Understand the various stages of helping TAP
The government says it is "prepared" to go ahead with the capital injection into TAP, which should not cost more than one billion euros this year.
The European Commission has given the “green light” and the government says it is already prepared to lend TAP up to 1.2 billion euros. But there are now a few steps to go before the capital injection is made, starting with the private shareholder’s acceptance of the conditions imposed by the state. In a kind of chronological line, understand how the financial aid will be given to the national airline.
The Supplementary Budget foresees 946 million euros to help TAP, but it has a financial cushion of about 200 million euros taking into account the current situation of the aviation sector, explained Pedro Nuno Santos this Wednesday. The “ok” of the European Commission has already been given, but the airline has to meet certain conditions, including the presentation of a restructuring plan within six months. With this “green light” from Brussels, the government says it is “prepared” to go ahead with the loan.
The loan brings conditions. Private shareholder needs to accept them
The European Commission approved this Wednesday the maximum loan of 1.2 billion euros from the government to TAP, but with the condition that the airline presents a restructuring plan within six months. This “cheque”, says Pedro Nuno Santos, is vital for the company, highly affected by the pandemic, to fulfil its obligations, both to its employees and its suppliers.
The State is aware of the importance of this aid to the company, regardless of the “okey” in Brussels, the Minister for Infrastructure says that the money will only go to TAP if the private shareholder accepts the conditions imposed. The decision depends on the private shareholders, i.e. David Neeleman and Humberto Pedrosa. And, remember, Pedro Nuno Santos has already admitted that he can, at the limit, let the company go bankrupt if those conditions are not accepted.
State wants more control. The Portuguese wouldn’t forgive it if it didn’t.
The Minister for Infrastructure did not detail what these conditions are, but since the beginning of this whole process he has mentioned that one demand is that the government should have more control over TAP’s management – State has 50% of the capital of the company, but the executive power is all on the side of the consortium of Neeleman and Pedrosa.
“The State will have greater control over financial management and over the fate that will be given to the money it injects into the company,” said Pedro Nuno Santos, adding that “the State will have a framework for monitoring and controlling cash movements.”
Loan repayable in six months avoids restructuring. “But it’s hard”
One of the conditions imposed by the European Commission to give the ‘green light’ to this state aid of up to 1.2 billion euros is that TAP has six months to repay the amount lent by the government. Álvaro Novo, Secretary of State for the Treasury, admits that if the loan is paid off before that period, the airline does not need to go ahead with a restructuring plan. However, he acknowledged that such a scenario “is difficult” to happen given the strong impact that the pandemic continues to have on the business.
The restructuring will not leave TAP any small. But it will shrink
Given the near impossibility of repayment within the prescribed period, restructuring will be a reality. Pedro Nuno Santos assured, however, that it will not be “excessive”. The government does not want a small TAP, but with the necessary dimension to face the needs of the economy,” said the minister this Wednesday.
It won’t be a small company, but the restructuring will make a dent. “It wouldn’t be serious if I tried to pass on the idea that we can do a restructuring without having consequences” on the reduction of planes, routes and workers, said Pedro Nuno Santos. “But I’ve had meetings with practically all of TAP’s unions and the concern of the workers, who use TAP and the government, is that TAP will be a viable company in the future,” he said.
Viability plan. The private shareholder has to show that it wants to invest
Another important point in this process of financial aid to TAP is the viability plan that the airline must be able to present to the European Commission.
When the restructuring plan is presented, “the company’s capitalisation framework will have to be clear (…) and it is essential to show that private investors also believe in the company’s viability”. Furthermore, the viability plan must show that “private investors also believe in the viability of the company.”
