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### Viewing cable 06BRASILIA146, BRAZIL - NEW CIVIL AVIATION AGENCY

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06BRASILIA146 | 2006-01-24 09:59 | 2011-07-11 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Brasilia

`

    VZCZCXRO9826
    PP RUEHRG
    DE RUEHBR #0146/01 0240959
    ZNR UUUUU ZZH
    P 240959Z JAN 06
    FM AMEMBASSY BRASILIA
    TO RUEHC/SECSTATE WASHDC PRIORITY 4256
    INFO RUEHSO/AMCONSUL SAO PAULO 6162
    RUEHRG/AMCONSUL RECIFE 4207
    RUEHRI/AMCONSUL RIO DE JANEIRO 1375
    RUEHAC/AMEMBASSY ASUNCION 5167
    RUEHMN/AMEMBASSY MONTEVIDEO 5995
    RUEHSG/AMEMBASSY SANTIAGO 5276
    RUEHPE/AMEMBASSY LIMA 2814
    RUEHCV/AMEMBASSY CARACAS 3098
    RUEHQT/AMEMBASSY QUITO 1702
    RUEHLP/AMEMBASSY LA PAZ 4331
    RUEHBO/AMEMBASSY BOGOTA 3583
    RUEHBU/AMEMBASSY BUENOS AIRES 3728
    RUEAUSA/DEPT OF HHS WASHDC
    RUEANHA/FAA NATIONAL HQS WASHINGTON DC
    RULSDMK/DEPT OF TRANSPORTATION WASHDC
    RUCPDO/USDOC WASHDC

` `

    UNCLAS SECTION 01 OF 03 BRASILIA 000146

    SIPDIS

    SENSITIVE
    SIPDIS

    STATE FOR EB/TRA/OTP - BMATTINGLEY
    STATE FOR EB/TRA/ - JHORWITZ
    HOMELAND SECURITY PASS TO TSA VICKI REEDER
    BUENOS AIRES FOR TSA
    FAA FOR AGC-330
    USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
    USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON

    E.O. 12958: N/A
    TAGS: EAIR ECON BR
    SUBJECT: BRAZIL - NEW CIVIL AVIATION AGENCY

    REFS: (A) 05 RIO 792, (B) 05 BRASILIA 447, (C) 05 BRASILIA 2452

    ¶1. (U) Summary.  A September 2005 law in Brazil created the National
    Civil Aviation Agency (ANAC), a civilian regulatory body that will
    replace the current Department of Civil Aviation (DAC) in the
    Ministry of Defense by March 2006.  ANAC's mission is to regulate
    and monitor civil aviation as well as airline and airport
    infrastructure.  While the GOB, airline industry and analysts all
    view the new civil aviation body positively, ANAC will not
    substantively change Brazilian aviation policy since it must
    regulate under the same aviation code.  Nevertheless, Mission Brazil
    and our GOB interlocutors see this as an opportune moment for
    increased dialogue.  End Summary.

    ¶2. (U) Following more than five years of discussion and speculation,
    on September 27, 2005, Law 11.182 created the National Civil
    Aviation Agency (ANAC), a civilian regulatory body that will replace
    the current Department of Civil Aviation (DAC) in the Ministry of
    Defense.  ANAC is to be officially established within 180 days of
    the passage of the law (by March 21, 2006).  ANAC's mission is to
    regulate and monitor civil aviation as well as airline and airport
    security and infrastructure, while air space security and traffic
    control will remain under the Air Force.  As a civilian body, ANAC
    is also intended to create a more favorable investment climate and
    promote more market-based competition.

    Background
    ----------

    ¶3. (SBU) Considered by GOB to fall within the purview of national
    security, civil aviation has always been under the control of the
    Ministry of Defense.  However, since the Brazilian government
    consolidated its military under a civilian Ministry of Defense
    almost 7 years ago, the idea of replacing the DAC, which is
    subordinate to the Brazilian Air Force, with a civilian agency has
    gained momentum.  Although the main resistance to ANAC came from the
    Air Force, one of the main proponents lobbying for the creation of
    ANAC was the (civilian) Ministry of Defense (MoD) itself.  In the
    works since the end of the Fernando Henrique Cardoso administration,
    ANAC failed to gain traction in the Brazilian national congress
    until September of 2005.  The creation of ANAC is in line with the
    Lula administration's continued efforts to reform and harmonize its
    regulatory bodies (Ref B).

    Directors Selected
    ------------------

    ¶4. (U) Three of the four directors and the president (also a
    director) have been selected from diverse aviation-related
    backgrounds.  The Director-President will be Milton Sergio Silveira
    Zuanazzi (current Secretary for Tourism at the Ministry of Tourism
    and a confidant of President Lula's Chief of Staff Dilma Rousseff).
    The Directors will be Leur Antonio Britto Lomanto (current
    congressional relations chief at the Brazilian aviation
    infrastructure body Infraero, former PMDB-BA federal deputy, and
    rapporteur on the original ANAC bill), Jorge Luiz Brito Velozo (Air
    Force colonel and current head of the DAC's technical-operational
    department), and Denise Maria Ayres de Abreu (a Sao Paulo lawyer and
    professor with ties to former Chief of Staff Jose Dirceu, and who
    reportedly supported an earlier plan to liquidate Varig under the
    previous Minister of Defense).  It is anticipated that the fourth
    director position will be given to a union representative.  The law
    grants the ANAC directors a 5 year mandate, but the first directors
    will have only 5, 4, 3 and 2 year mandates to stagger future
    turn-over.

