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Brazil moves to Open Skies deal with US

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By Reuters

Brasilia – The lower house of Brazil’s Congress  has approved an Open Skies agreement between Brazil and the United States (US) that clears the way for a partnership between American Airlines Group, Inc. and LATAM Airlines Group SA.

The Open Skies treaty, which needs Senate approval for final ratification, was signed in 2011 but faced opposition from lawmakers lobbied by local airline interests in Brazil, who feared competition from US carriers.

The accord removes limits on the number of flights between the two countries.

It was a requirement for the US Department of Transportation to approve a joint business agreement between American Airlines and Latin America’s largest carrier LATAM Airlines, which would see them coordinating schedules and offering more connections.The agreement should open the way for US approval of the deal. Brazil’s anti-trust agency has already given the green light.

Backers of Open Skies say it will boost travel and cut air fares between Brazil and the United States, the favorite destination of Brazilian tourists.

Brazil’s third-biggest airline Azul Linhas Aéreas, which started in 2008, opposed the agreement, arguing that it needed to establish itself in the Brazilian market before it was opened up to further competition.

The treaty was backed by GOL Linhas Aéreas Inteligentes, Brazil’s second airline in which Delta Airlines, Inc. has a 9.48 percent stake, and Avianca Brasil, which hopes to seal a business deal with United Continental Holdings, Inc. in the next two months.

If ratified as expected by the Brazilian Senate early next year, Open Skies is expected to lead to increased interest by the US airline industry in the potentially huge Brazilian market.

Brazil’s center-right government is backing separate legislation to remove limits on foreign investment in Brazilian airlines, currently restricted to 20 percent of common voting shares.

LATAM’s agreement with American Airlines, and a similar accord with British Airways parent IAG, have been approved by authorities in Uruguay and Colombia as well as Brazil. Chile has yet to give its approval.

The business agreement will allow American and IAG to grow in South America by offering more connections and lower fares.

American has obtained Brazilian approval to build a $100-million maintenance center at Sao Paulo’s Guarulhos airport to help it build up its South American operations.

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