The Brazilian Senate has approved a bill that would raise the limit on foreign ownership of national airlines from 20 to 49 per cent.
The bill, which was passed on 25 November and has the support of the government, must still be approved by the House of Deputies before it can become law.
Lawyers in Brazil have broadly welcomed the increase. "This is a positive step for the development of the aviation sector, as it will certainly attract more foreign investors and increase competition among its players," says Maria Regina Mangabeira Albernaz Lynch of Xavier, Bernardes, Bragança, Sociedade de Advogados. "In fact, it is a great advance as the 49 per cent limit is higher than limits adopted by most developed countries, including the US."
Fabio Falkenburger of Machado, Meyer, Sendacz e Opice Advogados agrees. "The proposed changes are in line with the models adopted in a number of jurisdictions, where foreign capital is allowed provided that the control and management of the company remain in local hands," he says. "The increase will bring an additional source of capitalisation to a sector that is historically one of the most affected by difficulties in the economy."
He adds that "stronger and more competitive airlines tend to increase the offer of seats for lower prices, thus indirectly generating employment and tourism-related activities."
At the same time the Senate rejected a rival bill by Senator Valdir Raupp of the centrist Democratic Movement Party (PMDB) that would have removed the cap on foreign investment in national airlines entirely.
Martyn Plaskett of UK firm Clyde & Co in Rio de Janeiro says, "Raising the limit appears more realistic in a world of increasing globalisation of investments. Over the past two decades there has been a lot of consolidation in the region, such as that of Central American airlines into the TACA group, Synergy's acquisition of Avianca, and now the tie-up between TACA and Avianca. The airlines' desire for more foreign participation certainly appears to exist."
But he also sounds a note of caution. "Whether it proves to be a positive move will depend on whether the new legislation is exploited by predatory foreign airlines taking over existing markets or will allow expansion in domestic markets for existing airlines by providing new lines of capital."
He continues, "When the bill was drafted, the world was labouring under the impression that freedom of capital ultimately assists the consumer. This philosophy now appears questionable in light of the world recession. In that light, 49 per cent seems a good progressive move without 'giving away the store' by going over 50 per cent."
But Adolpho Julio C de Carvalho of Pinheiro Neto Advogados says foreign investors may still be deterred unless the bill addresses other legal issues. "The Aeronautical Code still prohibits non-Brazilians from sitting on an airline's board of directors. It's difficult to foresee investments reaching local companies that are completely dissociated from the basic will and needs of those investors, which is to have some influence on the management of the company. "
(Latin Lawyer 27.11.2009)
(Notícia na Íntegra)
