TAP sale takes off

The Council of Ministers today has agreed to sell off state owned airline TAP, well... part of it.

Portugal's Secretary of State for Transport, Sérgio Monteiro said this afternoon that the plan is to offload 66% of the airline, 61% to an investor or investors, with 5% set aside for TAP employees.

The 61% share can be acquired by "a domestic or foreign individual or group of investors who formulate an intention to acquire the shares with a stable, long-term investment perspective and with proper capitalisation of the company and who identify with the goals set for this privatisation process and with a view to the strategic development of TAP, SGPS, SA."*

The proposal is not a minute too soon, in fact it is years late but since the bungled 2012 effort the government seemed unable to make up its collective mind whether to sell off the airline or not. 

In the intervening years the company has suffered from continued strikes, serious schedule delays, under investment and concern that without a definite ‘yes’ or ‘no’ on a sale timetable, it could not really be expected to plan for its future.

The government retains the right to sell the final 34% within two years to whoever buys the lion’s share, at a price dependent on how well the airline had performed under new management.

Reactions have yet to be received from the companies and consortia which already have expressed an interest in TAP but all will have been expecting a deal whereby they take total control, not leaving a large 34% stake with the government whose objectives can hardly be said to have been commercial in the past and who might hinder rationalisation of the airline’s operations and choice of base.

What is certain is that the government has just depressed the TAP sale price as a new owner certainly will not want to share the airline with the original owner, this is like bringing the Mother-in-Law on your honeymoon.

The Government’s announcement is hardly setting the market alight as its stated aim is for a new owner to stump up the necessary money to recapitalise the airline and to assume liability for the languishing carrier. This is hardly the sort of inducement which will get the bidders over-stretching themselves.

"A private entity that has a 61% stake will assume the financial liability and obligations and will have to recapitalise the company," said Monteiro at today’s press conference.

Despite the government being in state of financial chaos and overshooting all of its agreed Troika targets, Monteiro says that the money from the TAP sale is not important, "That's not what moved us at the time and that is not what drives us now," he said, referring to the sale proceeds.

What is important, stressed Monteiro, “is that the buyer has in mind the competitiveness of the economy and tourism in Portugal. This sale process aims to increase the capital of the airline and its ability to invest and become stronger. The truly important thing is that the private investor assumes the billion euro liability of TAP."
 
"It's very important for all taxpayers that the state no longer has responsibility for the financial liability," argued Monteiro, forgetting perhaps for a moment that the taxpayer would like the best price possible as every extra euro TAP can be sold for is one less euro that the taxpayer does not have to stump up.

In the frame is Spain’s Air Europa, owned by Globalia; Miguel Pais do Amaral in partnership with feared US union buster Frank Lorenzo; the poster boy Brazilian businessman David Neeleman, and the ever patient Columbian/Brazilian entrepreneur Gérman Efromovich whose Avianca bid was refused on tenuous grounds in December 2012.

Sérgio Monteiro said that the nationality of the new majority stakeholder is not important but that something he calls "quality investment" is.

The general secretary of the Portuguese Communist Party said this afternoon that the privatisation of a company that was of key strategic value such as TAP is a "scandal."

"It's a scandal, it's an unacceptable situation where we risk losing a company's strategic value," said Jerónimo de Sousa.
Miguel Pais do Amaral had intended to acquire 100% of TAP in partnership with the American, Frank Lorenzo.

Amaral will now reconsider the deal and may move forward with a proposal for the 61% of the share capital that the government wants to offload. Amaral commented diplomatically that the fact the government at last has decided to sell the airline was "very positive and important," and that he would now be consulting with his partner Frank Lorenzo and other investors to see if the 61% deal makes sense to us.”

A fly in the ointment is the inclusion in the sale of the maintenance company in Brazil, a longterm drain on cash which TAP should have sorted out by now but has not.  

This company was not in the equation. Amaral commented this afternoon, "apparently, we have to consider it (TAP Maintenance & Engineering in Brazil) and we will examine the accounts of the company carefully."

* TAP-Transportes Aereos Portugueses, SGPS, S.A. was formerly known as TAP Air Portugal S.A. and changed its name to TAP-Transportes Aereos Portugueses, SGPS, S.A. in March 2005.

The company was founded in 1945 and is based in Lisbon, Portugal.

TAP-Transportes Aereos Portugueses, SGPS, S.A. operates as a subsidiary of PARPÚBLICA - Participações Públicas, SGPS, S.A.

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