With aviation accounting for 2.6% of Brazil’s economy, the new civil aviation policy represents a great opportunity, International Air Transport Association (IATA) Director General Giovanni Bisignani told the British Chamber of Commerce in Sao Paolo yesterday.

Praising the work already accomplished to improve aviation, Bisignani set out an agenda for the Brazilian civil aviation sector pledging to offer IATA’s expertise, on such issues as the environment, liberalization, congestion, airport development and taxes.

“In February, Minister Jobim put in place a new Civil Aviation National Policy that set a broad policy direction from safety and environment to growth and operational efficiency,” said Bisignani, noting air transport supports 2.6% of Brazil’s GDP. “More than US$40 billion of business and thousands of jobs depend on the success of this industry. The entire economy benefits from a competitive aviation sector. To be successful, Brazil must make some important decisions to change the industry at home and to influence global policy on key issues. Brazil must use the national policy to build a more competitive industry by overcoming major fiscal and infrastructure handicaps.”

Bisignani pointed to an IATA study showing that market and ownership liberalization in Brazil could potentially generate up to 400,000 new jobs and 24 billion Reais or about US$13 billion at prevailing exchange rates. He noted that recent government moves such as CONAC’s proposal to increase foreign ownership to 49% and a liberal bilateral with Chile were steps in the right direction.

“As the region’s largest economy, I hope that Brazil can take leadership to promote liberalization in Latin America and globally,” he said. “As Brazil prepares to host the 2014 FIFA World Cup, we look forward to working even more closely with the government to further improve the competitiveness of Brazilian aviation and achieve cost-efficient infrastructure improvements. An effective aviation sector is a key driver of competitive economies. The new civil aviation national policy can help drive Brazil’s economic growth if it focuses on reducing costs, improving efficiency and meeting customer needs through effective consultation.”

The Agenda
“Urgent policy action is needed,” he said. “Not for bailouts but to provide the tools for aviation to fulfill its role as a catalyst of economic activity: cost-efficient infrastructure, fair charges, reasonable fuel prices, an effective approach to environmental responsibility and the freedom to do business while maintaining safety as the top priority.”

Saying airlines worldwide were in survival mode, Bisignani noted that Brazil is the 10th largest economy in the world but has only 13 million international air passengers. “That is only a third of what markets like Thailand and Singapore have annually with much smaller economies and populations,” he said. “As a result you are not maximizing the economic benefits of air transport.”

He called for greater liberalization and cited Brazil’s very traditional protectionist policy approach of the bilateral system, as the major problem. He called last year’s policy changes historic when he noted Brazil joined IATA’s Agenda for Freedom.

“We are now working on a multi-lateral statement of policy principles to promote a more normal approach for aviation,” he said. “Airlines are in survival mode. Conserving cash, managing capacity and cutting costs are the three ‘Cs’ of survival. Getting them right is not easy. Airlines completely transformed their businesses after 9/11. IATA helped with our Simplifying the Business program. Key elements of this program, including common-use airport kiosks and e-ticketing, delivered US$4 billion in savings and have made travel more convenient. We are working on an additional US$10 billion in savings with programs to improve the efficiency of airport processes, baggage handling and e-freight.

Today’s situation is more difficult than after 9/11,” he continued. “Airlines face the simultaneous challenges of the financial crisis, the impact of Influenza (A)H1N1 on passenger confidence, the industry’s response to climate change, the need for radical global restructuring and questions about our safety record following recent tragic accidents.”

First on the agenda is using national policy to build a more competitive industry by addressing major fiscal and infrastructure handicaps.

“I am encouraged by some positive developments,” he said. “In May, the liberalization of fares was a step in the right direction. Eliminating the PIS/COFINS tax on jet fuel is another good example. This is improving the competitiveness of Brazilian aviation by US$100 million a year. But Brazilian jet fuel prices remain high because of the Petrobras import parity pricing policy. This adds 30 cents to every gallon of fuel sold in Brazil and makes no sense for a country that supplies 80% of its jet fuel needs domestically. The annual burden is US$450 million for Brazil’s airlines. Fuel is 32% of costs for Brazil’s airlines, far more than the global average of 23%. We are working with the government on a new formula to bring prices in line with market realities.”

He also cited infrastructure improvements, saying such work was urgently needed. “Air traffic management improved significantly from the chaos of a few years ago,” he said. “Today the issue is the airports. I am pleased that the government is looking at concessions. Private investment with the right conditions can help improve infrastructure. But we have seen more failures than successes because too often governments are keen for the cash and forget effective regulation. Airports are monopolies that have an important role in driving economic growth. Concessionaires must have robust independent economic regulation to ensure that the airport is run efficiently, serves and consults its customers effectively and drives economic development.”

