The proposed Open Skies agreement between Brazil and the United States was approved by the lower house of Brazil’s Congress, paving the way for the partnership between the American Airlines Group Inc. and LATAM Airlines Group SA.
The Open Skies treaty was actually signed six years ago. However, it encountered stiff resistance from legislators lobbied by local airline interests in Brazil, who were apprehensive about facing competition from U.S. carriers.
The agreement takes away restrictions on the number of flights between the two countries. It was a condition for the U.S. Department of Transportation to green light a joint business agreement between American Airlines and Latin America’s largest carrier, LATAM Airlines, which would see them working together on schedules and providing more links.
The agreement should pave the way for U.S. approval of the deal. Brazil’s anti-trust agency has already given its go-ahead.
Open Skies advocates claim that the accord would encourage more travel and lower airfares between Brazil and the United States – a preferred destination of Brazilian tourists.
Brazil’s third-biggest airline Azul Linhas Aéreas, which started operations in 2008, expressed resistance to the pact, disputing that it first needed to entrench itself in the Brazilian market before it’s made to face competition.
On the other hand, the treaty was shown support by GOL Linhas Aéreas Inteligentes, in which Delta Airlines Inc. has a 9.48% stake in, and Avianca Brasil, which is looking forward to sealing a business agreement with United Continental Holdings Inc. in the coming months.
If ratified by Senate early next year, Open Skies is expected to entice more interest from the U.S. airline industry in the Brazilian market.
In related developments, Brazil’s center-right government is supporting separate legislation to dash limits on foreign investment in Brazilian airlines. At the moment, foreign investment is limited to just 20% of common voting shares.
LATAM’s treaty with American Airlines, and a similar one with British Airways parent IAG, have been green-lighted by authorities in Uruguay and Colombia as well as Brazil. Chile however, has yet to send word about its decision.
The business agreement will let American and IAG to grow in the South American market by offering more connections and lessened airfares.
American has already gained Brazilian approval to erect a $100 million maintenance center at Sao Paulo’s Guarulhos airport to help bolster its South American operations.