MercoPress. South Atlantic News Agency

Brazil airline shares soar as regulator admits opening to foreign capital

Rousseff may propose legislation giving her discretion to let foreign groups own as much as 100% of local airlines, up from 20%, Valor Econômico reported.

Brazilian airline shares soared nearly 30% on Monday after a newspaper report said the government may scrap limits on foreign ownership of domestic airlines to attract investment to the struggling sector. President Dilma Rousseff may propose legislation giving her discretion to let foreign groups own as much as 100% of local airlines, up from 20%, Valor Econômico reported.

 Market’s confidence was also lifted by higher ticket prices leading to improved quarterly results.

A spokesman for Brazil’s civil aviation regulator said the government is considering opening up airlines to foreign capital, but the matter would have to be approved by Congress. Last year Congress debated a proposal to lift the foreign ownership limit to 49%.

Gol shares jumped as much as 42% in São Paulo trading before settling to a 29% gain from Friday’s close. The stock hit all-time lows last week amid falling demand and a strong dollar, which has driven up fuel and aircraft leasing costs, adding to four years of deep losses.

Separately Gol’s fourth-quarter operating results showed a 6.8% rise in a pricing gauge known as passenger yield, as the company raised prices to restore profitability in the middle of a severe economic recession.

Bradesco analysts Victor Mizusaki and Leandro Fontanesi said in a report that the stronger operating results and possible end of foreign ownership restrictions were triggers for a rally, citing the possibility of a takeover by Delta Air Lines.

Delta threw a lifeline to Gol last year with a US$446 million stock and loan agreement that expanded a 4-year-old strategic partnership. The US carrier owns 9.5% of Gol, entirely concentrated in preferred shares.

Smaller Brazilian rival Azul SA also struck a deal in November to raise US$450 million from China’s HNA Group after repeatedly postponing a planned initial public offering since 2013.

Brazil’s biggest airline, TAM, resorted to a complex two-tier ownership structure to pull off the 2012 merger forming Chile-based Latam Airlines Group, reducing cost savings and contributing to analysts’ concerns with the deal.

The Efromovich family runs Avianca Brasil, the country’s No. 4 airline, separately from Avianca Holdings SA, the Panama-based group operating Colombia’s biggest airline.

A spokesman for Brazil’s civil aviation regulator said the government is considering opening up airlines to foreign capital, but the matter would have to be approved by Congress. Last year Congress debated a proposal to lift the foreign ownership limit to 49%.