Condemning Quito’s actions in Equador which makes airports a cash cow for investors at the expense of airlines and passengers, he said charges increased 79% since 2005 without effective regulation but added nothing in the way of facilities improvement. “For Brazil, ANAC is in the best position to deliver robust independent economic regulation,” he said. “It can only do this if it has the teeth to do the job effectively and if it is independent of political pressure.

“Potential investors will also demand transparency in funding,” Bisignani continued. “The opaque ATAERO tax must be eliminated. Airlines should pay for the infrastructure that they use but that does not happen in Brazil. INFRAERO charges do not equally recover the costs for each individual airport. On top of this, airlines pay a 50% surcharge known as ATAERO to cover gaps. This is an unacceptable US$370 million financial mistake. What happens? Funds from Sao Paulo and Rio de Janeiro airports are used elsewhere instead of making much needed improvements at those airports with a large portion of ATAERO fees siphoned off for non-aviation uses.”

He also noted airlines and passengers are being overcharged while all of Brazil’s aviation infrastructure is suffering. “On top of being a domestic disaster, ATAERO is an international embarrassment as it does not comply with UN policies developed through ICAO where Brazil has a seat in the Council,” he charged. “IATA’s position is clear. INFRAERO must be funded on a cost recovery basis with charges that are transparent, agreed with users and compliant with international standards.”

He cited Sao Paulo’s Gaurulhos airport as suffering as a result of current policies and condemned efforts at congestion pricing to relieve congestion. “Gaurulhos is a good example of why Brazil needs to address these issues. It is congested and needs an urgent solution. Turning away aircraft with congestion pricing is not a solution. Every aircraft that does not land means lost jobs and lost economic opportunity. IATA’s Worldwide Scheduling Guidelines are helping airports around the world deal with congestion. They do not eliminate the congestion but manage it effectively. Once ANAC formalizes Brazil’s participation, the guidelines will be a big help in managing traffic at Guarulhos as well.”

Bisignani also turned his attention to congestion in the terminals, calling for caution in airport spending but urging improvements. “Terminals need upgrading, particularly in advance of the World Cup,” he said. “Airlines cannot afford to pay for great cathedrals. So I am skeptical of grand plans for over-built new terminals. Before spending any money, INFRAERO needs to look at the existing terminals in consultation with the airlines. Together they must decide on plans starting with making the most of existing infrastructure.”

Safety
He pointed out there were 49 accidents worldwide this year, 11 fatal, including the Air France accident off the coast of Brazil. “That is fewer than at the same point last year but the number of fatalities is now over 650,” he said, noting IATA presented GOL with its registration for the IATA Operational Safety Audit, already granted to TAM and ABSA.
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Environment
He called on the Brazilian government to provide the fiscal and legal framework for encouraging investment in bio-fuels since it is a worldwide leader. “This can significantly reduce aviation’s carbon footprint,” he said. “Brazil is a major player in the UNFCCC process and at ICAO which is tasked with handling aviation’s international emissions. It has a leadership responsibility to ensure that ICAO can bring to the UNFCCC a position that supports a global sectoral approach to aviation emissions and reflects the industry’s globally harmonized approach to controlling emissions.”

IATA is leading industry efforts on the environment with three sequential targets: a 1.5% average annual improvement in fuel efficiency to 2020, carbon neutral growth by 2020 and a 50% absolute cut in emissions by 2050 (compared to 2005). This year it expect the industry’s carbon footprint to shrink by 7%, including 5% due to the economic recession and 2% as a direct result of the strategy but added more is needed, especially the improvement in air traffic management and commitments to bio fuels where the current focus is on sustainable source-crops such as babassu, camelina, and algae.

“Most importantly, we need governments at Copenhagen to adopt a global sectoral approach for aviation which was recently endorsed by G8 Leaders in L’Aquila, Italy,” he said. “This considers two important facts; a single flight can cross many borders and aviation is an industry that was built on global standards. Accounting for aviation’s emissions at a global level rather than by state makes sense. We cannot allow the UNFCCC’s principle of common but differentiated responsibility to stand in the way of effective global solutions.”

The speech came after meeting between IATA and ANAC, the Ministry of Defense and the Minister of Institutional Relations. Bisignani noted many recent encouraging developments in Brazilian aviation. These include the elimination of the PIS/COFINS tax on jet fuel which collected US$100 million annually, the adoption of the IATA Operational Safety Audit (IOSA) by the Brazilian government, and the staged liberalization of air fares.