VZCZCXRO5714
PP RUEHRG
DE RUEHSO #0915/01 3180952
ZNR UUUUU ZZH
P 140952Z NOV 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 7670
INFO RUEHBR/AMEMBASSY BRASILIA 8791
RUEHAC/AMEMBASSY ASUNCION 3172
RUEHBU/AMEMBASSY BUENOS AIRES 2936
RUEHCV/AMEMBASSY CARACAS 0598
RUEHME/AMEMBASSY MEXICO 0826
RUEHMN/AMEMBASSY MONTEVIDEO 2495
RUEHLP/AMEMBASSY LA PAZ 3562
RUEHSG/AMEMBASSY SANTIAGO 2199
RUEHRI/AMCONSUL RIO DE JANEIRO 8435
RUEHRG/AMCONSUL RECIFE 3876
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 2948
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RHMCSUU/FAA NATIONAL HQ WASHDC
RUEAYVF/FAA MIAMI ARTCC MIAMI FL
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 03 SAO PAULO 000915 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/EPSC AND EEB/TRA 
STATE PASS USTR FOR KATE DUCKWORTH 
FAA FOR CCAPESTANY, GBURDICK DEPT OF TRANSPORTATION FOR BHEDBERG 
BUENOS AIRES FOR TSA ATTACHE 
MEXICO CITY FOR TSA ATTACHE MGALVAN 
USDOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC ALSO FOR 3134/USFCS/OIO 
NSC FOR TOMASULO 
TREASURY FOR JHOEK 
SOUTHCOM FOR POLAD 
USAID FOR LAC/AA 
 
E.O. 12958: N/A 
TAGS: EAIR PREL MARR PGOV ECON EINV BEXP BR
SUBJECT: DESPITE PROBLEMS, BRAZILIAN AIRLINES OPTIMISTIC 
 
REF: Brasilia 290 
SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY 
 
¶1.  (SBU) Summary.  Ambassador Sobel met with the Presidents of the 
two leading Brazilian airlines TAM and Gol on October 22 to discuss 
developments in the aviation sector.  Both firms noted that Brazil's 
underdeveloped infrastructure is buckling under increased air 
traffic in recent years.  The TAM and Gol executives expressed hope 
that the new Minister of Defense would promote private investment 
into infrastructure and suggested that several Brazilian firms are 
willing to support this development.  The limited number of aircraft 
is a constraint for international expansion; TAM and Gol first are 
trying to utilize rights to European destinations via Brazil's 
bilateral aviation agreements, and then will pursue additional 
flights to the U.S. market, where Brazilian carriers have unused 
frequencies.  Although both companies are receptive to expanding 
flights to/from Northeast Brazil, they are likely to focus their 
limited aircraft fleets on the traditional destinations of New York 
and Miami via Sao Paulo and Rio de Janeiro in the short-term.  End 
Summary. 
 
Infrastructure Constraints Limiting Growth in Industry 
------------------------ 
¶2.  (SBU) The Presidents of TAM Airlines (TAM), Marco Antonio 
Bologna, and Gol Airlines, Constantino de Oliveira Junior, told 
Ambassador Sobel in separate meetings on October 22 that the growing 
air traffic demand is stretching Brazil's aging and underdeveloped 
aviation infrastructure.  TAM said industry priorities for 
infrastructure in Sao Paulo are the third runway and additional 
terminal at Sao Paulo's main international terminal at Guarulhos, as 
well as developing a third airport in the greater Sao Paulo area. 
Gol's Oliveira told the Ambassador that privatizing the existing 
Viracopos Airport in Campinas is the best option because of 
available space and its existing infrastructure.  [Note: Viracopos 
is about 40 miles outside of downtown Sao Paulo, and currently 
services mostly private aircraft and cargo.  End Note.]  Oliveira 
also emphasized the need to modernize SP's commuter airport, 
Congonhas, by extending the runway, which would require invoking 
eminent domain to condemn nearby property. 
 
¶3.  (SBU) Marco Antonio Bologna of TAM noted the need for 
significant private investment to meet Brazil's infrastructure 
needs.  He complained that despite Minister of Defense (MOD) Nelson 
Jobim's apparent openness to private investment, the Brazilian 
government is dumping money into the MOD's budget rather than 
encouraging private participation.  The Ambassador underscored the 
lack of a strong investment framework for foreign investors in 
Brazil, including the inconsistent regulatory framework, lack of 
transparency, and uncertain return on investment.  Both Bologna and 
Oliveira expressed interest in investing in private terminals and 
airports, and stated that several financing firms share their 
interest. 
 
Industry Positive about New Leadership 
------------------------ 
¶4.  (SBU) TAM and Gol were upbeat about the new faces at the 
National Agency of Civil Aviation (ANAC) and Infraero, the 
government agency that manages airports.  TAM said the GoB's 
appointment of Minister Jobim demonstrates a positive step toward 
reforming management of the sector, and that his involvement in the 
 
SAO PAULO 00000915  002 OF 003 
 
 
regulatory framework should help; however, TAM continued to expect 
any measurable improvements in overall performance to take a long 
time.  Oliveira also noted that Jobim is a man of action, and hoped 
to see him begin reforming the sector when the Senate approved the 
recently nominated ANAC Board of Directors.  He said Solange Vieira, 
who he expected to be confirmed as Chairman, is dynamic and 
intelligent.  Ambassador Sobel agreed that Jobim's appointment is a 
positive step.  He hopes to encourage Jobim to meet with both 
Department of Defense and aviation sector leaders when he visits 
Washington in January. 
 
