Brazil changes rules on foreign ownership for the airline industry

The restriction of a maximum of 20% of foreign ownership of Brazilian airlines was lifted last year by former President Temer with the enactment of Provisional Measure No. 863/2018, as a response to Avianca filing for judicial restructuring. Provisional measures are enforceable as from their enactment but are subject to confirmation by Congress within 120 days.

The legislative change initially brought about by Provisional Measure No. 863/2018 was confirmed by Congress on the last day of this 120-day deadline, and subsequently sanctioned by President Bolsonaro. It has now been converted into Law No. 13,842/2019, authorizing full foreign ownership in Brazilian airlines.

In practice, this means that foreign carriers can now establish local subsidiaries, and not only branches, which allows them to operate domestic flights.

In addition to the commercial considerations of whether or not the foreign carrier wishes to provide domestic flights in Brazil, the choice between establishing a branch and a subsidiary should take into consideration tax and regulatory implications, among others.

The proposed new rules on baggage allowance have been vetoed by President Bolsonaro, leaving the matter to the regulation of the Brazilian Civil Aviation Authority (ANAC). Such veto is still subject to review by Congress.