Lufthansa ahead to enter TAP’s capital

David Neeleman assures that he is “totally committed to TAP’s future” and Minister Pedro Nuno Santos says he doesn’t know “of any exit of the private shareholder” from the company… but the story is different. Neeleman has opened an informal tender for the sale of his participation in the company, confirmed ECO with several sources who know the process. And the German airline Lufthansa is the one leading the discussions with the private consortium led by Neeleman to enter TAP’s capital.

The possible entry of a new shareholder in TAP is not new. In 2018, David Neeleman attempted the capital dispersion operation, which can only proceed under certain financial conditions, namely the company’s valuation of 600 million euros. The Government rejected this alternative of TAP’s capitalisation because this would force the State to reduce its position of 50%, which António Costa did not accept. Then, with the elections in 2019, the possibility of a partial sale of capital was definitively postponed.

What was not postponed was the growing tension between the government and David Neeleman, with Humberto Pedrosa being the ‘bridge’ between the two sides, and that is not a coincidence. Pedrosa owns Fertagus, the operator that owns the Tagus rail concession and the contract’s renewal depends, of course, on the Government. This tension was aggravated by the losses of 118 million in 2018 and, later, by the episode of prizes awarded to company employees without the knowledge of the council, where the representatives of the State, led by Miguel Frasquilho, sit. And since then, Neeleman’s decision has been to sell his position… at the price he wants, and not at the price that the Government would like the businessman to sell.

Neither the Government wants David Neeleman’s continuity, nor Neeleman wants to remain in TAP. As a matter of fact, in the statement released this Tuesday, it is the businessman himself who acknowledges that the path has been more difficult than he thought: “With all this investment in growth, the results for the shareholders have not been as fast as we would like”. Neeleman and his executive management team, led by Antonaldo Neves, were expecting to have profit already, taking into account the new routes, the new planes, the increase in the number of passengers. But in the first nine months, the losses were 111 million euros. And even with a last quarter that will be running above budget, TAP will once again close the year with losses. It remains to be seen what the figure will be.

Contacts with Lufthansa have been going on for months, and as one source in the financial field says to ECO, “If there were no interest on either side, there would be no contact”. The problem, of course, is the price difference between what Neeleman wants and what the German company offers. Lufthansa is leading the negotiations, but has not made any binding offers. And there are other candidates, such as United Airlines, with privileged relations with Neeleman, who have shown interest in evaluating the purchase of part of the capital of the Portuguese company.

On the side of the Germans is the Government. In private, the Minister of Infrastructure, Pedro Nuno Santos, has already expressed his desire to see Lufthansa as a shareholder in TAP, and the departure of Neeleman and the executive management team. And it is also because of this government preference that Lufthansa believes it has an upside to negotiating with other companies.

“Right now everything’s open,” guarantees another source. The Atlantic Gateway consortium, which has David Neeleman and Humberto Pedrosa, controls 45% of TAP’s capital, entered in 2015, initially with 66% of the capital and later, after a renegotiation with the Government, its position fell to 45%, while the State now has 50%, leaving the remaining 5% in the hands of the workers. In between, Neeleman made an operation with Airbus, which allowed him to exchange aircraft already purchased and still on the production list for others, which allowed the entrepreneur a significant cash inflow. Critics even say that this is how Neeleman financed his entry into TAP in 2015, when he invested 350 million, of which 20 million were direct revenue from the State.

“Currently TAP has private shareholders fully committed to the growth plan that has been implemented. I personally, together with Azul, the company that I control, believe in the company’s future and today we hold rights equivalent to more than 70% of TAP’s economic rights”, said Neeleman.

What are the numbers Neeleman has to present to potential new shareholders? Five points, according to the entrepreneur’s own accounts:

• TAP increased from around 10 million to over 17 million passengers (+65%)
• TAP increased from 77 to 102 aircraft (+36%), with a renewed fleet, from 81 destination airports to 94 (+13%) and from 110 thousand flights to 137 thousand (+25%).
• TAP went from a revenue of 2.4 billion to 3.4 billion (+40%)
• The debt weight in 2015 was 11 times the EBITDA, and is now between 5/6 times, confirming a deleveraging process of the company.
• TAP hired around 3,000 employees in Portugal

In the press release published publicly, David Neeleman states that “speculation and other types of manoeuvres do nothing to help” TAP and its restructuring process. Nor do they help sell capital to a new shareholder, whatever that shareholder may be.”