The Portuguese government is set to take a larger stake in TAP Air Portugal as it avoids nationalization. The state will increase its share in the financially compromised airline by 22.5% as Brazilian-American entrepreneur David Neeleman backs out.
Portugal to up its stake in flag carrier
Times are tight for many airlines with financial losses, liquidation and the threat of nationalization. These are problems that Portuguese flag carrier TAP knows all too well. Just two days ago, on June 30th, reports surfaced that it was facing nationalization. The news came after a failed agreement on loan terms from state and private stakeholders.
Today, the government was due to announce that the airline was being transferred into state ownership. However, a series of talks that concluded in the early hours of this morning now seems to have saved the airline from its fate.
According to reports from the Portuguese newspaper Expresso, the government will now up its stake in the airline by 22.5% resulting in a 72.5% share in the airline. In conjunction with this change, David Neeleman has renounced his share in TAP.
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David Neeleman will still be involved
David Neeleman had previously formed half of the consortium Atlantic Gateway which owned a 45% stake in TAP. The government, prior to this new agreement, held 50% and TAP employees own the remaining 5%.
Expresso reports that David Neeleman sold his stake in the company for €55m ($62m) which will be paid out by the government. However, his involvement with TAP is not entirely finished. He will continue to reap the benefits of 7.5% interest on his bonds after refusing to convert them into shares. Mr. Neeleman will enjoy this interest until the end of the agreed term. After that, he will no longer operate in any stakeholder capacity and will have his investment returned to him.
While Mr. Neeleman is set to leave his stake in the airline, Portuguese business magnate Humberto Pedrosa, who forms the other half of Atlantic Gateway, will keep his share.
What does this mean for TAP?
It is indeed a relief that TAP has avoided nationalization in this instance. With the idea floating around for many months, nationalization seemed inevitable. It was on the cards before the pandemic. In a recent statement seen by Simple Flying, the airline said,
“…containment measures adopted by domestic and international authorities […] resulted in a significant fall in demand and led TAP to decrease its operating capacity, translating in a progressive deterioration of activity throughout [March]…”
As a result of this new agreement, TAP will likely see its financial position change. The airline will now receive the €1.2bn ($1.3bn) government loan that was approved by the EU Commission on June 10th. Despite the loan being passed, TAP had not seen any of the money. That’s because the government wanted a more substantial stake in the airline before it lent the money.
Since that has now been taken care of, TAP will be able to use the funds to combat its financial woes. The loan will help significantly with its €800 million ($910 million) debt and survival throughout the return to normal post-coronavirus.
Are you happy with the outcome of this decision? Let us know your thoughts in the comments.