The rescue plan for Portugal’s struggling flag carrier TAP Air Portugal will soon reach a crucial point. Portugal’s finance minister remains confident that the EU commission will approve the financial restructuring plan by the end of March. If it doesn’t, the airline will have to repay a €1.2 billion ($1.4 billion) loan, which would undoubtedly be the end of the carrier.
Despite the high stakes, Finance Minister Joao Leao told Reuters that he expects the EU Commission to approve the plan by early springtime. The Portuguese government unveiled the plan last month as TAP struggled under the weight of the global downturn.
The restructuring will see over 3,000 TAP employees lose their jobs. The remaining employees could have their salary cut by as much as 25%. The airline’s fleet has already started to shrink, with several planes leaving TAP so that it will operate a smaller fleet in the future.
Like most airlines, the global downturn was a huge blow for TAP. It received a €1.2 billion loan in June to help it cope financially, money which it will have to pay back if the restructuring plan is denied. However, unlike other airlines, TAP was arguably struggling before the crisis hit, meaning it is worse off than other airlines.
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As such, the Portuguese government is taking anything off the table. Plan A is to turn the existing loan into equity, meaning the government would have over 90% share of the airline. But it has also been said that private bondholders could have smaller payments if the airline doesn’t recover fast enough. The government also isn’t ruling out an alliance with another airline. TAP Air Portugal is already a member of Star Alliance.
Although the government is flexible regarding the details, they still need approval from the EU commission as the plan requires another loan of around €2 billion ($2.4 billion). Even with EU approval, there will undoubtedly be more wrangling with the unions regarding pay cuts and job losses. Other Star Alliance members like Lufthansa have signed deals with unions to prevent compulsory redundancies in 2021. But that just isn’t possible for TAP.
Preparing for summer
If the deal is approved in March or April, the airline can get to work preparing for the summer season. With vaccines being rolled out across most European countries, airlines are hopeful that the summer months will see an increase in traffic within Europe’s borders. TAP Air will be well placed to take advantage of summer holidaymakers with its unlimited European flight pass which launched in October.
The flexible ticket will appeal to those still nervous about changing travel restrictions. A smaller, more manageable fleet, fewer staff, and a flight pass incentive suggest that TAP may be ready and raring to go this summer. All it needs is for the EU to approve the restructuring plan. Hopefully, the good news will come within the next few months.
What do you think of TAP Air’s restructuring? Do you think the EU will approve the plan? Will TAP Air be ready to make the most of the summer season? Let us know what you think in the comments.