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Cablegate: Brazilian Civil Aviation Liberalization: Perspectives From

VZCZCXRO9205
RR RUEHRG
DE RUEHBR #1319/01 3201424
ZNR UUUUU ZZH
R 161424Z NOV 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 5357
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 0021
RUEHSO/AMCONSUL SAO PAULO 0062
RUEHRG/AMCONSUL RECIFE 0093
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 BRASILIA 001319

SIPDIS
SENSITIVE

STATE FOR WHA/BSC, WHA/EPSC, EEB/TRA KRIS URS
STATE PASS DOT FOR BRIAN HEDBERGCOMMERCE FOR ITA/MAC ANNE DRISCOLL,
LORRIE FUSSELL

E.O. 12958: N/A
TAGS: EAIR EINV ECON BR
SUBJECT: BRAZILIAN CIVIL AVIATION LIBERALIZATION: PERSPECTIVES FROM
BRAZIL'S MINISTRY OF DEFENSE

REF: A. BRASILIA 0016; B. BRASILIA 0076; C. BRASILIA 0395; D.
BRASILIA 0896; E. SAO PAULO 0192

SENSITIVE BUT UNCLASSIFIED

1. (SBU) Summary: Brazil's abilities to accommodate strong
passenger air traffic growth, prepare for the World Cup in 2014 and
the Olympics in 2016, and enact market liberalization measures hinge
upon its successful resolution of pressing capacity constraints,
particularly at Sao Paulo's Guarulhos International Airport. In
recent meetings, Fernando Soares, the Director of Civil Aviation
Policy within the Civil Aviation Bureau (SAC) at Brazil's Ministry
of Defense (MOD), and Carlos Duarte, Soare's Manager of Civil
Aviation Policy, discussed sectoral market reform measures and
airport infrastructure in the context of coping with these
challenges. Soares, a self-professed free market economist who has
worked closely with ANAC president Solange Vieira on several market
liberalization initiatives, commented that the capacity constraints
are a major impediment to a successful conclusion of an Open Skies
agreement with the United States, and suggested adopting a phased-in
approach that begins with air cargo and concludes with passenger
traffic as the operational constraints are resolved. Mission
believes it is important not to lose the momentum generated from the
successful implementation of the June 2008 Brazil/United States
civil aviation agreement. Engaging Brazil in further discussions on
air cargo liberalization could be a productive next step, with a
view toward a full Open Skies agreement as Sao Paulo's operational
constraints are resolved and as Brazil builds broader stakeholder
consensus in support of Open Skies. End Summary.

AIRPORT INFRASTRUCTURE CHALLENGES
---------------------------------
2. (SBU) In order to cope with soaring air traffic demand, which
saw a 30% increase in October 2009 compared to October 2008, Soares
highlighted the urgency of resolving operational capacity
constraints in Brazil's major airports, especially Sao Paulo's
Guarulhos Airport, Brazil's busiest international airport. SAC's
main priority leading up to the World Cup and the Olympics is
airport infrastructure, Soares stated. He noted that current demand
already makes addressing infrastructure challenges a priority, and
World Cup and Olympic demand only increases the urgency. In
tackling the capacity constraints caused by expansion limitations at
Guarulhos, Soares stressed the importance of completing the high
speed train project linking Sao Paulo's less congested suburban
Viracopos International Airport to downtown Sao Paulo and Rio in
order to offer a viable alternative to servicing Sao Paulo. Soares
added that he doubted the construction of a new airport in downtown
Sao Paulo would be ready for the World Cup in 2014. Soares cited
the importance of private-public partnerships as critical mechanisms
to achieving the necessary infrastructure improvements. To this
end, Soares referenced recent SAC/ANAC initiatives allowing for
greater private sector participation in airport infrastructure
management and expansion through a concession model (REFTEL D),
adding that both Viracopos and the proposed new airport in Sao Paulo
are targeted for private management under the model with the aim of
enhancing their operational efficiencies. Soares was hesitant to
predict when these initiatives would be approved by MOD's Minister
Jobim or by President Lula, citing Jobim's lukewarm reception to
transferring a state responsibility to the private sector, and
election year politics in 2010 as potential obstacles to their
approval. Soares also showed interest in a Brazil/ United States
Aviation Cooperation Program (ACP), commenting that its proposed
public-private partnership framework would prove useful in
addressing some of Brazil's infrastructure challenges, suggesting a
continuation of the dialogue with both SAC and ANAC.
MARKET MEASURES
---------------

3. (U) As a free market economist committed to increasing
competition within the aviation sector, Soares said that the
implementation of many of Brazil's recent market liberalization
measures, such as changes in levels of foreign ownership of
Brazilian airlines and the facilitation of quicker market entry for
foreign carriers (REFTEL D), hinge upon the resolution of
infrastructure challenges in Sao Paulo. Soares added that the two
proposed initiatives have widespread support in the Brazilian
National Civil Aviation Council(CONAC), which Soares chairs (REFTEL
A), and in the Brazilian Congress, where passage is expected soon,
but execution and success will depend upon the availability of more
Sao Paulo routes. Soares and Duarte concurred with the conclusions
of the USG-provided Open Skies economic impact study for Brazil that
pointed to increased sectoral employment, greater competition and
enhanced operational efficiencies as a result of an Open Skies

BRASILIA 00001319 002 OF 002


agreement. In fact, Duarte attributed a 30% decrease in domestic
fares in September 2009 compared to September 2008 to the increased
competition caused by Brazilian low cost carriers Webjet and Azul
and said an Open Skies agreement would further enhance SAC's civil
aviation market development goals. Soares stated that Brazil would
sign an Open Skies agreement with the United States "tomorrow" if it
were not for the capacity problems in Sao Paulo, conceding that the
main interest for U.S. carriers was additional slots in Guarulhos
(Note: ANAC President Solange Vieira stated publicly on November 12
that she will propose a formal moratorium on all new international
frequencies at Guarulhos beginning in 2010 due to the capacity
constraints there. End Note). Soares suggested taking a poll of
the U.S. carriers to see if there was interest in increasing
frequencies to Rio's Galeao airport and those in the north and
northeast of Brazil. Soares offered that both sides could sustain
the successful momentum toward Open Skies by adopting a phase-in
approach to Open Skies starting with air cargo first, which would
not face the same operational constraints as passenger traffic
because its primary hub is Viracopos.

4. (SBU) Comment: There does not appear to be a realistic scenario
that points to a conclusion of a full Open Skies agreement with
Brazil in 2010, despite theoretical buy-ins from key Brazilian
government stakeholders (REFTEL B). In addition to GOB's need to
manage domestic carrier opposition to Open Skies (REFTEL C and E),
the airport infrastructure constraints in Brazil's business center
of Sao Paulo represent a serious hurdle as it prepares for the
World Cup and the Olympics. These challenges present an opportunity
to engage Brazil through an Aviation Cooperation Program (ACP) that
incorporates a public-private approach in addressing aviation
related challenges. At the same time, it is important not to lose
the momentum generated from the successful implementation of the
June 2008 Brazil/United States civil aviation agreement. Engaging
Brazil in further discussions on air cargo liberalization could be a
productive next step, with a view toward a full Open Skies agreement
as Sao Paulo's operational constraints are resolved and as Brazil
builds broader stakeholder consensus in support of Open Skies
(REFTEL C and E). Sao Paulo will report septel on evolving industry
views on Open Skies. End Comment.

This message was cleared by consulates Sao Paulo and Rio.

KUBISKE

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