VZCZCXRO9826
PP RUEHRG
DE RUEHBR #0146/01 0240959
ZNR UUUUU ZZH
P 240959Z JAN 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 4256
INFO RUEHSO/AMCONSUL SAO PAULO 6162
RUEHRG/AMCONSUL RECIFE 4207
RUEHRI/AMCONSUL RIO DE JANEIRO 1375
RUEHAC/AMEMBASSY ASUNCION 5167
RUEHMN/AMEMBASSY MONTEVIDEO 5995
RUEHSG/AMEMBASSY SANTIAGO 5276
RUEHPE/AMEMBASSY LIMA 2814
RUEHCV/AMEMBASSY CARACAS 3098
RUEHQT/AMEMBASSY QUITO 1702
RUEHLP/AMEMBASSY LA PAZ 4331
RUEHBO/AMEMBASSY BOGOTA 3583
RUEHBU/AMEMBASSY BUENOS AIRES 3728
RUEAUSA/DEPT OF HHS WASHDC
RUEANHA/FAA NATIONAL HQS WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUCPDO/USDOC WASHDC

UNCLAS SECTION 01 OF 03 BRASILIA 000146 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB/TRA/OTP - BMATTINGLEY 
STATE FOR EB/TRA/ - JHORWITZ 
HOMELAND SECURITY PASS TO TSA VICKI REEDER 
BUENOS AIRES FOR TSA 
FAA FOR AGC-330 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON 
 
E.O. 12958: N/A 
TAGS: EAIR ECON BR
SUBJECT: BRAZIL - NEW CIVIL AVIATION AGENCY 
 
REFS: (A) 05 RIO 792, (B) 05 BRASILIA 447, (C) 05 BRASILIA 2452 
 
¶1. (U) Summary.  A September 2005 law in Brazil created the National 
Civil Aviation Agency (ANAC), a civilian regulatory body that will 
replace the current Department of Civil Aviation (DAC) in the 
Ministry of Defense by March 2006.  ANAC's mission is to regulate 
and monitor civil aviation as well as airline and airport 
infrastructure.  While the GOB, airline industry and analysts all 
view the new civil aviation body positively, ANAC will not 
substantively change Brazilian aviation policy since it must 
regulate under the same aviation code.  Nevertheless, Mission Brazil 
and our GOB interlocutors see this as an opportune moment for 
increased dialogue.  End Summary. 
 
¶2. (U) Following more than five years of discussion and speculation, 
on September 27, 2005, Law 11.182 created the National Civil 
Aviation Agency (ANAC), a civilian regulatory body that will replace 
the current Department of Civil Aviation (DAC) in the Ministry of 
Defense.  ANAC is to be officially established within 180 days of 
the passage of the law (by March 21, 2006).  ANAC's mission is to 
regulate and monitor civil aviation as well as airline and airport 
security and infrastructure, while air space security and traffic 
control will remain under the Air Force.  As a civilian body, ANAC 
is also intended to create a more favorable investment climate and 
promote more market-based competition. 
 
Background 
---------- 
 
¶3. (SBU) Considered by GOB to fall within the purview of national 
security, civil aviation has always been under the control of the 
Ministry of Defense.  However, since the Brazilian government 
consolidated its military under a civilian Ministry of Defense 
almost 7 years ago, the idea of replacing the DAC, which is 
subordinate to the Brazilian Air Force, with a civilian agency has 
gained momentum.  Although the main resistance to ANAC came from the 
Air Force, one of the main proponents lobbying for the creation of 
ANAC was the (civilian) Ministry of Defense (MoD) itself.  In the 
works since the end of the Fernando Henrique Cardoso administration, 
ANAC failed to gain traction in the Brazilian national congress 
until September of 2005.  The creation of ANAC is in line with the 
Lula administration's continued efforts to reform and harmonize its 
regulatory bodies (Ref B). 
 
Directors Selected 
------------------ 
 
¶4. (U) Three of the four directors and the president (also a 
director) have been selected from diverse aviation-related 
backgrounds.  The Director-President will be Milton Sergio Silveira 
Zuanazzi (current Secretary for Tourism at the Ministry of Tourism 
and a confidant of President Lula's Chief of Staff Dilma Rousseff). 
The Directors will be Leur Antonio Britto Lomanto (current 
congressional relations chief at the Brazilian aviation 
infrastructure body Infraero, former PMDB-BA federal deputy, and 
rapporteur on the original ANAC bill), Jorge Luiz Brito Velozo (Air 
Force colonel and current head of the DAC's technical-operational 
department), and Denise Maria Ayres de Abreu (a Sao Paulo lawyer and 
professor with ties to former Chief of Staff Jose Dirceu, and who 
reportedly supported an earlier plan to liquidate Varig under the 
previous Minister of Defense).  It is anticipated that the fourth 
director position will be given to a union representative.  The law 
grants the ANAC directors a 5 year mandate, but the first directors 
will have only 5, 4, 3 and 2 year mandates to stagger future 
turn-over. 
 
