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FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 0333
INFO RUEHAC/AMEMBASSY ASUNCION
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RUEHBR/AMEMBASSY BRASILIA
RUEHBU/AMEMBASSY BUENOS AIRES
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RUEHLP/AMEMBASSY LA PAZ
RUEHMN/AMEMBASSY MONTEVIDEO
RUEHRG/AMCONSUL RECIFE
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSG/AMEMBASSY SANTIAGO
RUEHSO/AMCONSUL SAO PAULO

UNCLAS SAO PAULO 000076 
 
SENSITIVE 
SIPDIS 
EEB/TRA/AN FOR DHUTCHENS 
EEB/TRA/OTP FOR BSILER 
STATE PASS TO TRANSPORTATION AND FAA 
 
E.O. 12958: N/A 
TAGS: EAIR ECON PGOV EINV ETRD BR
SUBJECT: BRAZILIAN BUSINESS PERSPECTIVES ON OPEN SKIES 
 
REF: 09 BRASILIA 1319; 09 SAO PAULO 630 
 
¶1.  (SBU) Summary: In recent meetings with Brazilian flag carrier 
TAM, low cost carrier Azul, U.S. airlines, Brazilian tour operator 
Agaxtour, FEDEX and the GOB-owned airport concessionaire 
(Infraero), representatives acknowledged the benefits of a 
potential Open Skies Agreement (OSA) between the United States and 
Brazil as bilateral economic ties grow and Brazil's expanding 
middle class (ref B) travels more.  They also cited many challenges 
to an agreement including the competitive disadvantages of 
Brazilian carriers, infrastructure limitations and a foreseeable 
shortage of trained personnel to implement increased security and 
safety requirements.  ANAC's President Solange Vieira has also 
expressed doubts regarding the feasibility of beginning OSA 
negotiations in 2010.  Nonetheless, with domestic demand for air 
services growing 42 percent over the last year and low-cost 
carriers Azul, Webjet and Oceanair gaining market share, business 
interest in an OSA appears to be growing.  Discussions with 
industry contacts suggest that fostering nascent direct 
partnerships between Brazilian and U.S. airports, exploring a cargo 
OSA, or working toward expanding cargo and passenger frequencies 
could create a foundation for moving forward on a comprehensive 
OSA.  End Summary 
 
 
 
Growing Demand Spurs Interest as Fears Linger 
 
 
 
¶2.  (SBU) With Brazil's economy and middle class growing steadily 
and major international events looming, (e.g. World Cup in 2014, 
Olympics in 2016) demand for passenger and cargo services are 
climbing.  According to the Brazilian National Civil Aviation 
Agency (ANAC), the number of domestic passengers has tripled within 
the last decade to over 60 million per year.  Consulate General Sao 
Paulo became the busiest non-immigrant visa issuing post in the 
world in FY-09.  Brazilian airlines, tour agency, and Infraero 
representatives we spoke with acknowledged that an Open Skies 
Agreement would be a natural framework for promoting fair 
competition.  Nonetheless, contacts such as Infraero Director of 
Operations at Guarulhos Airport, Percio Rosa da Silva, acknowledge 
that insufficient infrastructure, restrictive labor laws and 
onerous taxes, place local industry at a competitive disadvantage 
to U.S. carriers.  As such, Silva and others suggest that a lengthy 
phase-in period or other staged implementation would be necessary 
to reduce asymmetries.  Jose Mauricio Mollo, the president of the 
National Airline Union (SNEA), said that many Brazilian airlines 
actually favor an Open Skies Agreement between South American 
nations prior to one with North American or European airlines, as a 
means of reducing the competitive disadvantages of Brazilian 
carriers. 
 
