TAP deal still may fall through

The president of TAP, Fernando Pinto, is confident in achieving the airline's privatisation, but as for giving us a date, "soon" is the best he can manage at the moment, blaming what he sees as the breakneck speed at which the deal is being done.

Six months to tie up the deal to sell TAP is quick for Pinto who has had ten years to get the airline into a saleable position so everything must now seem rather rushed.

"We are all impatient for the privatisation to happen as quickly as possible, but there are still a number of approvals needed before it can happen," said TAP’s current supremo.

The main problem looming on the immediate horizon is the renegotiation of TAP’s debts with itsbanklers who want the state to continue to underwrite the airline’s borrowings.

TAP's creditors have the upper hand and are demanding that the State, through Parpública, stands as guarantor for the €1 billion+ of borrowings.

Most of the banks require additional guarantees and certainly the interest rates charged may rise as the risk will increased on the day that Gateway takes over.

Without the guarantee, the banks will look more cautiously at the aviation sector with its huge global competition. Without renegotiation of the debt, the sale of the company might well not go ahead.

Pinto admitted yesterday that he was “confident” in the airline's debt restructuring, which he admitted is a condition for the sale of a 61% stake to the Atlantic Gateway consortium.

Fernando Pinto said that TAP’s debt restructuring is underway and that he is confident that soon he will have good news.

The last bit of financial news from Pinto was of the shocking losses at TAP of €109.6 million in the first six months of the year.

The second problem is the ownership and power structure within Gateway which does seem to have been constructed in such a way as to get around the ‘no non-European owners’ rule while leaving David Neeleman, a non-European,  holding majority votes in the boardroom.

Portugal’s Competition Authority gave its approval to the deal on October 2nd for a 61% stake in TAP to be sold to the Atlantic Gateway consortium owned by Humberto Pedrosa and David Neeleman.

The National Civil Aviation Authority may not be so keen to rubber stamp the contract and is paying close attention to the ownership and power within Gateway to see if it breaks the bidding rules.

If the Authority decides that Humberto Pedroso is only nominally in charge of Gateway despite owing 51% of the company’s shares, it may block the deal until an offer comes in from a suitably constituted company.

This scenario is the worst option as Pinto has proved incapable of running the airline profitably and the treasury is expecting a payment this financial year. The taxpayer continues to underwrite TAP’s losses and its borrowings of €1 billion and rising, a situation that will end when the airline is sold.

Fernando Pinto still fails to read the situation clearly. In a speech today he referred to "a revolution in terms of strategy at TAP, with the entry of new shareholders, Humberto Pedrosa and David Neeleman,” considering it "very important to have input from people with different ideas."

Gateway’s owners, if the deal goes through, will own a majority stake and will be able to do pretty much what they want to drag this airline into the current century. They will not be in the boardroom simply to offer their 'valuable input.'

TAP’s recent announcements, to show how commercially minded it has become, are farcical, ten years too late and the sort of initiatives that a recent marketing graduate would suggest.  

While Pinto dreams of shiny new aircraft and routes to the United States, Africa and Eastern Europe, Neeleman and Pedroso are planning to make themselves justifiably rich through squeezing costs, rationalising staffing and capital and sorting out TAP’s long term borrowings in the most tax-efficient manner. There will be no room for Pinto and his dreamers.

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