JACKSON FLORES / RIO DE JANEIRO & KATE SARSFIELD / LONDON
As the first LABACE show opens in São Paulo, Flight International examines Brazil's corporate aviation market and prospects in Latin America
At more than 8.5 million km2 (3.3 million miles2), Brazil's vastness poses manifold transport difficulties. The absence of comprehensive rail and road networks in all but the country's coastal regions merely compounds the issue. With domestic airlines serving around 8% of Brazil's 2,014 registered airfields, reaching any destination outside the route network flown by local carriers can be a daunting task for business travellers.
This provides the ideal setting for a thriving business aviation market; measured by country, Brazil has the second largest business aircraft fleet in the world, behind the USA. Conservative estimates indicate that there are nearly 900 jet- and turboprop-powered fixed-wing business aircraft registered in the country, along with nearly 420 dedicated business helicopters. Although it bears similarities to the North American business aviation market, the Brazilian industry also has distinguishing features that sets it apart from its peer.
Acknowledged as Brazil's financial and industrial hub, the state of São Paulo harbours the country's largest corporations. The annual revenue generated solely along the city of São Paulo's main avenue exceeds Argentina's gross national product - a measure of the financial clout wielded by enterprises with business interests ranging from mining to well-developed manufacturing and service endeavours. Either as customers or operators of their own business aircraft fleets, these corporations are mostly responsible for the average 5% growth rate logged by the business aviation sector over the last 20 years.
Agricultural business in Brazil has also played a key role in developing the country's business aircraft market, especially in recent years. With most of the farms in Brazil's western-central region spanning vast areas, owning an aircraft is essential to managers of farms and cattle-raising ranches. One example is the Brazilian rancher who operates a business jet to link his main ranch with the country's principal cities. Moreover, a twin-turboprop allows him to fly to the remaining six ranches, each equipped with a single-engined general aviation aircraft type for control, surveillance and transport tasks.
Brazilian business aviation came into existence during the 1960s with the arrival of the first twin-engined turboprops and business jets. But the sector's full potential only began to be realised the following decade. Despite the country's recurring economic problems and the uncertainties of an election year, sales during 2002 totalled $300 million with local analysts forecasting sales this year at around $325 million.
Last year some observers indicated that the country's business aviation sector would register a slightly higher growth rate during 2003, but some of the problems that hinder its expansion - and distinguish it from similar markets - still remain and need to be urgently addressed; not least the tax burden. During the 1990s, a bewildering array of taxes began to be levied against imported goods - chiefly against products not considered essential. As a result, the price of a business aircraft increased by as much as 28-30% regardless of its value as a capital asset.
Several operators resorted to leasing arrangements to avoid the penalty and now nearly half of Brazil's fleet of business jets are leased by their operators - especially the newer-generation aircraft.
A case in point are the eight Dassault Falcons on Brazil's aircraft register, of which seven are operating under different leasing arrangements, while all nine Raytheon Beechjets in Brazil are similarly leased. The levying of duties upon leasing operations in 1998 aggravated this scenario and Brazil's business aviation trade body ABAG is fighting an uphill struggle against the Brazilian government to remedy the problem.
Restrictive laws
Brazil's restrictive tax laws have also spurred larger corporations to establish air taxi companies in an attempt to fund aircraft maintenance and operating costs. Curiously, many of these efforts have developed a life of their own and are generating profits for the parent company. One venture was established during the 1990s when Brazil's largest media corporation and the world's fourth largest independent TV network founded Riana Taxi Aéreo, a Rio de Janeiro-based operation with a fleet of Bell JetRangers, Eurocopter AS350s and Cessna Citations.
Although it regularly provides services to its parent company, the O Globo Group, regular third-party customers are now the major source of Riana's income.
At an operational level, another difficulty is slot availability at São Paulo's major domestic airfield, Congonhas Airport. Only 10% of the slots at this key airport are awarded to business aviation flights at peak hours. To a lesser degree, Rio de Janeiro's Santos-Dumont Airport is experiencing the same problem. Nonetheless, since Congonhas generates most of Brazil's business aviation traffic, attempts are being made to increase slot availability to 35% in the near future.
Despite these difficulties, the prospects for Brazilian business aviation are positive. ABAG president and head of TAM's Executive Jet division, Rui Thomaz de Aquino, believes "that the market will grow 5% to 8% within a year". His view is shared by Líder Taxi Aéreo's director, Eduardo Vaz, who indicated that "despite the country's economic difficulties last year and the US dollar's volatility, I think the market has an optimistic outlook". Indeed, 2002 was not an easy year for Líder. Posting net revenues of $88.6 million over the preceding fiscal year, the company expected to log $84 million in revenues for 2002. Nevertheless, as of November, the company clinched six business jet orders - a clear indication that the sector believes it has weathered the worst of the financial storm.
Precisely how this upswing is going to manifest itself is not clear to local analysts. With many Brazilian corporations expanding businesses abroad - especially to Europe and the USA - some observers believe the country's relatively modest fleet of large jets is expected to undergo a significant increase within the next two to five years.
Opposite views are held by other analysts, who believe the market will experience a long-awaited renewal in the mid-sized jet category and only a modest gain in the large jet aircraft fleet - a view possibly vindicated by the fact that just over 120 early-generation Citation I/IIs and Learjet 35As actively fly in Brazil.
Nevertheless, there is an apparent consensus regarding ultra-light jets and single-engined business turboprops, which it is believed will achieve substantial sales in the coming years. It is felt that the market will see declining twin-turboprop sales, some of the slack being taken-up by such aircraft as the Pilatus PC-12 and Socata TBM700 destined for agricultural business operators that now operate Raytheon King Airs.
But perhaps ABAG's Adalberto Febeliano, has the clearest view of all. He says: "When it comes to aircraft, Brazilians are generally very rational. They buy the exact type of aircraft they need - no more, no less."
Source: Flight International
