The Portuguese government wants to finalize the privatization of TAP Air Portugal by 2024.
Speaking to the media after the Economic and Financial Affairs Council meeting of the Council of the European Union, Fernando Medina, the Minister of Finance of Portugal, said that there is no rush to privatize TAP Air Portugal. Medina nod that the process will not be finalized in 2023, which was never “in the Government’s plans,” as reported by Portugal’s SIC Noticias.
“Our perspective is, above all, to ensure a privatization process that reinforces TAP’s strategic role in the Portuguese economy,” Medina continued, adding that the Portuguese government is in no rush to conclude the process because it is not looking to “reduce the public debt, for example”.
The government’s priority is to ensure that the process still protects the economic interests of Portugal and enables TAP to grow its contribution to the financial well-being of the Southern European country.
“It is a large-scale transaction by any standard and therefore, it will take a few months,” Medina noted.
Currently, Ernest & Young (EY), one of the Big Four accounting firms, and Portugal’s Banco Finantia are conducting independent assessments of the carrier. These should be concluded in late August 2023.
SIC Noticias also added that it remains to be determined what kind of stake the Portuguese government is willing to sell to the public and this will be clearer following the assessment by EY and Banco Finantia.
“Time is needed to carry out privatization in a transparent and natural way, as determined by law, and so that we can have several proposals and reinforce the State’s negotiating role throughout the entire process, so that we have, for the country, the results we want to obtain,” Medina concluded.
IAG, Air France-KLM, and Lufthansa among potential suitors
Several European airline groups have expressed an interest in the Portuguese airline.
Among these carriers is Lufthansa, which recently finalized an agreement with the Italian government to privatize Alitalia’s indirect successor ITA Airways.
However, since the privatization process is not yet finalized, Carsten Spohr, the chief executive officer (CEO) of Lufthansa Group, said it is still too early to talk about a potential acquisition. His comments were made prior to the International Air Transport Association (IATA) Annual General Meeting (AGM) in Istanbul, Turkey, in June 2023.
Meanwhile, International Airlines Group (IAG), the parent company of British Airways, Iberia, Aer Lingus, among others, also expressed interest in buying a stake in TAP.
“The TAP operation may make sense from a strategic point of view because of the Brazilian market, they are complementary. But we have to look at the other conditions under which it is privatized,” said Luis Gallego, the CEO of IAG, as reported by Reuters in June 2023.
However, much like Lufthansa, IAG is also currently in the middle of trying to appease antitrust regulators in the EU, after the group offered €400 million ($449 million) for a remaining 80% stake in Spain-based Air Europa in February 2023. IAG had previously abandoned plans to fully acquire the Spanish airline in December 2021, citing unfavorable market conditions amid the COVID-19 pandemic.
When the group dropped its plans in December 2021, the European Commission’s (EC) Commissioner for Competition, Margrethe Vestager, pointed out that analysis “indicated that the merger would have negatively affected competition on some domestic, short-haul and long-routes within, to and from Spain”. That opinion remained even with IAG’ proposed remedies.
Still, IAG acquired 20% of Air Europa’s shares for €100 million ($112.2 million) in August 2022.
The Air France-KLM group also expressed interest in TAP Air Portugal. During an annual shareholder meeting in May 2023, Ben Smith, the company’s CEO, said consolidation in the industry has already started globally and in Europe.
“If there is an opportunity that does not jeopardize [Air France-KLM reaching profit margin targets], that makes sense for us, we will most definitely study and see if it is worth the risk,” Smith said. He later stated that since the privatization process has not officially started there was not much to add about the matter.
Smith said the Portuguese carrier “has a very strong position geographically”, so acquiring TAP Air is still “very interesting”.
He also noted that Air France-KLM looked into acquiring ITA Airways, but “in the end, it did not make sense for us”.