This week, TAP Air Portugal appealed to the government for funds to ensure its survival post-coronavirus. The airline is operating a severely reduced schedule that poses a direct threat to its future. The airline has not disclosed the amount of aid requested. We take a look at whether it’s time to nationalize TAP.
TAP requests state aid to avoid collapse
TAP Air Portugal has this week requested state aid to secure its future. The Portuguese airline has appealed to the government for a bailout that it hopes will strengthen its position after COVID-19.
The air carrier, like many, has a reduced operation. The updated schedule has been dictated by strict international travel restrictions and guidance for citizens to stay at home unless absolutely necessary. Unfortunately, the severity of the scale back appears to have put TAP in quite a compromise. Is the airline staring down the nose of collapse?
At present, TAP has been unwilling to disclose the figure it requested from the government. However, a history of financial losses in the past two years and its current schedule make it likely to be a high valuation. According to the State representative at TAP Air Portugal, the airline is running less than two percent of its weekly flights. Speaking to the Portuguese newspaper Expresso, the representative said:
“TAP currently has seven weekly flights underway, when it had planned to have 400 flights at this time.”
In addition to this, the airline has laid off a significant portion of its staff. Some 9,000 employees (or 90%) of the TAP Air Portugal workforce have taken temporary redundancy with around 66% of their pay. The 1,000 employees that remain have received a 20% pay cut.
How will the government respond?
In addition to state aid, TAP has also requested an exemption from tax payments or to have them delayed.
At present, the Portuguese government has not responded to TAP’s request. However, the belief is that it will do very shortly. TAP feels confident about this.
Yet, the question is not: when will the government respond? But rather: how will the government respond? Recently, there has been a suggestion that TAP could be looking at nationalization. It’s a reality that the airline has indulged in previously; however, it’s been keen to operate as a private entity.
Currently, TAP employees own a 5% stake in the airline. David Neeleman, the Brazilian-American entrepreneur, owns a 45% stake, and the government owns 50%. However, in the future, this could change. If the government decides to nationalize TAP, then its financial standing will look better. But, is this what the airline wants?
Does TAP need to be nationalized?
There is no doubt that the nationalization of TAP would give it a lot better financial outlook than it currently has. Nationalizing entities like airlines protect them from collapse, and that appears to be the problem from TAP. The current state aid could be the difference between failure and continued operations.
According to Portugal Resident, the government is ready to nationalize the airline whenever the opportunity presents itself. Could it be now?
Do you think TAP is looking at nationalization? How do you think the government will respond? Let us know your thoughts in the comments.