Brazilian civil air transportation has shown impressive growth in recent years, which could, however, be impaired by the deficient airport infrastructure of the country, run by a state-owned entity, Infraero. There are many signals that the federal and state governments are aware of the great investments that must be made in airports of the country, and that Infraero should not be the only entity responsible for them. Even though there is a margin for political uncertainty over the adoption of alternatives to the current model, with mounting expectations towards the successor to President Lula, the tendency is that more private foreign capital should be allowed in the planning, construction and management of airports in Brazil. This scenario, therefore, opens promising opportunities for U.S. players in this sector.

The major sports events scheduled in Brazil over the next seven years will require significant improvements in airports, especially in Rio de Janeiro and in most of the 12 cities that will host the soccer games of the 2014 competition. Antonio Carlos Jobim International Airport, the main entrance for the hundreds of thousands of visitors expected to attend the Olympic Games, will have to almost double its capacity by 2016. Due to the amount of required investments, estimated at almost US$ 5 billion, and the short time period involved, Infraero is expected to seek greater contribution from the private sector, thereby opening opportunities for U.S companies with expertise and capacity in this area to start operating in the near future, either by themselves or in consortia with local firms.

For those aiming at a medium to longer time frame, the great expectation is over concession of airports to the private sector. All concessions depend on the design and formal approval of the general model of concessions, expected to occur before the end of President Lula's term in December 2010, as well as the inclusion of each airport or groups of airports in the National Denationalization Program (PND). Nevertheless, at least one airport – São Gonçalo do Amarante Airport in the city of Natal, capital of the Rio Grande do Norte State – has already been included in the PND by Lula's administration. The inclusion of this first airport in the PND indicates that Minister Dilma Rousseff, Lula's Chief of Staff and his chosen candidate for his party in the 2010 presidential elections, could push forward the concession of airports, despite her political convictions and open support for state-owned companies. Both of the likely contenders of Minister Dilma, São Paulo Governor José Serra or Minas Gerais Governor Aécio Neves would be even more inclined to implement the concession of airports, due to the extensive use of liberalization and privatization programs and techniques in their current administrations.

The general model of concession is expected to be flexible, allowing concession of airports in groups, individually or only parts of airports, in order to provide the best solution for each case and to deal with the problem of unprofitable airports. The model could also adopt an incentivized concession, a form of PPP, in which the government would complement the deficient revenues generated by the unprofitable airports. The model is not expected to impose restrictions on foreign capital and would establish conditions for the safety of investors, such as well-defined rules pertaining to routine user fee readjustments and the occasional revision of user fees, necessary to maintain the financial and economic balance of the concession contract.

Finally, several investment opportunities appear as a result of the regionalization of domestic aviation, led by airline companies aware of this undeveloped segment. This trend is increasing the demand for investments in regional airports, a category not regulated by the federal government.

Conscious of the dire situation of the smaller airports and their importance to the development of local economies, state governments have sought funding for necessary improvements. The States of Minas Gerais and Rio Grande do Sul, for instance, have obtained grants from the United States Trade and Development Agency (USTDA) to invest in the expansion of their regional airport programs and in the modernization of their main airports. These USTDA grants open a privileged channel for U.S. investments, since the state governments are bound by agreement to hire technical assistance from U.S. companies and are highly incentivized to acquire services and equipment from the United States.

Another option of funding for state governments is the Brazilian Federal Program of Assistance to Regional Airports (PROFAA). After the recent clarification that the Ministry of Defense should execute and oversee the program instead of Anac, the amount of investments in regional airports should increase.

The scenarios outlined above indicate ample opportunities for a wide range of U.S. firms to invest in airports in Brazil. It is important, therefore, that these firms seek qualified assistance from consulting firms, such as B&D; Consulting, with an in-depth knowledge of the Brazilian market, of the opportunities in the sector, and of the key local players willing to team up with foreign companies.

For more information on or to purchase the study ($200), contact B&D; Consulting's Robert J. Kabel, Senior Advisor in Washington, D.C., at [email protected] or Kevin Ivers, Advisor in São Paulo, Brazil, at [email protected].