 
 
Clear Benefits 
 
 
 
¶3.  (SBU) While concerned about competitiveness challenges local 
industry would face under an OSA with the United States, most 
private sector contacts including Paulo Castello Branco of TAM and 
Luiz Camillo of United Airlines also acknowledge the benefits of 
increased trade and travel for lowering consumer costs, enhancing 
productivity and spurring economic growth.  Adalberto Febeliano of 
Azul says that an OSA could also bolster tourism, already growing 
annually at 5 percent. Brazilian contacts also expect 
decentralization of the market to lead to partnerships and 
eventually joint ventures, similar to those that exist between U.S. 
and European carriers.  While the American carriers are more vocal 
proponents than the Brazilian carriers, all parties agree that 
forming partnerships brings opportunity for competition.  Brazilian 
low cost airlines, in particular, are eager to partner with 
American carriers on code-sharing to extend their internal routes 
 
to U.S. destinations.  Conversely, U.S. carrier representatives 
such as Luiz Camillo of UAL view an OSA as key to competing for 
slots in the tight Sao Paulo and Rio de Janeiro markets.  U.S 
companies cite their recent entries into Northeast Brazil, a 
traditionally less competitive and profitable area, as evidence of 
the growth potential unleashed with liberalized air frequencies. 
Agaxtour owner, Aldo Leone, echoed the call for an OSA, saying the 
competition and partnerships spurred by an OSA translate into lower 
prices and more choices for the growing number of Brazilians with 
disposable income for domestic and international travel. 
 
 
 
But Challenges Remain 
 
 
 
¶4.  (SBU) Despite the clear benefits of an OSA, business contacts 
foresee various impediments to liberalizing passenger and cargo 
services in the near future.  Brazilian airport infrastructure and 
congestion pose a particular challenge.  For example, a recent 
realignment of 381 slots in Congonhas Airport designed to spur 
competition may actually drive some of the low cost players out of 
the airport.  Guarulhos international airport is approaching its 
limit even at non-peak times.  A third Guarulhos terminal is 
planned, but groundbreaking has not started even as the 2014 World 
Cup and 2016 Rio Olympics approach.  In the meantime, Azul, Gol and 
other low-cost carriers have expanded their presence at nearby 
Viracopos airport in Campinas.  As a result, Viracopos will receive 
an additional 6.5 million passengers per year beginning in 2010, 
according to Azul President Pedro Janot.  Though there are plans 
for another airport in the GOB's national public infrastructure 
investment program (PAC), Infraero Guarulhos Operations Director 
Rosa da Silva said it is unlikely there will be any development 
within the next four years.  Under this extreme congestion, U.S. 
carriers face significant challenges in expanding their routes to 
the lucrative Sao Paulo market, even in partnership with the 
Brazilian airlines. 
 
 
 
 
 
¶5. (SBU) Infraero views potential partnering with U.S. carriers as 
an opportunity to refine the Brazilian security requirements in 
accordance with the stringent U.S. levels.  Percio Rosa da Silva 
emphasized that Brazil would be the ideal partner in Latin America 
for an OSA, given the size and commonalities of both nations.  He 
added that Brazil is the regional leader, providing a model and 
training for other Latin American nations.  However, he said that 
many more personnel trained in U.S. standards would be needed to 
accommodate the increase in flights to/from the U.S. anticipated 
under an OSA.  Da Silva cited more training as a key requirement, 
stressing the lack of a private sector institution in Brazil that 
prepares flight controllers and administrators of airports.   He 
noted that Embry Riddle University of Daytona, Florida is in the 
process of establishing an agreement to offer aeronautical training 
courses in Brazil and suggested such educational cooperation would 
be necessary to prepare for an OSA. 
 
 
 
¶6. (SBU)  In a recent Washington meeting between ANAC's President 
Solange Vieira and DOS Aviation Negotiations Director Kris Urs, 
Vieira expressed doubts about initiating OSA discussions with the 
U.S.in 2010 given competing priorities at ANAC.  Vieira explained 
that ANAC was committed to concluding OSA negotiations with South 
American partners and an Air Transportation Agreement (ATA) with 
the European Union before beginning negotiations with the U.S. 
Citing a passenger or cargo based OSA with the U.S. as a hard sell 
within the GOB, Vieira suggested that the U.S. instead request 
additional frequencies as needed under the current U.S./Brazil ATA. 
When pressed about the difficulties in requesting additional 
frequencies to Sao Paulo's Guarulhos airport, Brazil's largest and 
most preferred international gateway, due to its operational 
 
 
 
constraints, Vieira confirmed that the 45 flight per hour limit 
imposed in 2009 by ANAC, would be managed under International Air 
Transport Association (IATA) world scheduling guidelines, offering 
a more reliable scenario for increasing there. (Note: DOT is going 
to confirm this with IATA. End Note) 
 
 
 
Moving forward... 
 
