What happened

A spate of positive headlines concerning the pandemic is helping to give a lift to Brazilian aviation and aerospace stocks, with investors hoping the worst might soon be over. Shares of airlines GOL Linhas Aereas Inteligentes (GOL 34.78%) and Azul (AZUL 5.12%) and jet manufacturer Embraer are (ERJ -0.82%) all up about 10% Tuesday in New York trading.

So what

Airline stocks all around the globe were hit hard by COVID-19, but few regions suffered more than Latin America. Several major airlines in the region flew into bankruptcy in 2020, and even the survivors have faced headwinds in 2021 because vaccine progress and new case trends in Brazil have not kept up with those in other parts of the world.

A plane takes off with the sun behind it.

Image source: Getty Images.

But in the last week there have been signs of progress in Brazil's fight against COVID, and the headlines globally are getting better. Airlines around the globe got a boost from the U.S. Federal Drug Administration's full approval of Pfizer's vaccine and from news that China reported no new locally transmitted cases in a day for the first time since July.

All three of these Brazilian companies trade in New York and tend to move as much on U.S. and global trends as on Brazil-specific conditions. Azul is also getting a boost on reports that it is pushing forward with a proposed deal to buy the Brazilian operations of LATAM Airlines Group out of bankruptcy, which would give it a commanding marketshare in its home market.

Embraer is a maker of commercial aircraft and sells globally, meaning it is likely to get a boost if conditions improve in China and the United States.

Now what

To some extent, today's rally is just the Brazilian companies playing catch-up with the "reopening trade" we have seen elsewhere already. Shares of Azul and GOL are both up considerably from their lows last spring but are still down 50% from where they traded pre-pandemic. Embraer stock is 10% lower than where it traded at the beginning of 2020.

Of these three companies, Azul is the most intriguing investment. The airline was winning share in Latin America before the pandemic, and it has survived the crisis better than most of its rivals. If it is allowed to buy or partner with part of LATAM, its long-term competitive position in the Brazil market will be formidable.