Brazil Sees $452 Million 2015 Air Subsidy as Gol Mulls Flights

Brazil projects paying 1 billion reais ($452 million) in subsidies next year to entice airlines to expand their network of regional flights, a possible boost for the country’s biggest domestic carrier.

“We need to integrate the country and guarantee that 95 percent of Brazilians live within 100 kilometers of an airport,” Civil Aviation Minister Wellington Moreira Franco said yesterday in an interview in Brasilia.

Franco expects the program to be implemented next year, with funding shared among qualified carriers to meet the government’s goal of extending air service. Gol Linhas Aereas Inteligentes SA (GOLL4), the biggest Brazil-based airline, said yesterday it’s considering flying regional routes, a step that would require buying smaller jets than its Boeing Co. 737s.

While the program has been under discussion for months, carriers are still waiting for details to settle on strategies for adding regional flying in South America’s largest country. The subsidy requires approval from Congress, said Franco, who predicted the funding could help double the number of air travelers in Brazil to 200 million by 2020. The size of the subsidy will be evaluated annually, and will cover enough tickets to ensure that the new flights are profitable, he said.

“The objective is to get prices down to make flying competitive with taking the bus,” Franco said.

One possibility is that Gol and competitor Tam, owned by Santiago-based Latam Airlines Group SA (LFL), may decide to create units to focus on regional flying, Franco said.

Gol, Tam, Azul

“Gol is waiting to see the regional aviation stimulus plan to evaluate the possibility to operate in other cities,” the Sao Paulo-based carrier said yesterday in a statement to Bloomberg. Gol flies to regional cities including Joinville and Juazeiro.

“Tam is confident in the regional airport development plan being analyzed by the government,” Tam said in an e-mailed response to questions. “The company continues studying the possibility of entering this market in the future.”

Azul Linhas Aereas Brasileiras SA, the closely held airline created by JetBlue Airways Corp. founder David Neeleman, flies to the most regional cities now. Neeleman said in an interview last week that he intends to buy 30 updated Embraer SA (EMBR3) jets to expand Azul’s fleet in part to meet new demand he expects under subsidized flying.

Avianca Brasil, the fourth-largest airline by market share in Brazil, said in February it was also considering Embraer planes to participate in the program.

A government-backed regional-aviation subsidy may generate sales of 50 to 80 Embraer jets, Paulo Cesar Silva, the commercial aviation chief for the Sao Jose dos Campos-based planemaker, said last week in a telephone interview.

To contact the reporter on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net Jessica Brice

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