 
 
¶7. (SBU) Business representatives tell us that moving an OSA 
forward will require more dialogue among the airlines, consumers 
and government.  The airlines and tour companies, represented by 
Agaxtour and Infraero, all point to Brazilian bureaucracy and 
competition fears as major stumbling blocks towards implementing an 
OSA.  Nevertheless they say direct airport agreements, such as the 
cooperative exchange program between Guarulhos and Miami 
international airports have enhanced relationship building and 
reduced Brazilian carriers' fears of competition.  Such an 
agreement aims to officially link both airports, committing each to 
exchange information pertaining to passenger and cargo industries 
as well as create working groups to promote additional areas of 
cooperation.  Infraero is already seeing the benefits from 
information and security exchange, formulating a preliminary study 
about broader airport cooperation.  Shipping industry 
representatives suggest another potential starting point for an OSA 
could be cargo, as 50 percent of the cargo shipped from Brazil's 
main cargo airport (Guarulhos) is destined for the United States. 
Increased cargo options and simplified requirements under an OSA 
would expedite delivery and reduce shipping costs - a major expense 
for Brazilian manufacturers and importers. 
 
 
 
¶8. (SBU) Cargo contacts, including FEDEX, are strong proponents of 
an OSA.  Jim Davis, of FEDEX's Sao Paulo office, stated that an OSA 
would provide his cargo shippers flexibilities to expand their 
networks.  FEDEX currently has five frequencies per week between 
Viracopos airport (in Campinas, an hour from Sao Paulo) and their 
Memphis hub, in addition to intra-South American flights. Bruno 
Ramon Ariki of Brazilian freight forwarder Expeditors 
International, similarly told Econoff that enhanced code-sharing 
would decrease freight rates while offering more variety for 
Brazilian freight forwarders to use other airline routings.  Ariki 
said that Brazil's current restrictions on cargo routes major lanes 
represent a major cost hurdle for shippers.  In addition to airline 
code sharing, Ariki envisions that Brazilian freight forwarders may 
benefit from the possibility of sales offices in the USA, which 
could convert earnings and remittances to Brazil without 
restrictions. 
 
 
 
COMMENT 
 
------- 
 
 
 
¶9. (SBU) The Brazilian civil aviation market has opened slowly in 
recent years and an OSA would further decentralize the current 
duopoly in passenger service (TAM and Gol posses 85% of market 
share), which would benefit the Brazilian consumer.  While 
competitiveness concerns by Brazilian carriers and capacity issues, 
derived mostly from infrastructural limitations, represent a 
challenge to reaching an OSA, growing demand for air services in 
Brazil and increased concerns about the global competiveness of 
Brazilian manufacturers (e.g. shipping costs) provide a potential 
foothold for U.S. airlines to enter the growing Brazilian market. 
Above all, there is a need for increased dialogue among the 
stakeholders, with the backing of the GOB (Reftel A), to advance an 
OSA.  Although 2009 saw a significant increase in civil aviation 
security and safety cooperation between the USG and GOB, OSA 
 
negotiations in the near-term appear unlikely.   In the meantime, 
as American carriers strive to increase their presence and profits, 
building on nascent airport-to-airport partnerships and leveraging 
increased demand for passenger and cargo services into additional 
frequencies may be a means of moving forward.  End Comment. 
 
 
 
¶10.  (U) This cable was coordinated/cleared by Embassy Brasilia. 
White