Brazil’s Aviation Codeshares: Is the Notification Threshold Really Clear?

CADE Reignites Discussion on Associative Contracts in the Airline Industry

The Brazilian Competition Authority (CADE) issued a landmark decision in APAC 08700.003565/2024-49 regarding a domestic codeshare agreement between two Brazilian airlines. The Tribunal determined that mandatory notification under Resolution 17/2016 had not yet been triggered because the contract had an indefinite term and had not been in effect for two years. At the same time, the Tribunal unanimously applied Article 88(7) of the Brazilian Competition Law (Law No. 12.529/2011), ordering the parties to notify the agreement for antitrust merger review and prohibiting any expansion of the codeshare pending review (Reporting-Commissioner Vote, the prevailing decision, Id. 1617099).

While the CADE’s decision reaffirmed the two-year threshold for indefinite-term contracts, it also indicated increasing unease with the current wording. It may lead to reconsidering the rule in the future.

Context: the deal structure and CADE Resolution 17/2016 that regulates associative agreements.

Article 88, item IV, of the Brazilian Competition Law states that certain associative agreements may be classified as concentration acts requiring mandatory pre-merger review by antitrust authorities. However, associative agreements are not common contracts under Brazilian law. Therefore, when CADE issued Resolution No. 17/2016, its goal was to clearly define which associative agreements should trigger an antitrust filing.

The Resolution established three cumulative criteria for notification: (i) the contract must last at least two years; (ii) it must involve a shared enterprise with common risks and results; and (iii) the parties must be competitors in the relevant market covered by the agreement.

Importantly, Resolution 17 also established a specific rule for indefinite-term contracts, stating that they become reportable only once they reach or exceed two years in duration. At the time, CADE justified this structure to balance legal certainty with enforcement efficiency: the two-year threshold was designed to capture structurally significant and enduring forms of cooperation, while excluding short-term or operationally routine collaborations from mandatory filing.

The case involved a codeshare agreement between domestic carriers, including typical codeshare, prorate, and reciprocal frequent-flyer arrangements. The General-Superintendence determined that the agreement met the essential criteria for an associative contract: shared enterprise, risk and result sharing, and horizontal competition in the relevant market. However, because the contract was of indefinite duration and had not yet been in effect for two years, it did not require mandatory prior filing under Articles 2 and 3 of Resolution 17/2016. The Tribunal agreed.

Historically, CADE has not automatically considered codeshare agreements as collaborative contracts that require mandatory merger filings. For over ten years, most of the more than 40 codeshare cases reviewed by the authority involved international “behind-and-beyond” arrangements, which were either not reviewed or approved without remedies. In cases like TAM/Qatar, the agreements were viewed as essentially complementary and vertical, with no shared enterprise, risks, or outcomes. Importantly, these precedents almost never involved two domestic competitors. In contrast, when CADE examined domestic codeshares such as Tam/Passaredo, it explicitly indicated that they might warrant closer scrutiny. CADE’s General-Superintendence Opinion in that previous case involving domestic companies stated that: “Given the potential negative impacts of codeshare agreements—particularly regarding possible restrictions on competitor entry—special attention must be paid in the competitive assessment of transactions that include codeshare contracts, especially those involving solely domestic airlines, since the Brazilian market features a limited number of players.” (p. 144, of Opinion 5/2024)

The potentially conflicting messages sent by the Tribunal when assessing the case

Although the Tribunal reached a consensus, the case exposed significant differences in interpretation among Commissioners on (i) the nature of codeshares, (ii) the meaning of “indefinite term” under Resolution 17, and (iii) how CADE’s merger control system should address early implementation risks. Three Commissioners’ votes stand out.

The Reporting Commissioner’s Stance: Legal Certainty and Strict Textual Interpretation

The Reporting Commissioner adopted the most literal and text-driven interpretation of Resolution 17/2016. In his view, Resolution 17 is straightforward: associative contracts are only subject to mandatory notification after two years, including contracts with indefinite durations, which only become notifiable “if the period of two years… is reached or exceeded." (paragraph 6, Id. 1617099)

He acknowledged criticisms of the current rule, but he emphasized that, until Resolution 17 is amended, CADE remains bound by its explicit wording. To him, legal certainty requires sticking to the existing text, not policy preferences (paragraph 134, Id. 1617148).

From this perspective, he concluded that mandatory notification was not applicable at this stage because the two-year threshold had not been reached, while review under Article 88(7) was appropriate given the structure of the domestic aviation market. For some, this reasoning reflects a combined commitment to statutory fidelity and a cautious approach to competition risks.

