If you are drinking a coffee while reading this, there is a three-in-one chance that you are supporting Brazil’s economy. If it is a soy latte, it is an even bet.
Agriculture accounts for a quarter of Brazil’s economy and with some economists forecasting that this is the start of a long-term commodities boom it could soon be more. The hottest new Brazilian telenovela is Terra e Paixão (Land and Passion) where a teacher takes over her murdered husband’s farm.
When you think of South American agriculture companies buying aircraft you probably picture farmers buying crop dusters like Embraer’s Ipanema. The largest agri companies think a lot bigger. JBS, a Brazilian meat producer, had sales of R375bn ($71bn) last year, for example, and has 260,000 employees in more than 20 countries. Large multinationals like this are increasingly looking for options.
“We are seeing strong demand in Brazil. The economy is strong and we are seeing a lot of interest from agribusiness as well as services and retail,” said Stephen Friedrich, chief commercial officer, Embraer talking to CJI in Brazil last week. “We see buyers looking to fly within Brazil and a lot of demand for the Praetor 600’s ability to fly from São Paulo to Miami. A lot of businesses appreciate that.” (Pictured is a Praetor 600, courtesy of Embraer).
The atmosphere at LABACE in São Paulo last week was visibly upbeat. With all the manufacturers attending seeing interest from potential customers. “It is a great time for business aviation in Latin America, we are very excited about Brazil,” said Marcelo Moreira, vice president sales, Textron Aviation.
Moreira says they are seeing strong demand across the Textron range. Textron has delivered more than 250 new turboprops and jets to Brazil over the past five years. He adds: “It is a great market and we have invested a lot into it.”
Brokers are seeing similar interest for pre-owned aircraft. “Agribusiness is our tech industry,” says one Brazilian broker, “but we are also getting a lot of demand from other sectors post-Covid just like in the US.”
Getting aircraft into the country is still complicated. The World Bank used to publish a ranking of the easiest countries in which to run a business. (Ironically it stopped in 2020 due to ethical concerns about the data.) In its last report Brazil ranked 124th.
But Brazil came 184th for ease of paying taxes. In 2019 the World Bank estimated that it took companies an average of 1,500 hours per year (or 187 workdays) to comply with Brazilian tax laws. A Singaporean company would expect to spend just 64 hours.
Tax can be charged at federal, state, and municipal levels and each can have different approaches. There are a lot of taxes involved in importing aircraft – state VAT, import tax, industrial products tax and others. In 2012 Brazil’s tax authority famously seized a number of N-registered jets, but these problems are in the past.
Large trading companies like Timbro, Comexport, Razac, Sertrading and Savixx have simplified imports and are key players in the market. They were some of the biggest exhibitors at LABACE this year.
Politicians across all the major parties are committed to simplifying the tax system. The lower house approved the first draft and this is now in the Senate. Lawmakers are hoping to have reached agreement by the end of the year although it will take years to come into effect.
“The whole concept of simplification is a good one, but for now the only thing we know for sure is that the Senate will make changes – nothing is finalised yet,” says João Paulo Servera, who heads the aviation group at law firm Veirano Advogados.
One benefit of the import taxes is that aircraft that have been brought in tend to stay in the country. But the real reason they stay is that companies with aircraft in Brazil have a real advantage.
“Brazil is similar in size to the US, but has a lot of room to improve with airline connectivity. We are seeing a lot of businesses looking for aircraft to give them flexibility and efficiency,” says Textron’s Moreira.
Businesses are waking up to business aviation and smelling the coffee.
Subscribe to our free newsletter
For more opinions from Corporate Jet Investor, subscribe to our One Minute Week newsletter.