brazilian Aeronautical Code. Aviation ancillary services are, to a certain extent, regulated by ANAC. ANAC Resolution 116 of 20 October 2009 contains general rules to be followed by airport authorities and private companies contracted by those airport authorities to perform ancillary services, as well as technical requirements to be met by the latter. Airport management bodies that subcontract ground ancillary services remain directly liable before ANAC for any deficiencies and incidents resulting from damages caused by companies hired to perform ancillary services (including ground handling services) (Article 3 of ANAC Resolution 116/ 2009).
9.1 What specific challenges or concerns does the aviation sector present from a competition perspective? Are there any pro-competition measures that are targeted specifically at operators?
Under the Brazilian Antitrust Law (12.529/ 2011), transactions defined as ‘acts of concentration' require advance approval by the antitrust authority – that is, the National Administrative Body of Economic Control (CADE). The definition of an ‘act of concentration' includes, among other transactions:
- the purchase of equity interest or assets; and
- mergers, joint ventures and joint business agreements among competitors or which may affect free competition and trade in the sector.
Law 12.529/ 2011 applies to foreign entities and individuals involved in an act of concentration that takes effect in the Brazilian territory, regardless of whether the anti-competitive conduct actually occurs in Brazil. The Antitrust Law provides for the imposition of fines of up to 20% of the gross income earned in the preceding year in the relevant market if its provisions are violated. As far as we are aware, no law in Brazil specifically addresses competition in the aviation sector.
With regard to pro-competition measures targeted at operators, the Brazilian Aeronautical Code previously capped foreign direct investment in Brazilian air carriers at 20% of the voting shares. On 17 June 2019 the Brazilian Congress enacted Law 13.842, which liberalised the Brazilian aviation market to foreign investors, in particular foreign airlines. This law amended Article 181 of the Brazilian Aeronautical Code, which now provides that the Brazilian authorities (ie, the National Civil Aviation Agency) will grant air operator certificates to an air carrier that:
- is duly incorporated under the laws of Brazil;
- is headquartered in Brazil; and
- has its principal place of business in Brazil.
Therefore, foreign entities and individuals can now invest in Brazilian airlines without any limitation relating to the percentage of voting shares.
9.2 How are forms of industry cooperation such as pooling, code-sharing, alliances and joint ventures treated from a competition perspective?
Cooperative arrangements such as pooling, interlining, code-sharing, alliances and joint ventures are generally allowed under Brazilian law. However, depending on the partnership level agreed – especially if there is effective sharing of revenues and/or liabilities – such arrangements may be subject to CADE's prior approval; and if CADE deems that there has been a violation of the Antitrust Law, it may impose penalties accordingly. In recent years CADE has analysed several cooperative arrangements, including the ‘merger-like' joint venture between LAN Airlines and TAM Brasil in 2011, which was approved with certain restrictions.
Pure code-sharing agreements (ie, agreements for code-sharing which do not provide for joint pricing or effective revenue sharing) are regarded by CADE as associative contracts, which are regulated by CADE Resolution 17/ 2016. This resolution provides that the parties to an associative contract must notify CADE of the relevant agreement, although CADE's prior approval is not required.
9.3 Does the aviation sector in your jurisdiction benefit from state aid? What forms does this typically take and what rules apply in this regard?
In 2011 the Brazilian Congress enacted Law 12.462, which established the National Civil Aviation Fund under the Civil Aviation Secretariat, a department of the Ministry of Infrastructure. All funds contributed or collected will go towards developing the civil aviation sector and airport infrastructure in Brazil. The Brazilian Development Bank (BNDES), which is Brazil's main export credit agency, also offers credit lines to air operators and other players, subject to certain conditions that may vary according to the type of loan. As an export credit agency, BNDES also grants better financing conditions for Embraer aircraft.
9.4 Are there any applicable obligations or incentives to ensure service on routes that are socially desirable, but not commercially viable (eg, to remote areas)?
In recent years, the federal government has contingently approved the award of subsidies to enable airlines to serve remote routes. The source of such subsidies is the National Civil Aviation Fund (please see question 9.3). At the state level, governors of certain states, such as Rio Grande do Sul and São Paulo, have approved incentives in respect of airport fees charged by regional airports with the purpose of increasing frequency on less profitable, but socially necessary, routes. Further tax incentives are granted by the government at the federal, state and municipal levels, to foster the development of the aviation sector in general.
