Portuguese Government Preparing For TAP Airline Intervention

TAP Air Portugal came closer to receiving support today, with an indication from the Portuguese government that it will intervene. This could ensure the survival of the airline, but does it mean the government will increase its 50% stake?

TAP Air Portugal is 50% state-owned, and this may increase if the government steps in to save the airline. Photo: Getty Images

TAP will not survive without state support

Like many other European airlines, TAP Air Portugal is struggling amidst the ongoing coronavirus pandemic. It recently requested financial support from the Portuguese government. As yet, it’s not been made public how much support was requested or whether this would lead to the nationalization of the airline.

This support came closer this morning, according to reporting by Portuguese newspaper Publico. During a government session, the Minister of Infrastructure and Housing Pedro Nuno Santos explained how the government is prepared to intervene to save TAP while highlighting that the airline will not be able to survive if it does not.

TAP Air Portugal planes grounded
TAP Air Portugal is currently only flying a few key domestic routes, with most aircraft grounded. Photo: Getty Images

It is not clear yet what form this intervention will take, how much cash will be invested, or what future stake the government will take in the airline. Pedro Nuno Santos, however, stated that any intervention would have consequences for the current company’s corporate structure. As reported by Publico (and translated from original Portuguese):

“The Government is studying several alternatives for intervention… to ensure that not only does TAP not fall, it has the conditions to continue to serve the country, but this will always involve a large scale intervention.”

Adding to the government shareholding?

The Portuguese government is already a 50% shareholder in TAP. David Neeleman, the Brazilian-American entrepreneur, owns 45%, and TAP employees hold the other 5%. This intervention would likely see the government increase its holding, and the ministers’ announcement warned other shareholders of this. He explained further (again translated from original Portuguese):

“Any intervention by the Portuguese sovereign State in TAP will imply that the State, through the Government, accompanies all decisions that will be taken in the near future with a relevant impact on the future and on the life of the company.”

Tap Portugal express
The government is likely to intervene to save the airline. Photo: Getty Images

The government has already indicated that it would support TAP and was looking at the possibility of nationalization. On the 14th April, Reuters reported the Portuguese Prime Minister Antonio Costa explaining:

We cannot exclude the need to nationalize TAP or other companies that are absolutely essential for the country. We cannot risk to lose them.”

Loans will not be enough

During the parliamentary session, Pedro Nuno Santos explained how just offering loan assistance would not be enough. He referred to a recent request for a public guarantee for a €350 million loan, and how this would not be sufficient for the airline to survive. It would then be up to the state to pay the debt. He explained:

“It is the Portuguese people who pay. So, it is good that the Portuguese people are in charge”.

He went on to explain his view that the company was not well managed, even before the current crisis, suffering significant losses in both 2018 and 2019.

We will have to await further government announcements to see where this goes, but it seems nationalization is getting closer. Do share your thoughts on the future for TAP in the comments.

Simple Flying contacted TAP Air Portugal regarding possible government intervention, but the airline declined to comment.