The Supplementary Vote of Another Commissioner: Codeshare Agreements Require a Sophisticated, Industry-Specific Perspective

Another Commissioner took the opportunity to provide a comprehensive doctrinal analysis of codeshare agreements. His review covers economic literature, EU aviation precedents, U.S. studies, and CADE’s own history with 53 cases of cooperation in aviation from 2007 to 2024, 41 of which involved codeshares. (Id. 1618951)

His conclusion is clear: not all codeshares are the same. He differentiates between: (a) Behind-and-beyond codeshares (usually low-risk and complementary), (b) Unilateral trunk agreements (moderate risk), and (c) Parallel operations (high-risk, involving potential horizontal overlap, coordination, and capacity alignment).

The Commissioner highlights that domestic codeshares between national airlines are fundamentally different from typical behind-and-beyond arrangements with foreign carriers. Unlike foreign partners, domestic parties compete on overlapping origin and destination routes, face similar cost structures, and may engage in strategic network pruning that lessens actual rivalry. (paragraph 22, Id. 1618951)

The Commissioner endorses the SG’s analysis, demonstrating that the agreement satisfied the key elements of an associative contract: (a) Common enterprise: shared use of aircraft, reservation systems, and network integration; (b) Shared risks and results: mutual passenger flow, parity in operational exposure, and traffic interdependencies; and (c) Horizontal rivalry: competition in origin and destination markets, even if the parties claimed they had “no overlapping routes.” His point is that substance matters more than labels. The absence of overlap among individual legs does not eliminate horizontal effects under the origin-and-destination methodology.

The President’s Vote: A Broader Interpretation of Mandatory Notification

For the President, the idea that Resolution 17 permits parties to operate an associative contract for up to two years without prior notification conflicts with the purpose of Brazil’s mandatory pre-merger system, which is based on Article 88(2)–(4) of the Brazilian Competition Law. If an agreement lasts longer than two years, notification should be made immediately, regardless of how much time has actually passed.

He emphasizes that (a) a literal reading of Article 3 of Resolution 17 cannot supersede the systemic logic of pre-closing control, (b) if airlines are selling tickets beyond the two-year horizon, they have already committed to long-term integration, which creates expectations and shifts competitive incentives, and (c) public communications by the airlines have generated market expectations similar to a pre-announced merger, justifying immediate oversight. (paragraph 4, Id. 1618951)

The president’s stance shifts the focus: the main question is not whether two years have elapsed, but whether the agreement is intended to extend beyond two years. If it is, notice should be given beforehand and promptly, not delayed.

The Tribunal reached a conclusion, but new issues emerged

There is agreement on four points: (i) no jumping to conclusions based on the facts; (ii) acknowledgment that the agreement is an associative contract; (iii) that, under the current wording of Resolution 17/2016, there is no filing obligation before the two-year mark for indefinite-term contracts; and (iv) the need for preventive control through Article 88(7).

Brazilian Competition Law provides CADE with a strong safeguard in Article 88(7). Even if a transaction doesn’t meet the formal thresholds for mandatory merger notification, CADE can “call in” the deal and require the parties to submit it for review if the authority suspects the arrangement may raise competitive concerns. Article 88(7) serves as a flexible oversight mechanism: it prevents potentially anticompetitive deals from bypassing merger review simply because they fall outside the official thresholds. In practice, this allows CADE to evaluate non-notifiable but potentially high-risk agreements. CADE will use this tool when it deems necessary.

For airlines, the message is twofold. First, the two-year rule remains the official trigger for mandatory filing of indefinite-term contracts under Resolution 17/2016. Second, domestic agreements between competitors will likely face thorough review.

Although CADE showed interest in understanding the agreement's impact on the market, the authority never had the chance to do so. After the judgment and the filing order, the parties reported the termination of the codeshare and related instruments, and SG acknowledged a subsequent loss of relevance regarding the filing decision.

For other industries, the Tribunal maintained predictability under Resolution 17/2016, including the two-year rule for indefinite-term contracts, but indicated that cooperation agreements in concentrated markets, even when labeled as indefinite, may still raise concerns.

Finally, it would not be surprising if CADE proposed amendments to Resolution 17/2016 soon. However, any such initiative is likely to face resistance and draw significant criticism.

***

Conflict‑of‑interest statement: The author did not act in the case discussed.