Reforms in Sector Needed 
------------------------ 
¶5.  (SBU) Bologna told the Ambassador that although both civil and 
military air traffic control systems can work, it is easier to 
increase incentives for civilian controllers than for their military 
counterparts, and he believes military controllers are more 
concerned about their careers than the sector's performance. 
Bologna suggested using the more than USD 600 million in tariffs the 
industry collected last year for technological upgrades.  He told 
the Ambassador that the GoB had created a framework of 18 
resolutions in 2003 to improve the sector; however, the GoB has done 
nothing to address them. 
 
Aircraft Shortage Dictates Strategic International Expansion 
------------------------ 
¶6.  (SBU) TAM and Gol confirmed press reports that worldwide the 
industry's major restraint is that demand for larger aircraft is 
outstripping supply.  Bologna said TAM is unable to fulfill its 
international expansion plans and expects aircraft shortages through 
¶2008.  Oliveira also noted that fleet size is Gol's primary 
constraint, especially large aircraft for transoceanic flights to 
Europe and the U.S.  As a result, the airlines have to husband their 
resources carefully.  Both TAM and Gol are currently trying to 
secure as many of Brazil's rights in Europe as possible because 
Brazilian bilateral agreements with European countries provide for 
more limited weekly flight frequencies.  [Note:  Brazil's bilateral 
agreement with the U.K. allows for 14 frequencies per week, while 
the U.S. agreement grants 105 per week.  In April 2006, the GoB 
canceled all allocations for the defunct airline, Varig, and then 
reallocated 29 frequencies to the new Varig-Gol and 28 to TAM.  In 
October last year, the GoB increased TAM's allocation to 35 
frequencies.  On October 25, the USDOT had a preliminary meeting 
with Varig-Gol, during which Varig-Gol expressed its intention to 
apply as a new company.  If that happens, it would need to 
renegotiate any flight frequencies directly with the GoB at that 
point.  It does not currently operate flights to the U.S. 
Therefore, the bottom line is that Brazilian carriers are currently 
using only 35 of its available 105 frequencies, and TAM is using 
them all.  End Note.]  When asked about Open Skies, Bologna said the 
trend is moving toward multilateral agreements over the next 5-10 
years.  He did not think TAM could be receptive to such an agreement 
before then. 
 
¶7.  (SBU) Both TAM and Gol told the Ambassador they will turn their 
attention back to U.S. destinations in 2008.  TAM will use its new 
partnership with United Airlines to launch a new route to Los 
Angeles International Airport, followed by additional routes to 
Miami and New York from Rio.  Gol launches flights to London, Mexico 
City and Madrid from Sao Paulo this year and plans to add routes to 
 
SAO PAULO 00000915  003 OF 003 
 
 
New York and Miami from an as-yet undetermined destination in Brazil 
early next year.  Oliveira told Ambassador Sobel that Gol plans to 
keep Gol as the low-cost carrier and maintain Varig as its 
full-service carrier. Oliveira also outlined an unorthodox strategy 
to develop routes to non-traditional U.S. cities such as Boston, LA, 
Dallas, DC and Orlando via a Central American hub (similar to 
Panama's Copa Airlines), allowing Gol to continue to operate smaller 
and shorter range jets. 
 
¶8.  (SBU) Both companies indicated that service between the U.S. and 
Brazil's Northeast is of interest, but a lower priority.  Gol said 
Varig is exploring a longer-term code sharing arrangement with Delta 
or American Airlines, but it is not feasible right now.  Gol also is 
considering a direct U.S. flight from Brasilia (not clear to where), 
as well as Brasilia-Manaus-U.S. and Brasilia-Fortaleza-U.S. 
services. 
 
We Need Help 
------------ 
¶9.  (SBU) Bologna requested that U.S. Mission Brazil help encourage 
the GoB to stay focused on civil aviation problems and on increasing 
markets for passenger and cargo transport.  Bologna also supported 
encouraging Minister Jobim to change Brazilian laws to increase 
flexibility for private investment.  Gol encouraged U.S.-Brazilian 
technical exchanges, and suggested the USG reinforce the GoB's need 
for outside support to address deficiencies.  "Brazil cannot do it 
alone," Oliveira stressed.  Gol also suggested the Mission persuade 
U.S. aircraft parts suppliers to open facilities in Belo Horizonte. 
 
 
Comment 
------- 
¶9.  (SBU) Gol and TAM Airlines painted a positive outlook despite 
existing bottlenecks in the Brazilian aviation sector.  Although 
both companies are actively developing expansion strategies, the 
limited availability of aircraft over the near term is likely to 
delay the launch of new U.S. service.  These capacity and financing 
constraints will limit Brazilian airlines' ambitions at bilateral 
negotiations in December as well as the likelihood of their 
introducing new U.S. routes from cities in Brazil's Northeast over 
the medium term.  For the immediate future, Brazil may look to U.S. 
carriers to fulfill any hope for new air service to the country's 
Northeast.  End Comment. 
 
¶10.  This cable has been drafted and coordinated with Embassy 
Brasilia and was approved by Ambassador Sobel. 
 
WHITE