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