Felipe Escalona of Galindo Arias & López in Panama City looks at the significant growth of Panama’s aviation industry

Panama has emerged as a “hot spot” where everyone comes to invest and do business, particularly given the fact that many of Latin America’s major players are currently facing the contraction of their local economies. The draw of Panama comes from its geographical position in the heart of the Americas, as well as its booming economy and sustained growth over the last decade which can be attributed to its robust financial center, its free trade zones and container ports and, of course, the $5.25 billion expansion of the Panama Canal.

In the face of this continued economic expansion, Panama’s aviation industry has faced significant changes in the last few years. For example, the principle airport in Panama City, Tocumen International Airport, is currently undergoing its third phase of expansion as part of an ambitious renovation program launched by the Panamanian government in 2006. With an investment of $800 million, this third phase is scheduled to be completed in 2017 and will include a new terminal with 20 new gates. As a result, upon the completion of the renovation, the airport will have a total of 54 gates. Some gates will have the capacity to accommodate wide-body airliners such as the Airbus A380 and Boeing 747. Copa Airlines, the largest Panamanian airline, expects its daily number of flights to increase from 400 to 600 once the new passenger terminal opens.

One question that naturally arises is what has driven Tocumen’s large-scale expansion for nearly ten years in a region where the largest nations are suffering from crippling economic weakness. The answer is that Panama—and its major airport—enjoys a very advantageous and enviable geographical position compared to its Central and South American neighbors. As a result, many of the top-ranked and most renowned airlines in the world such as Emirates, Lufthansa, KLM, Air France and more recently Turkish Airlines have seen Panama as an attractive hub in which to develop their own expansion plans in Latin America, including a strong commitment to promote the commerce exchange and business opportunities between their respective countries of origin and Panama. Additionally, the strong and efficient operation of Copa Airlines out of Tocumen, with almost 400 daily flights to 75 destinations in the Americas and a fleet of more than 100 modern 737-700, 737-800 and Embraer 190’s aircraft, and the execution of many code-sharing agreements between Copa and numerous European, Latin American and Middle Eastern operators have significantly facilitated the arrival of foreign airlines to Panama.

These geographical and economic advantages have been integral to the strategic marketing campaigns put into place by Panama’s Tourism Ministry and by Copa Airlines itself, whose brand is also well-positioned and strongly consolidated in the present market. As a result of said partnership, Tocumen has earned the well-deserved moniker of “Hub of the Americas” within the aviation industry.

Another reason for the success of the airport is the corporatization of its administration, despite most of the countries in the region having their airports fully managed and operated by local governments, together with the bureaucracy and problems that naturally accompany government involvement in what is essentially private enterprise. This innovative airport management platform was created through Law No. 23 of January 29, 2003, which constituted the regulatory framework for the management of airports and landing strips in Panama. Law 23 law allowed for the creation of Aeropuerto Internacional de Tocumen also known as Tocumen, a Panamanian corporation “Sociedad Anónima” whose shares are fully owned by the Panamanian government, and whose administrative structure has paved the way for the improvement and modernization of the terminal. Tocumen also has its own procurement law, which has granted to Tocumen’s Board of Directors the authority to approve concession agreements, and to manage its own procurement processes and issue bonds or any other financial instrument with the assistance of the major financial institutions around the world in order to finance its own expansion program. As a result, Tocumen structure has proved to be efficient in terms of decision-making and has added a degree of flexibility to the management of the airport.

Finally, in relation to Air Transportation agreements, Panama´s legal framework has not been an obstacle to the development of either bilateral agreements in relation to commercial aviation rights with other countries, or to the access of foreign or national airlines to the Panamanian air transportation market. In 2016, the Civil Aviation Authority of Panama (AAC) has already signed three cooperation agreements involving aviation (among other services and sectors) with Holland, Curacao and Aruba, and is expected to sign another four with India, New Zealand, Austria and Japan, each of whose national airlines have demonstrated interest in connecting their countries with Panama.

With respect to the commencement of air operations in Panama, the registration process before the AAC is simple and relatively quick compared to other countries in the region, due to the knowledge and professionalism of the technical personnel that forms part of the regulatory entity.

In sum, the dynamic nature of the aviation industry in Panama has been the catalyst for the formation and development of aviation-law specialists in some of the largest and most renowned law firms in Panama, the need for which has been even further heightened by the arrival of foreign airlines and services providers in several aspects of the aviation industry. Knowledgeable counsel is crucial to navigating the regulatory requirements of the Panamanian aviation legal regime and commencing air transportation operations, as well as handling the various legal issues which arise as a foreign company’s aviation—and related—business in Panama continues to grow.

Felipe Escalona
Galindo Arias & López
Panama City

About the author
Felipe Escalona started his private practice at Galindo, Arias & López in 2008, where he has focused in aviation, corporate, insurance and reinsurance, project and assets finance, and public procurement law. Felipe offers recurrent counsel to airlines, insurance carriers, ground handling companies and repair stations operating in the region, and is constantly involved in aircraft acquisition and financing. He is also very active on insurance and reinsurance matters, as well as general corporate and commercial law.