Last updated: 11:30 AM ET, Wed February 03 2016

Brazil May Allow Foreign Ownership of Domestic Airlines

Airlines & Airports | Josh Lew | February 03, 2016

Brazil May Allow Foreign Ownership of Domestic Airlines

Photo by David Cogswell

Some of the largest airlines in Brazil may soon be up for sale. The big news is not that shares of South American carriers like Gol may be changing hands, it's who will be buying these shares. According to a newspaper report, Brazil’s President, Dilma Rousseff, will propose legislation that would give the government the power to approve foreign ownership of Brazilian carriers, even if the airlines only served domestic markets. 

If Rousseff is given the discretion to allow foreign ownership, it would be a major change for the airline industry in Brazil. Currently, foreign investors can own Brazil-based airlines, but they cannot have more than a 20 percent stake in one airline. Under the new legislation, approved investors from outside Brazil could own up to 100 percent of these airlines.

A way to help a struggling industry

This is not a case of giving Brazilian carriers access to funding so that they can grow. Many of the country’s major airlines are struggling mightily. Giving them access to more capital and outside expertise could help them simply survive. 

The country’s airline governing body, the National Civil Aviation Agency (Agência Nacional de Aviação Civil or ANAC), has been calling for limits on foreign ownership to be lifted. Last year, the government debated allowing foreign owners to have a larger minority stake in Brazilian airlines (up to 49 percent).  

READ MORE: How Brazil's Mega-Events Are Courting US Tourists

Momentum building for a major change

Obviously, the new legislation would go much further than that. An anonymous source from the President’s office told Reuters that high-level discussions had built momentum for the new legislation. 

Some well-known names are already involved with Brazilian airlines. Delta owns a 9.5 percent stake in Gol. A recent stock and loan deal worth more than $400 million was essentially a bailout for the struggling low-cost carrier. 

One of Gol’s rival, Azul, looked to China, making a similar deal with HNA Group. Brazil’s most well-known airline, TAM, had to create a complex company ownership structure so that it could abide by Brazil’s laws while effectively merging with Chilean carrier LAN. Though the two airlines still have their own liveries, they are functioning, more or less, as one carrier: LATAM. 

READ MORE: LATAM Making Big Global Push

A necessary step for Brazil (and other countries?)

President Rousseff’s foreign ownership push could be seen as a necessity for Brazil’s airlines. The choice might seem pretty black and white for Brasilia: either allow foreign ownership or let airlines fail just as Brazil is about to enter the world’s spotlight during the 2016 Olympics. 

Some countries have always protected their major airlines with regulations and tax breaks that tilted the playing field in the home airlines’ favor. If Brazil’s new legislation goes through, that old protectionism mindset will be gone. Or will it?

Some might see a Delta takeover of Gol as inevitable if this new legislation does indeed have the momentum to pass Brazil's Congress. However, it remains to be seen what kind of promises or deals outside investors will have to make with Brasilia to get the “approval” needed to take over the airlines.  

What about in other countries? Some airline shareholders might prefer strong regulations if it gives them an edge. Others that are struggling, however, might point to Brazil and give their government an ultimatum: we will fail unless you open the door to foreign ownership.  

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