Non-recurring costs related to the restructuring plan impacted the airline's 2020 results. A further €93 million has been provisioned for the same purpose.
TAP’s activity sank in 2020, throwing the airline to its worst results ever. The main reason for the poor performance was the drop in business caused by the pandemic, which was partially offset by cost cuts. The compensation was not greater due to the weight that the restructuring plan already had on the company’s balance sheet.
TAP’s operating costs in 2020 amounted to €2,024.9 million, a decrease of 37.7% compared to the previous year, the company announced in a statement sent to the Securities and Exchange Commission (CMVM). This decrease in costs is “mostly explained by the significant reduction in variable costs” due to the capacity’s adjustment, negotiations with suppliers and lessors and labour measures such as the non-renewal of 1,042 fixed-term contracts.
In contrast, “operating costs were penalized by non-recurrent costs, namely impairment costs (€44.1 million) and restructuring costs (€96.1 million),” TAP explains. In fact, despite that the balance of the year was marked by costs cut, there was an increase in expenses in the fourth quarter associated with “provisions for non-recurring restructuring costs.” At the end of the year, TAP had registered provisions for restructuring costs of €93.2 million.
In difficulties for a year due to the restrictions imposed by countries to control the Covid-19 pandemic, TAP received €1.2 billion in state aid last year, subject to a restructuring process. Although it is still awaiting a response from the European Commission to the plan proposed by the Portuguese authorities, the airline has moved forward with measures that have already allowed it to cut costs.
However, the reduction in expenses was not enough to make up for the impact of the pandemic on revenues, and TAP recorded its worst result ever in 2020, with losses of €1,230 million. For 2021, the company stresses that business will depend on the evolution of the pandemic and the vaccination plan “which will dictate the speed of domestic and international economic recovery, especially in the countries that are TAP’s main markets.”
The restructuring plan foresees a “slow recovery” of the company’s activity, “trying to accommodate the greater uncertainty of the sector in the year 2021, as projected by the sector’s organizations.” Reducing the wage bill, cutting operating costs, and reconfiguring the fleet are among the pillars of the restructuring.
Still, the airline is confident about the restructuring’s implementation. “The restructuring plan foresees that TAP shall achieve a balanced operating result until 2023, ensuring that it is able to meet its financial commitments in their maturities. It is now expected the conclusion of the ongoing negotiations with the European Commission for the approval of the Restructuring Plan, which shall be concluded shortly,” TAP adds.