Brazil to overhaul airlines before Cup, Games

BRASILIA, March 17 (Reuters) - Foreigners will be able to take a stake of up to 49 percent in Brazilian airlines compared with the current 20 percent limit, under a government proposal to modernize air transport before Brazil hosts the soccer World Cup and Olympic games.

Additional foreign capital would allow airlines to expand in line with demand that has been growing at more than 14 percent per year over the past five years.

"The measures will increase the supply, competition, and quality of services," the defense ministry said in a bill it sent to Congress last Friday.

The airline industry, which transported 63 million passengers in 2008, is expected to expand by 7 percent per annum in coming years, the defense ministry said.

Brazil will host the soccer World Cup in 2014 and the Olympic games in 2016, for which it expects a large increase in air traffic.

Under the new proposal, airlines could operate with a simple government authorization, as opposed to the current system in which they must request a concession in a cumbersome process. The new bill would also legally consolidate the liberalization of air fares that has taken place in recent years.

A similar proposal to increase the foreign stake in airlines had already been approved by the Senate but was delayed in the Chamber of Deputies, the lower house of Congress, local media reported.

The new bill is more appropriate for the fast-changing industry, the ministry of defense said.

The government began to draft its legislative overhaul of the aviation industry after two major airline accidents in 2006 and 2007.

The two largest Brazilian airlines are TAM (TAMM4.SA) (TAM.N) and Gol (GOLL4.SA)(GOL.N). (Reporting by Luciana Lopez and Raymond Colitt, editing by Matthew Lewis)