Crew and Azul contingencies lower TAP's value
The government kicked off the privatization of TAP this Thursday by approving the sale of 49.9% of its capital. The two valuations conducted on the company, by EY and Banco Finantia, have not been revealed, but the government admits that there are contingencies that will affect the value offered by interested parties.
Infrastructure Minister Miguel Pinto Luz acknowledged this Thursday that there are contingencies regarding TAP that could affect the airline's value upon privatization. " There is a dispute in court with TAP workers that will have to be factored into the price for anyone who wants to buy TAP . They know what they're getting into, and we're not hiding it," the minister stated.
The airline has already set aside €41 million to cover lawsuits filed by cabin crew members who claim they were irregularly dismissed during the pandemic and not included in the appropriate professional category. The airline has appealed the decisions all the way to the Constitutional Court, but has so far lost the lawsuits. This means the amount claimed is likely to increase. The National Union of Civil Aviation Flight Personnel, which represents the class, estimates the total potential compensation at around €300 million .
This isn't the only contingency TAP faces. Azul is claiming €177 million from TAP SGPS for a bond loan taken out in 2016. The holding company , whose name has been changed to SIAVILO, no longer has any stake in the airline and is now state-owned, but TAP guarantees the financing. Among these guarantees is the Miles & Go loyalty program.
The airline has already appealed to the court to have the guarantees declared null and void, a claim Azul disputes. If they are recognized, TAP will be liable for payment of the debt. The Minister of Infrastructure stated this Thursday that there will be a dialogue between the two companies and that the case should be "settled in court."
TAP's assessment is also affected by the deteriorating results . After posting record profits of 177 million in 2023, these fell to 53.7 million in 2024, with a sharp increase in personnel expenses weighing on the numbers. "The stagnation of results is a concern. It's one of the most profound reasons for privatization," stated Hugo Espírito Santo, Secretary of State for Infrastructure. Rising personnel costs are also a concern, but the minister noted that they occur "in the context of management."
There's a cap limiting TAP's growth called Humberto Delgado Airport. Humberto Delgado won't allow TAP to aspire to become a company with 150 or 180 aircraft.
The exhaustion of Lisbon's airport also limits the company's growth. " There's a cap there limiting TAP's growth, called Humberto Delgado Airport . Humberto Delgado won't allow TAP to aspire to be a company with 150 or 180 aircraft," Miguel Pinto Luz noted. Therefore, the government will ask interested parties to present their vision for the company's development at the future Luís de Camões Airport.
The context of high global economic uncertainty also doesn't help. Even so, the sector in Europe has managed to navigate the difficulties, increasing in value by around 17% since the beginning of the year, according to the Stoxx Europe Airlines index .
While these contingencies may negatively impact the price offered by interested parties, the government also cites arguments that make TAP an attractive candidate. One of them is that the Portuguese airline is one of the last mid-sized airlines in Europe not yet owned by a large group .
The Executive points to a high potential for synergies . Considering a group of four acquisitions made in recent years in the sector and TAP's 4.2 billion euros in revenue in 2024, it is estimated that a merger involving the Portuguese carrier would generate, on average, around 300 million euros in synergies per year .
Although the Prime Minister had previously advocated a 100% sale, the Government opted for a minority sale, which reduces the political risk of the operation being rejected in Parliament – Chega has already stated that it will request the review of the privatization decree-law – or being reversed in the future.
Selling less than 50% could also attract a larger number of interested parties . According to the Minister of Infrastructure, the chosen model " allows bids from investors outside the European Union ," since EU legislation prevents airlines from being majority-owned by shareholders from outside the bloc.
The government also offers other arguments. " The government's intention is to enable the creation of synergies by assigning a significant management role and requiring a broad majority (State and partner) for critical decisions." The relationship will be defined through a shareholders' agreement that gives the investor management power and the State the final say in strategic decisions for the national interest, such as routes or the location of the headquarters.
One last carrot: the possibility of a second phase of privatization, to which the Executive is not committed, but in which it will give preference rights to whoever remains as a shareholder.
Much work will still be done before the 49.9% stake (of which 5% is reserved for workers) changes hands. The privatization decree-law approved this Thursday still needs to be signed into law by the President. After publication in the Official Gazette, candidates will have two months to express their interest .
Within two weeks, the terms of reference will be approved , detailing the criteria for the transaction, which will take the form of a direct sale. Non-binding proposals will then be submitted, followed by binding proposals, and finally, a final negotiation phase with one or more candidates.
What's certain is that applicants must be airlines of significant size and financial strength. Investment funds will only be accepted in consortia led by airlines .
Three groups are already in the pipeline: IAG, Lufthansa and Air France – KLM , which have already met with the Government about the operation.
ECO-Economia Online
