The Brazilian Federal Government recently published Medida Provisória No. 863/2018 ("MP 863/18"), a new rule that amends Federal Law No. 7,565, of December 19, 1986 (Brazilian Aviation Code) and lifts the existing restrictions to foreign capital shareholding in Brazilian air transportation companies. As a result, foreign investors are from now on able to hold up to one hundred percent (100%) of the voting capital of Brazilian airlines.

The new rule was enacted in light of the impact of Brazil's current economic situation on the national airline industry, taking into account, especially, one of the main challenges of Brazilian airline market: the shortage of capital sources. Moreover, the new rule has the potential to render the Brazilian airline sector more competitive (i) by permitting current foreign shareholders to increase their interest in the capital stock of an existing national airline company and (ii) by opening the Brazilian market to the entrance of new airline companies.

MP 863/18 also revoked several restrictions applicable to the companies of the segment, such as the requirement of prior approval by the Brazilian National Civil Aviation Agency of the acts of incorporation of airline companies and amendments thereto, and to the transfer of shares in those companies.

It is important to note that in Brazil, although a Medida Provisória takes effect when published, its effects are only temporary (up to 120 days). In order to a Medida Provisória adopted by Brazil’s President in situations of relevance and urgency be permanently incorporated into Brazil’s legal framework, it must first be approved by the Brazilian House of Representatives and by the Brazilian Senate, where amendments to its text may be proposed, and, subsequently, its final text must be approved by Brazil's President.