The full Chamber of Deputies of Brazil yesterday approved the executive order presented last March by President Dilma Rousseff allowing foreign investors 100% ownership of/in Brazilian airlines, increasing from the current 20% limit.
Back in March, the then Brazilian President proposed an increased foreign direct investment (FDI) limit of 49% from 20%, but the rapporteur of the initiative raised the cap to 100% and was supported by 199 in favour to 71 opposed yesterday. The approved order stipulates that foreigners can hold up to 100% stake of a Brazilian airline through bilateral reciprocity agreements, meaning that the investor's country of origin also allows Brazilians to acquire 100% ownership.
What an opportunity this is. No doubt the Middle East and US majors will be looking hard at investment opportunities and Delta and United will be looking to move swiftly upon their targets to secure the Southern flank of their core market. The Chinese will also be looking to increase holdings. The biggest winner today could well be David Neeleman. 2016 is turning into a great year for the airline entrepreneurs (Tony, David, Bjorn, Jehangir etc.)
There can be little doubt that the Brazilian market is on the floor at the moment. During the first five months of 2016, domestic Brazilian air traffic fell by 8.2% to 36.4 million passengers compared to the year-ago period, according to data from the Brazilian Association of Airlines (ABEAR). The picture is a deteriorating one with the largest fall of 9.9% year on year coming in May 2016.
International passenger traffic also fell, this time by 4.9% to 544,000, compared to May 2015. Domestic cargo air transportation fell by 14.6% in May to 25,600 tons, representing a 14.6 percent drop over May 2015. The drop over the five month period was 12.4%.
These ABEAR figures cover Gol, Latam, Azul and Avianca (99% of domestic traffic). Brazilian domestic market share is split as follows: Gol 36.8%, Latam on 34.7%, Blue on 17% and Avianca on 11.3%.