    HQ in Brasilia, but Ops in Rio

    BRASILIA 00000146  002 OF 003

    ------------------------------

    ¶5. (SBU) One of the final hiccups in the passage of the ANAC
    legislation was determining whether it would be based in Brasilia or
    would remain in Rio de Janeiro.  Rigobert Lucht in the MoD Civil
    Aviation Department (and one of the main MoD lobbyists for creating
    ANAC) told Brasilia EconOff that a compromise was brokered: a small
    ANAC headquarters will be in Brasilia, but the majority of the
    operational staff will remain in Rio.  The same arrangement exists
    with the National Petroleum Agency (ANP) and the Energy Research
    Institute (EPE).  (Note: Lucht was in the US Air Force for 8 years,
    but then returned to Brazil and initially worked for Embraer. End
    Note.)

    Gradual Personnel Turn-over
    ---------------------------

    ¶6. (SBU) The law allows for a 5 year transition period during which
    20% of the current DAC staff per year will be replaced by ANAC
    staff.  There is an informal consensus, however, that the Lula
    administration will likely allow for a longer period of transition.
    Director General of the DAC Jorge Godinho Barreto Nery estimated to
    Rio EconOff that half of the DAC are military personnel while Lucht
    estimated that DAC personnel are currently about 30% military
    personnel and 70% civilian.  Senate advisor Victor Carvalho Pinto
    estimated to Brasilia EconOff that of the 2,200 current employees,
    as many as 1/3 are currently on temporary contracts.  As previously
    reported, similar to the other regulatory agencies (Ref B), ANAC
    will benefit from greater stability under its new personnel system.
    ANAC will no longer be run by civilians under temporary contracts
    nor by military personnel who are only in the DAC on rotational
    assignments.  Instead, aviation regulation will become a new
    professional field in Brazil and Pinto expects an enthusiastic
    response by the public to the position openings.

    Funding its Budget
    ------------------

    ¶7. (SBU) ANAC will be funded through the general federal budget and
    a portion of Infraero's boarding fees.  Although there were some
    press reports that ANAC did not have a budget, our interlocutors do
    not share these concerns at this time.  Assistant Deputy Chief of
    Staff in the President's Office, Rodrigo Augusto Rodrigues, told
    Brasilia EconOff that first, an amendment will be made to the
    general budget, transferring some of the DAC allotment to ANAC;
    second, up to 50% of the boarding fee that Infraero charges, as
    determined by the Executive branch, will be passed to ANAC.
    Rodrigues noted that Infraero is doing well financially and is the
    only aviation sector concessionaire that was not already paying
    something into the treasury for its concession.  It is not clear at
    this point what impact these new procedures may have on airport
    fees.

    Regulation vs. Code
    -------------------

    ¶8. (SBU) The creation of ANAC itself deliberately doesn't change
    anything in terms of the regulatory environment as ANAC will still
    regulate under the current Brazilian Civil Aviation Code (7.565 from
    December 1986).  During the debate on the ANAC bill in the congress,
    a number of regulatory changes to were added to the measure
    (including an extension of current airline industry concessions).
    However, as part of the compromise to get the law passed, President
    Lula agreed to veto the regulatory elements to keep the law focused
    on the creation of the regulatory agency.  A revised version of the
    code itself was drafted three years ago, but was placed on hold
    pending the creation of ANAC.  When sent by the Lula Administration

    BRASILIA 00000146  003 OF 003

    to congress, it is expected to address issues such as the percentage
    of ownership allowed by foreigners -- which is currently limited in
    Brazil to 20% -- and the tariff rates.  Rodrigues expects a serious
    discussion of the current civil aviation law to begin soon.  He
    explained that the new proposal will undergo a consultative process
    that will include the National Civil Aviation Counsel, with both the
    government and private sector represented.  Rodrigues also expects
    that it will be easier to make changes to the law with a civilian
    regulatory body in place, as this entity will have a better sense of
    the market.  The creation of ANAC may be the most significant civil
    aviation change since the considerable deregulation of the air
    transportation sector in Brazil in 2001.

    ¶9. (SBU) Lucht considered the creation of ANAC a symbolic victory
    for those who wish to assert greater civilian control over the
    Ministry of Defense.  Pinto opined that as civil aviation was a
    civilian activity, that it belonged in civilian hands.  The only
    down-side Pinto noted was that ANAC could be politicized rather than
    being run as a technical organization.

    Comment
    -------

    ¶10. (SBU) With so many things broken in Brazil, there is some irony
    that the civil aviation regulatory body has undergone reform --
    since the DAC has an excellent track record for meeting
    international aviation standards and is reportedly one of the eleven
    countries in International Civil Aviation Organization (ICAO) with
    the highest ranking in terms of aviation security.  Nevertheless, we
    see this as a very positive step over the long-term and an
    opportunity for increased dialogue with the GOB on civil aviation.
    The DAC has consistently requested increased training and exchanges
    with the Transportation Security Administration (TSA), especially
    following our agreement on a reciprocal visits program (Ref C).
    Pinto said he is studying the US regulatory system and considers
    this an important moment to increase the US-Brazil dialogue and
    cooperation on civil aviation.  Rodrigues, who was already familiar
    with OMB studies on the US system, also expressed great interest in
    having an exchange of best practices and lessons learned with US
    officials and private sector representatives as the GOB debates
    changes to its aviation law.  Should the GOB end up formally
    requesting our counsel, we recommend that USG agencies take these
    overtures seriously and offer our assistance.  Over the medium term,
    this may create an environment conducive to greater air transport
    liberalization and increased aviation security cooperation.

    ¶11. (U) This cable was written in coordination with Consulates
    General Sao Paulo and Rio de Janeiro.

    CHICOLA

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