Federal Government approves Law that opens airline sector to foreign investment and maintains charges for luggage check-in in domestic flights

On June 17, 2019, the Brazilian Federal Government issued Federal Law No. 13.842/2019, which partially approves the content of Provisional Measure No. 863/2018 (PM 863). This Law confirms the opening of airlines’ capital to foreign investment, but vetoes the proposed rules for luggage allowances in domestic flights.

PM 863, approved by the Brazilian National Congress last month, eliminated some of the requirements that Article 181 of the Brazilian Aeronautical Code (Law No. 7.565/1986) prescribed for companies aiming to provide public aviation services. Among the requirements that were repealed are the 20% limit on the participation of foreign capital in Brazilian airlines as well as the need for company management to be composed entirely of Brazilians.

As a result, PM 863, now ratified by Federal Law No. 13.842/2019 and incorporated into the Brazilian Aeronautical Code, allows foreign entities to hold up to 100% of the share capital of airline companies in Brazil. This measure increases the opportunity for the participation of new companies and the enhancement of competition, which may bring benefits in terms of quality of the services offered to passengers.

It is important to note, however, that the Law still requires companies to be incorporated in accordance with Brazilian Law and must be headquartered and managed in Brazil.

In contrast to the content of Resolution No. 400/2016 of the National Civil Aviation Agency (“ANAC”), PM 863 had also included in the Brazilian Aeronautical Code specific provisions on luggage allowance in domestic flights. The Federal Senate proposed the inclusion of Article 222-A, which established the right of every passenger to check-in, for free, on any domestic flight:

1. one 23kg luggage item, for aircraft with more than 31 seats;
2. one 18kg luggage item, for aircraft with up to 30 seats; or
3. one 10kg luggage item, for aircraft with up to 20 seats.

Federal Law No. 13.842/2019 did not incorporate these provisions, since Brazilian President Jair Bolsonaro decided to use his power to veto in this regard (Veto Message No 250, June 17, 2019). Consequently, and following the rules of ANAC’s Resolution No 400/2016, airline companies can still charge for all checked luggage in domestic flights and can sell air tickets with different checked luggage allowances.

To justify his veto, the President claimed that the proposed free baggage was contrary to the public interest, since it hindered competition in the airline sector by derailing the business model of low-cost airline companies and by preventing the sale of cheaper air tickets for passengers who do not wish to check in luggage.

Although the effects of the new Law are still uncertain, an increase in participation of foreign companies in the domestic airline sector is widely expected, following the recent example of Air Europa which, with the legal support of the Demarest Advogados’ team became the first foreign-owned airline company to obtain a concession to operate domestic flights in Brazil.

Our Corporate and Infrastructure teams are available to provide further information or clarification on this matter.