Brazil may double limit on foreign stakes in airlines

Thu Apr 24, 2008 2:21pm EDT
SAO PAULO, April 24 (Reuters) - The government of Brazil may more than double the stake foreign companies can buy in domestic airlines to stimulate investment in the overstretched industry, Defense Minister Nelson Jobim said on Thursday.
"Congress is currently dusting off a bill that would raise the limit of foreign participation in a domestic airline to 49 percent from the current 20 percent," Jobim said at a news conference in Sao Paulo.
Jobim, a former chief justice of Brazil's supreme court, was appointed defense minister, who oversees the airline industry, in July 2007.
He has begun to tackle systemic problems in the aviation industry, which saw two commercial airline crashes that killed over 350 of people, hundreds of flights canceled and thousands of travelers stranded since late 2006.
"There is simply a lot more demand than there is capacity," Jobim said. "Bigger and more runways are just one of many areas that need to expand."
Brazil's aviation market is dominated by two local airlines, TAM Linhas Aereas (TAMM4.SA: Quote, Profile, Research)(TAM.N: Quote, Profile, Research) and Gol Linhas Aereas (GOLL4.SA: Quote, Profile, Research)(GOL.N: Quote, Profile, Research). Together, they control more than 90 percent of the domestic aviation market and are scrambling to keep up with fast-growing demand.
Last month, JetBlue Airways Corp's (JBLU.O: Quote, Profile, Research) outgoing chairman, David Neeleman, unveiled plans for a new low-cost, discount carrier in Brazil that will take to the skies in 2009. Because Neeleman was born in Brazil, he was exempt from the law capping foreign ownership of airlines.
Brazil did not invest significantly in its aviation industry for several decades leading up to 2006. But the economy is growing at over 5 percent a year now, and air travel has been expanding at a double-digit pace.
Caps on foreign control of domestic airline industries are standard in Latin American countries, with each country having its own rules for foreign participation and varying caps. (Reporting by Reese Ewing; editing by Jeffrey Benkoe)