HQ in Brasilia, but Ops in Rio 
 
BRASILIA 00000146  002 OF 003 
 
 
------------------------------ 
 
¶5. (SBU) One of the final hiccups in the passage of the ANAC 
legislation was determining whether it would be based in Brasilia or 
would remain in Rio de Janeiro.  Rigobert Lucht in the MoD Civil 
Aviation Department (and one of the main MoD lobbyists for creating 
ANAC) told Brasilia EconOff that a compromise was brokered: a small 
ANAC headquarters will be in Brasilia, but the majority of the 
operational staff will remain in Rio.  The same arrangement exists 
with the National Petroleum Agency (ANP) and the Energy Research 
Institute (EPE).  (Note: Lucht was in the US Air Force for 8 years, 
but then returned to Brazil and initially worked for Embraer. End 
Note.) 
 
Gradual Personnel Turn-over 
--------------------------- 
 
¶6. (SBU) The law allows for a 5 year transition period during which 
20% of the current DAC staff per year will be replaced by ANAC 
staff.  There is an informal consensus, however, that the Lula 
administration will likely allow for a longer period of transition. 
Director General of the DAC Jorge Godinho Barreto Nery estimated to 
Rio EconOff that half of the DAC are military personnel while Lucht 
estimated that DAC personnel are currently about 30% military 
personnel and 70% civilian.  Senate advisor Victor Carvalho Pinto 
estimated to Brasilia EconOff that of the 2,200 current employees, 
as many as 1/3 are currently on temporary contracts.  As previously 
reported, similar to the other regulatory agencies (Ref B), ANAC 
will benefit from greater stability under its new personnel system. 
ANAC will no longer be run by civilians under temporary contracts 
nor by military personnel who are only in the DAC on rotational 
assignments.  Instead, aviation regulation will become a new 
professional field in Brazil and Pinto expects an enthusiastic 
response by the public to the position openings. 
 
Funding its Budget 
------------------ 
 
¶7. (SBU) ANAC will be funded through the general federal budget and 
a portion of Infraero's boarding fees.  Although there were some 
press reports that ANAC did not have a budget, our interlocutors do 
not share these concerns at this time.  Assistant Deputy Chief of 
Staff in the President's Office, Rodrigo Augusto Rodrigues, told 
Brasilia EconOff that first, an amendment will be made to the 
general budget, transferring some of the DAC allotment to ANAC; 
second, up to 50% of the boarding fee that Infraero charges, as 
determined by the Executive branch, will be passed to ANAC. 
Rodrigues noted that Infraero is doing well financially and is the 
only aviation sector concessionaire that was not already paying 
something into the treasury for its concession.  It is not clear at 
this point what impact these new procedures may have on airport 
fees. 
 
Regulation vs. Code 
------------------- 
 
¶8. (SBU) The creation of ANAC itself deliberately doesn't change 
anything in terms of the regulatory environment as ANAC will still 
regulate under the current Brazilian Civil Aviation Code (7.565 from 
December 1986).  During the debate on the ANAC bill in the congress, 
a number of regulatory changes to were added to the measure 
(including an extension of current airline industry concessions). 
However, as part of the compromise to get the law passed, President 
Lula agreed to veto the regulatory elements to keep the law focused 
on the creation of the regulatory agency.  A revised version of the 
code itself was drafted three years ago, but was placed on hold 
pending the creation of ANAC.  When sent by the Lula Administration 
 
BRASILIA 00000146  003 OF 003 
 
 
to congress, it is expected to address issues such as the percentage 
of ownership allowed by foreigners -- which is currently limited in 
Brazil to 20% -- and the tariff rates.  Rodrigues expects a serious 
discussion of the current civil aviation law to begin soon.  He 
explained that the new proposal will undergo a consultative process 
that will include the National Civil Aviation Counsel, with both the 
government and private sector represented.  Rodrigues also expects 
that it will be easier to make changes to the law with a civilian 
regulatory body in place, as this entity will have a better sense of 
the market.  The creation of ANAC may be the most significant civil 
aviation change since the considerable deregulation of the air 
transportation sector in Brazil in 2001. 
 
¶9. (SBU) Lucht considered the creation of ANAC a symbolic victory 
for those who wish to assert greater civilian control over the 
Ministry of Defense.  Pinto opined that as civil aviation was a 
civilian activity, that it belonged in civilian hands.  The only 
down-side Pinto noted was that ANAC could be politicized rather than 
being run as a technical organization. 
 
Comment 
------- 
 
¶10. (SBU) With so many things broken in Brazil, there is some irony 
that the civil aviation regulatory body has undergone reform -- 
since the DAC has an excellent track record for meeting 
international aviation standards and is reportedly one of the eleven 
countries in International Civil Aviation Organization (ICAO) with 
the highest ranking in terms of aviation security.  Nevertheless, we 
see this as a very positive step over the long-term and an 
opportunity for increased dialogue with the GOB on civil aviation. 
The DAC has consistently requested increased training and exchanges 
with the Transportation Security Administration (TSA), especially 
following our agreement on a reciprocal visits program (Ref C). 
Pinto said he is studying the US regulatory system and considers 
this an important moment to increase the US-Brazil dialogue and 
cooperation on civil aviation.  Rodrigues, who was already familiar 
with OMB studies on the US system, also expressed great interest in 
having an exchange of best practices and lessons learned with US 
officials and private sector representatives as the GOB debates 
changes to its aviation law.  Should the GOB end up formally 
requesting our counsel, we recommend that USG agencies take these 
overtures seriously and offer our assistance.  Over the medium term, 
this may create an environment conducive to greater air transport 
liberalization and increased aviation security cooperation. 
 
¶11. (U) This cable was written in coordination with Consulates 
General Sao Paulo and Rio de Janeiro. 
 
CHICOLA