10.1 In which forums are aviation disputes typically heard in your jurisdiction?
There is no specific court for aviation disputes. The competent court will depend on the subject of the claim and thus aviation disputes may variously be heard in the civil, insolvency, federal or labour courts.
10.2 What issues do such disputes typically involve? How are they typically resolved?
Disputes range from consumer cases (see question 4.5) to labour and tax disputes, contract disputes involving services and lease agreements, and aircraft repossession and insolvency cases.
Labour disputes mainly relate to indemnification following the termination of labour contracts. Such disputes are handled in the labour courts. There are no specific courts for aviation labour disputes.
Tax disputes may be heard by specific treasury administrative bodies and judicial courts with competence to resolve tax matters. Tax disputes are usually brought by airlines in the state or federal courts, depending on the competence of the public body that imposes a specific tax. Examples include disputes over compensation for tax on commerce and services (similar to value added tax) and tax for air cargo clearance. Cargo airlines have solidary liability for taxes that have not been properly collected by cargo agents or consignors, or documentation which has not been properly filed. As a consequence, at the time of customs clearance, process infraction notices are issued against such airlines. Those disputes are handled in the administrative courts and the state or federal judicial courts. Most administrative disputes are also heard in judicial courts and the sentences in favour or against airlines may vary depending on the type of tax law breach.
Contractual disputes are handled in the civil courts. Mainly they involve defaults in service agreements (eg, ground handling and other types of service providers) or lease agreements. The outcome will vary depending on the type of dispute. Disputes involving aircraft lease agreements may arise due to an event of default under a lease agreement. In such case the plaintiff must apply to the Brazilian courts for a ruling on the disputed issues, such as:
- a collection action to demand rent and maintenance reserve payments; or
- an aircraft repossession action.
Thus far, we have primarily been involved in actions relating to repossession rights, representing lessors. In such cases repossession was sought instead of the collection of debts as the operators were almost always in pre-insolvency or insolvency situations. In prior aircraft repossession cases filed against airlines that were not undergoing judicial reorganisation procedures, the Brazilian courts were fairly efficient in granting preliminary injunctions that placed the leased aircraft in the possession of the lessor. Such orders are not equivalent to a summary judgment, since they do not always allow the lessor to export and deregister the aircraft until after the airline has had an opportunity to present a defence. After the presentation of such a defence, the court may grant the lessor definitive possession of the aircraft. At that point, such a ruling will be roughly equivalent to a summary judgment. In short, the lessor can usually obtain preliminary possession within a few days of filing a complaint. A summary judgment may be obtained in a matter of weeks or months, though much will depend on the lessee's defences.
A collection action is typically resolved by ordering the operator to make the payments due under the lease or judicial settlement.
Insolvency matters are heard by the insolvency courts. No Brazilian airline has been liquidated for about 50 years, so there is little precedent on liquidation proceedings. Six airlines are currently in liquidation (Transbrasil, Varig, VASP, VarigLog, BRA and Pantanal), but the proceedings are moving at an exceptionally slow pace. Until 2005, airlines were not allowed to seek reorganisation protection under Brazilian bankruptcy law. However, in 2005 Brazil ratified a new Bankruptcy and Restructuring Law, which took effect on 9 June 2005. One of its innovations was that it allowed airlines to avail of protection similar to that available under US Chapter 11. The reorganisation process is called ‘judicial recuperation'. The law provides for a debtor in possession regime, so no liquidator will have authority during judicial recuperation proceedings.
In November 2005 the Brazilian Congress amended the Bankruptcy and Restructuring Law in a way that clearly excludes aircraft leases from judicial recuperation protection (Article 199). Thus, if the lessee were to seek judicial recuperation in the future, its obligations under the lease would remain unchanged. The November 2005 amendment applies literally, meaning that in no circumstances can the lessee (or a liquidator, if liquidation is declared):
- set aside the lease;
- impose the rights of any other creditors in priority to it; or
- prevent or delay the lessor's ability to repossess the aircraft on termination of the lease, unless the lessee is fully up to date with its obligations under the relevant lease.
In all airline judicial recuperation cases initiated between 2006 and 2018, the airlines voluntarily redelivered leased aircraft that they could not afford, so the courts were not called on to uphold the provisions of Article 199 of the Bankruptcy and Restructuring Law stipulating that a lessor's rights under an aircraft lease are not stayed or suspended due to an order of judicial recuperation of a lessee. There is no stay in the law for aircraft leases. The courts in the BRA and VARIGLOG cases were called on to consider the provisions of the law stipulating that claims of an aircraft lessor are not subject to restructuring plans. The courts hearing those cases upheld the validity of Article 199 and excluded aircraft lease claims from restructuring plans.
