The next consolidation in European air traffic is on the horizon with the privatization of the Portuguese airline, TAP. There are two potential applicants for the takeover: the Air France-KLM alliance and its transatlantic JV partner Delta Air Lines, and the Lufthansa Group. Both competitors have long expressed a fundamental interest in adding the state-owned Portuguese airline to their assets. Analysts expect a decision to be made before the end of this year.
According to its 2023 financial results, TAP generated a net profit of €177 million, vs €112 million a year before. It is a remarkable turnaround because the carrier presented consecutive losses in the decade from 2012 to 2022. However, the layoffs of around 2,000 employees during the coronavirus pandemic, combined with wage cuts for the remaining 6,600 employees, the introduction of new Airbus aircraft and higher punctuality rates have put the perennial patient back on its feet. And the restructuring will continue unabated, promises airline boss, Luis Rodrigues. As a result of this upturn, the figure on the price tag that the Lisbon government might present to a potential buyer, is likely to be significantly higher than it was two or three years ago. Further decision criteria which are part of the package, are fleet alignments, joint marketing and product strategies, network considerations ,and job guarantees for TAP’s workforce at home and abroad.
Strong in Brazil
The Lisbon-based carrier’s main market is the EU (37% share of traffic), followed by South America (33%), North America (22%), and Africa (9%). Charter missions complement the operations. Scheduled flights to and from South America are almost entirely accounted for by connections between Portugal and Brazil. Currently, TAP serves 10 destinations there, and operates 63 weekly rotations across the South Atlantic. These are complemented by two weekly flights taking off from Porto to Rio de Janeiro and Sao Paulo.
Loyal Airbus customer
The long-haul fleet consists of A330-900 neos and A330-200 ‘Tech Specs’, with the latter able to uplift 37 tons of freight per flight. This corresponds to about 50% of the capacity that an MD-11 freighter offers the market. The airline operates 14 units of each of the two A330 variants.
What Lufthansa’s Investor Relations Department is most likely to be looking at is TAP’s performance in the Sao Paulo market, the economic heart of the country. The city has become a hot spot for German investments, as shown by Siemens, Volkswagen, Bosch, or the chemical giant, Bayer, which each chose Sao Paulo as the site for their South American headquarters. Some statistics list 900 German companies, others speak of 1,200 that have settled there. According to official surveys, they generate a total of 10% of Brazil’s industrial gross domestic product. This spurs passenger and cargo demand on routes across the Atlantic. In comparison, French and Dutch companies are less well-represented in Brazil.
Unlike AF-KLM or Lufthansa, the BA/Iberia controlled International Airlines Group (IAG) has no chance in a bidding process for TAP. With Iberia, Vueling and soon presumably also Spanish carrier, Air Europa under its wings, IAG already controls the Iberian aviation market by passenger numbers and cargo volumes. Brussels would likely veto an IAG takeover of TAP on competition grounds.
It’s the package that counts
Ultimately, TAP’s final decision will not only depend on the financial offers submitted by AF-KLM or Lufthansa, but the accompanying package they are wrapped in, such as fleet issues, product philosophy, network policy, or job considerations.
The most convenient date for a TAP decision is 20DEC24. This is when the third and final installment of the capital increase by the sole shareholder of TAP S.A., Portugal’s Directorate-General of the Treasury and Finance, is due. Incidentally, the buyer would not only acquire the airline, TAP, but would also take over 49.9% of the ground handling company, Serviços Portugueses de Handling, S.A. (SPdH). The majority (50.1%) is held by Menzies Aviation Portugal – Serviços de Carga.
