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Navigating the challenges of the aviation industry in Latin America

, Holland & Knight, US Leonie W Huang, Holland & Knight, US

Latin America experienced an economic boom for roughly a decade starting in the early 2000s. While recent overall growth in the region has tempered, growth in Mexico–Latin America's second largest economy after Brazil–is estimated to increase by 3 percent in 2014. Panama, Peru, and Colombia are also expected to continue with high annual growth rates, at 7.2, 5.5, and 4.5 percent respectively in 2014. Furthermore, the structural improvements made during the boom years, such as an increasing middle class population and greater resistance to external shocks, continue to make Latin America an attractive option for businesses and investors seeking growth opportunities.

One of the most attractive areas for growth in Latin America is its vibrant aviation sector. The trend of airline consolidations, in the last several years, has helped shape a rich market led by a handful of ambitious airline groups. In fact, Latin America is projected to be the fastest growing region in the world for commercial aviation passenger demand in the next two decades. Currently, Brazil's domestic aviation industry is the third largest in the world, and one of the most important growth areas for the country. While import demand was down overall, Brazil's aircraft imports increased by 21 percent in 2012, and the volume of passengers carried domestically, as measured by Revenue Passenger Kilometers (RPK), has doubled since 2007. Opportunities in low-cost carrier growth in both Mexico and Brazil also abound as interstate air travel becomes more common. Panama and Colombia provide additional opportunities, as their domestic airlines are helping to drive growth in both countries.

While there are tremendous opportunities in the Latin American aviation market, there are also unique legal challenges. Despite the region being referred to by a common name, the legal regimes of the countries that comprise Latin America are by no means homogenous. Thus, these legal challenges vary greatly by country and run the gamut from strict liability concerns for aircraft owners in Chile, to planning for aircraft registration costs in Panama, to the necessity of filing certain credit support documents with the Colombian Central Bank, to the potential for Brazilian capital gains taxes to be imposed on parties trading Brazilian registered aircraft. Even in areas of supposed uniformity, diverse legal challenges remain. For example, while the Cape Town Convention and the Protocol thereto on Matters Specific to Aircraft Equipment (the Cape Town Convention) has been ratified in numerous countries in Latin America, the ratification and the implementation of the treaty varies from jurisdiction to jurisdiction. Due to the way that the Cape Town Convention was ratified in Colombia and Mexico, a creditor's rights in the insolvency of a Colombian airline under the Cape Town Convention as ratified by Colombia will bear little resemblance to a creditor's rights in the insolvency of a Mexican airline under the Cape Town Convention as ratified by Mexico. Similarly, Brazil, which ratified the Cape Town Convention in 2011, only very recently put into effect the necessary regulations to implement the treaty. Civil law concepts, that may be foreign to common law trained lawyers, such as the concept of public concern, can add an additional layer of complexity when those concepts are further informed by country specific cultural or political values.

In short, while investing and doing business in Latin America's aviation industry can be rewarding, it is not without its challenges. And it's those very challenges that make it extremely important for anyone doing business in the Latin American aviation industry to have the right team of legal advisers. A legal adviser who knows the ins and outs of the local economy, customs, and laws can provide peace of mind as well as the necessary experience to help investors and businesses overcome the unique challenges sure to arise in the course of doing business in the Latin American aviation industry.