Airports: Airport infrastructure package to also boost regional aviation

The Brazilian government is studying extending subsidies for airline companies willing to offer new scheduled flights connecting small cities in the countryside. The measure could join the infrastructure package President Dilma Rousseff intends to announce in the beginning of September. At the Palácio do Planalto, seat of the Brazilian executive branch, the idea is trying to announce the package on September 5th, including measures to lower electricity prices.

For airports, Ms. Rousseff put chief minister of the Secretariat of Civil Aviation, Wagner Bittencourt, to reach out directly to at least four European operators to gauge the real interest in a concession model where Infraero would be kept as majority partner. Mr. Bittencourt now has the mission of talking to the four giants of the business: German firm Fraport (responsible for Frankfurt), British-based BAA (Heathrow), Dutch firm Schipol (Amsterdam) and French firm Aéroports de Paris (Charles de Gaulle).

The minister’s mission is explaining in details that new model. Valor has learned that several foreign companies have already told Brazilian engineering firms they partnered with in the last wave of airport privatizations they are not interested in participating as junior partners.

Ms. Rousseff also prefers the public-private partnership (PPPs) model for the new airport concessions, strengthening the role of Infraero, but she still hasn't issued a final decision on the issue. The main target of PPPs is improving airport management, but a new measure may be necessary to really unlock stalled infrastructure projects.

Since Infraero is state-owned, the only way to accelerate the expansion of airport terminals is exempting the company from the usual invitation for bids process, according to government officials closely monitoring the issue. Two state-owned firms, Petrobras and Eletrobras, already enjoy that status and are exempt from following government rules for public works.

Both companies are supervised by the Federal Audit Court (TCU), but don't need to follow Law 8,666/93 (for invitation for bids) to buy equipment. Petrobras has been able to do that since the second half of the 1990s, when the state monopoly on oil exploration was broken.

Eletrobras won that exemption in 2009, arguing it needed to be faster when buying big equipment for the new wave of plants planned for the Amazon and abroad. Now government experts suggest Infraero follow the same path in case it obtains majority stake in the new concessions.

President Rousseff is working on three different efforts for airport concessions. All measures are planned to be announced on September 5th, according to a schedule proposed by her aides. Besides concessions, the president is also expected to sign a decree authorizing the construction of private airports exclusively destined for general aviation, with the possibility of private capital commercially exploiting them. Private interests in Brazil are currently allowed to build landing strips for jets but cannot charge for their use.

The third effort involves a plan to stimulate regional aviation. The goal is increasing the number of municipalities served by commercial flights to around 210 from the current 130, with investments of up to R$4 billion in three years. The government's idea initially was to focus all efforts on expanding airport infrastructure. This involves from relatively simple measures like buying fire-extinguishing equipment and X-ray machines to terminal construction and improvements to landing strips.

A new ingredient was added to the regional aviation plan: The return of subsidies for routes between cities where low income blocks development of potential demand. That kind of subsidy was widely used in the 1970s and 1980s.

The government still doesn't have a precise estimate of how much the initiative would cost, but expects investment to reach between R$100 million and R$200 million. To decide who gets the subsidy and how much, officials propose an invitation for bids: The airline that requests less subsidies to create new route between small municipalities wins.

Unaware of the existence of such government discussions, airline Trip – which recently announced a merger with Azul – said it's against subsidies to stimulate regional flights, its main focus. “There are more adequate tools,” says controlling shareholder José Mário Capriolo. “If public money is being used, it's best to cut taxes than offer subsidies,” Mr. Caprioli says, adding lower airport fees and sales-tax ICMS on fuels could be more effective.

Source: Valor Economico S.A.

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