10.3 Have there been any recent cases of note?
The most recent case involving aircraft repossession, which has had a dramatic impact on the Brazilian aviation landscape, involved a Brazilian airline known as Avianca Brasil (whose formal name is Oceanair Linhas Aereas SA). This was the first time that a Cape Town Convention application was brought before the Brazilian courts.
In December 2018 Avianca Brasil filed for bankruptcy reorganisation in a São Paulo insolvency court. Prior to the bankruptcy reorganisation, lessors repossessed four of its leased aircraft. Although Avianca Brasil contested them, these repossession actions proceeded without delay. Within a two-week period, the lessors of the aircraft were able to file for repossession, take physical possession (through a court order), export and deregister the four aircraft. Irrevocable deregistration powers of attorney, as defined under the Cape Town Convention, were used to deregister the aircraft from Brazil.
Avianca Brasil sought bankruptcy protection on 10 December 2018 and since then several questionable decisions have been issued by the Brazilian judiciary. The most controversial relates to the stay period applicable to an airline in judicial recuperation. According to the Bankruptcy and Restructuring Law, lessors are not subject to any stay when an airline seeks judicial recuperation. According to Brazil's Cape Town Convention declarations, the ‘waiting period' is 30 days. Thus, the stay period applicable to Avianca Brasil should have been zero days or, at most, 30 days (in the authors' views, the correct period according to the Cape Town Convention would be zero days). However, contrary to expectations, the Brazilian bankruptcy court extended the 30-day waiting period – initially for 15 extra days and then, on 1 February 2019, until April. On 8 April 2019 the São Paulo Appeals Court decided in favour of the repossession proceedings in ongoing lawsuits filed by several of the lessors. On 12 April 2019 the bankruptcy court confirmed the decision of the appeals court. Thereafter, the lessors sought repossession of their aircraft.
One problem with the Avianca Brasil case was that, once the stay was lifted on 8 April, the bankruptcy court did not actually order Avianca Brasil to return the leased aircraft to the lessors. In the view of the lower bankruptcy judge, he had sufficient jurisdiction to prohibit the lessors from repossession, but his jurisdiction did not extend to issuing repossession orders. In his view, the lessors had to apply to the civil courts for repossession orders. The problem that this caused is that many different civil court judges received repossession requests simultaneously, and not all of them ruled in a uniform manner. For example, some lessors received repossession orders quickly; some more slowly; some were required to post bonds; others were relieved from bond requirements. On average, the lessors took four months to repossess their aircraft after Avianca Brasil sought bankruptcy protection.
The second relevant decision in Brazil, issued in 2017 by the Federal Superior Court, relates to conflicts between the application of the Brazilian Consumers Code and the Montreal Convention (see question 4.5).
11 Trends and predictions
11.1 How would you describe the current aviation landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
It is very difficult to predict how the Brazilian aviation market will react after the COVID-19 pandemic. Thus far, there has been only one airline insolvency case since the Cape Town Convention took effect in Brazil. In that case the lessors were seeking repossession of the aircraft. The COVID-19 crisis, however, has produced an unusual situation in which repossession is not the relief that most lessors would want.
Sovereign rescue is essential for Brazilian airlines to survive during the crisis. We expect that finance help will be provided by the Brazilian Development Bank, to keep airlines afloat.
We recommend that leases be formally renegotiated through lease amendments and registered with the Brazilian Aeronautical Register so that they are enforceable against lessees. The Brazilian Congress is now considering emergency legislation to deal with the COVID-19 crisis and part of the legislation includes two new successive stay periods of 60 days each, for a total of 120 days that are not contemplated by current law. This draft legislation will not apply exclusively to the aviation sector: it will have general application to all areas of the economy, including aviation. Exceptions to the new rules are rescheduling or restructuring agreements entered into after 20 March 2020, which is the date on which the Brazilian government declared a state of emergency. Thus, if deferral agreements follow Brazilian formalities, they will be exempt from the terms of the new legislation (assuming that it is eventually passed into law).
12 Tips and traps
12.1 What are your top tips for operators in your jurisdiction and what potential sticking points would you highlight?
As described in question 11, the COVID-19 pandemic has put the market in standby and the aviation sector has been particularly severely affected. As in other countries, the survival of air transport companies will depend on sovereign help. As of the time of writing, this is still under discussion between companies and the Brazilian Development Bank.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.