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Converted into Law the Provisional Measure that allows 100% of foreign capital participation in Brazilian Airlines

July / 2019

The Brazilian civil aviation, which is notoriously protectionist and dominated by only a handful of airlines, has had recent important legal changes. Law n. 13.842/19 published, on June 17, 2019, resulting from the conversion of Provisional Measure n. 863/18, which amended the main section of Article 181, revoked its sections I to III and paragraphs 1 to 4, as well as Articles 182, 184, 185 and 186 of Law n. 7.565/86 – the Brazilian Code of Aeronautics.

The abovementioned articles provided the conditions for an airline’s company to take part in the concession of flight services, namely: i. the need for it to be a Brazilian legal entity (Article 181, main section); ii. with its headquarters in Brazil (Article 181, I); iii. with at least 4/5 of the voting capital being held by Brazilians (Article 181, II); and iv. with its direction and administration entrusted exclusively to Brazilians (Article 181, III). In addition, Article 181’s paragraphs, also revoked, disciplined the transfer and conversion of stock to foreigners, seeking to limit it to be in accordance with the conditions aforementioned.

The other revoked provisions, Articles 182, 184, 185 and 186 regulated, respectively, the: i. grant of authorizations (which, unlike the concessions, was aimed at non-regular air transportation and specialized service); ii. prior approval by the aeronautical authority of the company’s Articles of Incorporation; corporate documents that had to be sent to the aeronautical authority to ensure the regularity of the company; and iv. incorporation and merger of airlines.

With the publication of Law n. 13.842/19, the only provision that remained, although amended, was the main section of Article 181, which now states “The concession or authorization shall only be granted to a legal entity constituted under Brazilian law, with its headquarters and administration in the country”. Thus, it expressly allows that foreign companies fully own the capital of a Brazilian airlines, notably by repealing sections II and III of Article 181, which demanded the dominance of Brazilian capital and administration.

As it can be noted from a sheer reading of Article 181’s new main section, given by Law n. 13.842/19, the new requirements for a company to receive a flight service concession are only its constitution under the Brazilian law and having its headquarters and administration in the country – which, necessary to emphasize, can be done entirely through foreign capital, respected the applicable Corporate Law provisions. Therefore, the much expected increased access to the Brazilian civil aviation market was facilitated by such Law.

Vernalha, Di Lascio, Mesquita & Associados is at the disposal of its clients for more information on the subject.