Increasing Competition in Brazil
The Brazilian Congress passed Law 13.842 on June 17, 2019, which amended the Brazilian Aeronautical Code by abolishing the existing restrictions on foreign ownership and control in national airlines. As the code now allows foreign airlines to establish Brazilian subsidiaries, the Brazilian commercial aviation market is expected to become more competitive than ever. Currently, there are three major airlines in Brazil: Gol, LATAM and Azul. Gol and LATAM together hold more than 86 per cent of the total frequencies in Brazilian airports. Azul has been increasing its market share, especially after Oceanair (also known as Avianca Brazil) ceased its operations in May 2019.
The Brazilian Civil Aviation Authority (ANAC) recently reassigned airport slots that were formerly used by Oceanair at Congonhas Airport, which is the second busiest airport in the country. These slots were assigned to Azul and two Brazilian regional airlines, Passaredo and MAP. The Brazilian Civil Aviation Authority already approved a request from the Spanish group Globalia, which currently owns Air Europa, to set up a Brazilian subsidiary. This is the first case in which a wholly foreign-owned airline is to be authorized to operate cabotage flights within the Brazilian territory.
Recent Developments of Oceanair (Avianca Brazil) Case
The inception of this new Law 13.842 stems from a Provisional Order proposed by the former Brazilian president on December 13, 2018, a few days after one of the major Brazilian air carriers, Oceanair Linhas Aereas SA, filed for corporate restructuring (also known as "judicial recuperation"). The restructuring process is still ongoing, but it is unlikely that Oceanair will be able to come out of the restructuring at this stage. Most of the lessors have already recovered their aircraft after controversial decisions given by the insolvency judge and civil court judges in repossession claims.
Despite all the efforts from legal practitioners and great efforts from ANAC officials, Brazilian courts have seemingly violated local laws and the Cape Town Convention by, among other aspects, depriving foreign aircraft and engine lessors to enforce their repossession rights.
On August 5, 2019, the Brazilian Ministry of Infrastructure issued Executive Order 527 containing the core tenets and best practices to guide Brazilian public officials when negotiating matters related to international air services, including bilateral air services agreements. The Executive Order is an attempt from the Brazilian government to regain credibility with foreign investors by reinforcing the Brazilian commitment to comply with the obligations Brazil has assumed under aviation-related treaties and conventions to which it adhered, expressly the Cape Town Convention and the Aircraft Protocol.
On August 19, 2019, Embraer celebrated its 50th anniversary in style. The manufacturer recently announced it received letters of intent and purchase orders for up to 78 commercial aircraft of the E-Jet family. Embraer and Boeing established a partnership through the joint-venture named Boeing Brasil-Commercial in February 2019. Embraer's shareholders had already approved Boeing's take-over of Embraer's commercial aircraft division, but the deal is waiting for regulatory approval.
Recently, Embraer's vice-president of finance, Nelson Salgado, confirmed to a major Brazilian newspaper that the negotiations are following the due course, but Embraer has not provided any official information on the status of the outstanding regulatory approvals. Back in February, both Embraer and Boeing expected to close the deal by the end of 2019.
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