On July 8, the House of Representatives approved the new wording of Executive Order No. 925/20 (MP 925), which establishes emergency measures for the Brazilian air sector due to the covid-19 pandemic.

Initially published on March 18 of this year, the original wording provided for the possibility of extending the deadline for payment of fixed and variable contributions due from airport concessionaires and established a period of 12 months for reimbursement of amounts relating to the purchase of airline tickets. MP 925 was the first reaction of the federal government to try to prevent a collapse of the domestic air market, which was practically paralyzed due to movement restrictions imposed to contain the spread of the coronavirus.

With validity about to expire, MP 925 was approved by the House with some important inclusions and awaits consideration by the Federal Senate. If the final draft of authored by Representative Arthur Oliveira Maia is approved without amendment, the following provisions will be converted into federal law.

Fixed and variable contributions

The amounts from by the airport concessionaires as fixed and variable contributions and due this year may be paid up to December 18, 2020, with the updates due calculated based on the National Consumer Price Index (INPC). Mere postponement of the payment of contributions will not give rise to economic and financial rebalancing of the contracts by the federal government.

Reimbursement of air tickets

Refunds due for cancellation of flights between March 19 and December 31, 2020, may be made by airlines within 12 months of the date of the cancelled flight. Reimbursement may be replaced with the granting of a credit to the consumer for an amount equal to or greater than the amount of the ticket cancelled. The credit will be valid for 18 months and may be used by the consumer himself or by a third party to purchase products or services offered by the company.

Wherever possible, carriers must offer the possibility (i) of rebooking on a company flight or one operated by another carrier, or (ii) rebooking the ticket under the same conditions as the ticket originally purchased and at no additional cost. Consumers will also be allowed to choose (i) a credit for the amount corresponding to the ticket, without any penalties being applied, or (ii) to withdraw from the flight, in which case reimbursement must be made within 12 months, subject to any contractual penalties. In this case, if the withdrawal pertains to a ticket purchased seven days or more in advance of the date of boarding, and if it is done within 24 hours from the receipt of the ticket, the penalties will not be applied.

Changes to the Brazilian Aeronautical Code - liability for damage to passengers and cargo

The new wording brings in proposals to amend the Brazilian Aeronautical Code (CBA - Law 7,565/86) that were not contemplated in the original text of MP 925. It was suggested that a new article (251-A) be created providing that the compensation for non-economic damages resulting from failure to perform the contract will be conditional on the demonstration by the passenger (or shipper/consignee of the cargo) of the actual occurrence of the damage. If the proposal is not vetoed by the President of Brazil or modified by the Senate, claims for compensation for non-economic damages shall be subject to proof of their actual existence.

The text also seeks to amend the rule dealing with carrier liability in cases where delays occur due to force majeure or determination by the aviation authority. The new wording provides that the carrier shall not be liable for damages arising from delays only if it proves that, for reasons of unforeseeable circumstances or force majeure, it was impossible to take the measures appropriate and necessary. The requirement of proof of inability to adopt the measures does not exist in the current wording of the CBA.

A new paragraph is being proposed to define as unforeseeable circumstances or force majeure (i) landing and take-off restrictions due to weather conditions, unavailability of airport infrastructure, order by civil aviation authorities or other government authorities; or (ii) decree of a pandemic or publication of acts of government due to a pandemic.

Subsection I of article 264 of the CBA may also be amended. The current version exempts the carrier from liability for damage to cargo when it proves that the delay was caused by an order of the aviation authority or by facts the effects of which could not have been foreseen, avoided, or prevented. The House's suggestion is that such exemption should only occur in the event of the unforeseeable circumstances or force majeure highlighted in the previous paragraph.

Guarantee Fund for Length of Service (FGTS) for pilots and airline workers

In response to a request made by Caixa Econômica Federal, the Representatives inserted a provision stipulating that pilots and airline workers with an FGTS escrow account and who have their salary suspended or reduction as a result of the pandemic will be entitled to withdraw the funds, up to the limit of the balance existing in the account, in six installments of: (i) R$ 3,135.00, in cases of total suspension of salary, or (ii) R$ 1,045.00.

National Civil Aviation Fund (FNAC)

Another novelty is the proposed amendment to Law No. 12,462/11, which provides for the creation of the FNAC. The new wording provides that the fund's resources may also be invested in (i) the development, expansion, and restructuring of public concession airports, provided that the investments do not constitute an obligation of the concessionaires; (ii) the cost of any expenses arising due to civil liability vis-à-vis third parties, in the event of damage caused by acts of war or related events against aircraft registered in Brazil operated by airlines.

The biggest novelty, however, is the possibility of using the resources to guarantee loans taken out before December 31, 2020, by by airport concessionaires, regular air transport service providers, and ancillary air transport service providers that prove losses due to the pandemic.

A measure that was initially simple and emergency in nature was embodied in the amendments proposed by the House of Representatives. The health crisis caused by covid-19 has caused significant changes in the world aviation market, affecting labor relations, company business models, and commercial relations. Of all the possible changes to be implemented should MP 925 be converted into law, the most promising is the new rule regarding application of FNAC resources. The permission for them to be used as collateral is a positive signal to the market and may be crucial for the survival of some companies in the sector. Access to credit will certainly be less costly if banks and investors have their resources guaranteed by a fund with billions in assets.

MP 925 has already been referred to the Senate and is awaiting approval to be converted into law. The only certainty in the midst of chaos is that aviation will yet go through some turbulence.