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C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 000598 

SIPDIS 

SIPDIS 

E.O. 12958: DECL: 04/05/2017 
TAGS: PGOV EAIR BR
SUBJECT: OPPOSITION DEPUTY BLAMES LULA FOR AIR TRAFFIC CRISIS 

REF: A. BRASILIA 485 
¶B. BRASILIA 564 (NOTAL) 
¶C. 06 BRASILIA 2564 (NOTAL) 
¶D. 06 SECSTATE 198917 (NOTAL) 

Classified By: POLITICAL COUNSELOR DENNIS W. HEARNE FOR REASONS 1.4 B/D 

¶1. (C) Summary. Federal Deputy Antonio Carlos Magalhaes Neto ("ACM Neto"), of the Democrats party ("DEM," formerly called the Liberal Front Party, PFL), of Bahia believes President Luiz Inacio Lula da Silva defused a ticking bomb in the military this week by reversing his decision not to punish insubordinate air traffic controllers who shut down air traffic on March 30. ACM Neto (protect) told poloff on April 4 there are other such "bombs" in the military because some in the lower ranks -- corporals, sergeants, and even lieutenants -- are unhappy about a number of things, starting with salaries. ACM Neto, a staunch opponent of Lula's administration, said opposition figures have obtained documents going back four years, to the time Lula took office, that proving the Lula administration knew of problems in the Brazilian air traffic control system. He said he believes a congressional investigation into the air traffic crisis will reveal serious corruption and incompetence in Infraero, the government body that runs the country's airports, under the management of Carlos Wilson, a Lula appointee. He said rumors are circulating that government officials took bribes to favor two major airlines and channeled the funds into political campaigns. End summary. 

Lula "Contained" the Problem in the Military, For Now --------------------------------------------- -------- 

¶2. (C) ACM Neto condemned the Lula administration's "complete lack of leadership" on the air traffic crisis. He told poloff on April 4 that opposition politicians have obtained documents going back four years ) the time frame covering Lula's first term ) showing that the Lula administration was aware of serious deficiencies in air traffic. ACM Neto harshly criticized Lula's handling of the March 30 strike by air traffic controllers. He said Lula's decision to reverse himself and support punishment and even prosecution of rebellious sergeants "contained" the problem ) for now - and defused a "bomb." But, he stressed, the "lack of hierarchy is dangerous," and there are pockets of unhappiness; "other bombs," ARE out there among the lower enlisted ranks, and even among lieutenants, and they could go off. ACM Neto said he was not suggesting a revolt by the armed forces, but rather that some in the lower military ranks are unhappy with salaries, long hours (in the case of air traffic controllers), and other conditions. This, coupled with uncorrected disobedience, is a dangerous formula, he said. ACM Neto said the air traffic strike on March 30 was the most serious revolt by the military since 1963. He said the DEM does not and should not support the controllers' action, but they have grievances and the government has done absolutely nothing. He accused the Lula administration of a complete lack of leadership to address a problem they have known about for four years. 

Rumors That Airlines Paid Bribes That Went to Government Campaigns --------------------------------------------- ----------- 

¶3. (C) ACM Neto told poloff that the Parliamentary Committee of Inquiry ("CPI"), if it is created, is likely to become a wide-ranging investigation and no one can predict what its eventual scope will be. He revealed that there are unsubstantiated rumors in the Congress ) which any CPI on air traffic would undoubtedly investigate ) that after the collapse of Varig, administration officials took bribes to ensure that the two remaining large national airlines, TAM and Gol, were ensured a dominant position in the market. He said the government is impeding market access and expansion by smaller companies to fill the void left by Varig, leaving TAM and Gol the lion's share of the commercial aviation business. These payments, according to the rumors, were channeled into campaign coffers. ACM Neto did not say which parties in the government coalition might have benefited from 

BRASILIA 00000598 002 OF 002 

these illegal payments. Parliamentary Inquiry Will Reveal Corruption 

-------------------------------------------- 

¶4. (C) ACM Neto said that he expected a CPI would also reveal irregularities in contracting carried out by Infraero, the state company that runs the airports, especially while it was managed by Carlos Wilson, a Lula appointee. (Note: Carlos Wilson is now a Federal Deputy from the Workers Party, representing Pernambuco. He was president of Infraero from 2003 to 2006, and oversaw new construction and major upgrades at several airports, including Recife, Congonhas, Belo Horizonte, and others. End note.) ACM Neto said there had been all manner of contractual malfeasance for these projects. Moreover, he said, Infraero was negligent in its duty to maintain runways and equipment, while it proceeded to "turn the airports into shopping malls." He said the "black holes" in air traffic control, such as the location where Gol flight 1907 and an Embraer Legacy jet collided last September 29, resulting in Brazil's worst air disaster and the loss of 154 lives, were an example of the government's overall failure - both on the part of the Air Force, which is wholly responsible for running the air traffic control system, as well as Infraero, the civilian agency that runs and maintains the airports - to address persistent technical deficiencies. 

Comment 

------- 

¶5. (C) Comment. ACM Neto is in the opposition and it is natural for him to allege wrongdoing, lack of leadership and incompetence. Clearly there is a political agenda behind his statements. But the allegations of corruption in Infraero that he described would fit squarely within a pattern of corruption in Lula's first term, and is entirely plausible. Even if true, Lula could probably get away with saying he did not know, as he successfully did with past scandals. The allegation that bribes were taken and recycled into political campaigns presents a far more serious danger to the administration, since it could strike the PT and/or the government at a very senior level, and Lula would have to clean house (again), while claiming he did not know. It could generate another far-reaching CPI with an unpredictable outcome, even if it is never substantiated. 

¶6. (C) Comment, continued. ACM Neto's tour d'horizon of the air traffic crisis also echoes our conviction that Lula's government continues to suffer from a profound lack of decisive executive competence, rendering it incapable of dealing simultaneously with routine policy making and looming crises. It can carry out a major income redistribution program, but it is utterly incapable of addressing the major structural problems that have resulted in six months of air havoc. In a country the size of Brazil, where air travel is essential to business and livelihoods, this represents a huge failure of Lula's leadership. 

Chicola