€3.725B for TAP until 2024 ‘downward budgetary risk’

TAP’s financing needs of up to €3.725 billion until 2024, as planned by the government, constitute a “downward budgetary risk” for the Public Finance Board (CFP), according to a report released on Wednesday.

According to the analysis of the 2021-2025 Stability Programme published today, the institution led by Nazaré da Costa Cabral notes that when the TAP restructuring plan was presented, “the government said that the respective financing needs could total between €3.414 billion and €3.725 billion by 2024”, which for the CFP “constitutes a downward budgetary risk”.

On Tuesday, Portugal’s finance minister, João Leão, said in parliament that with the capital injection planned for TAP, the company would be adequately capitalised by 2022 and in a position to be financed on the market.

João Leão also said that it was expected that the airline’s capitalisation could reach around €3 billion, with the aim of this process being to “ensure that in 2022 TAP is adequately capitalised,” to face the future and from then on be able to finance itself on the market.

In the analysis released today by the CFP, the independent body noted that “from 2023 no capital transfers to TAP are planned, so the weight of “other capital expenditure” [in the budget cake] should fall by 0.5 percentage points of GDP in 2023 (in nominal terms this item should register a decrease of almost 30% that year).

“In this regard, the CFP points out the risk that the impact on national accounts resulting from support for TAP may be greater than that considered in 2021, for the budgetary balance and public debt.

In the Stability Programme, the government has forecast the transfer of €970 million this year and €800 million in 2022, totalling €2.97 billion in cumulative terms (including the €1.2 billion of 2020).

The government expects the effect of €170 million from this operation to be reversed in 2022, estimating the same for the remaining €800 million in 2023, as no injections are expected from that year onwards.

On March 12, the government submitted a notification to the European Commission for interim aid to TAP of up to €463 million to “guarantee liquidity” to the airline until approval of the restructuring plan.

In a statement, the finance and infrastructure and housing ministries said that “despite TAP being under assistance under the rescue and restructuring aid,” as part of the negotiation of the plan between Portugal and the European Commission, “it was accepted that aid of up to €463 million could be notified.

“If approved, this amount will reduce the cash flow needs for 2021 that were included in the restructuring plan,” the note added.

Consequently, the amount of the company’s cash needs in the Restructuring Plan will have to be adjusted.

“This situation stems from the particular severity of the impact of Covid-19 on the aviation sector and its recent evolution,” the government justified.

In 2020, TAP returned to state control, which now holds 72.5% of its capital, after the company was severely affected by the Covid-19 pandemic and the European Commission authorised state aid of up to €1.2 billion to the Portuguese flag carrier.

On Friday, the European Commission approved Portugal’s €462 million interim state aid to TAP to offset losses due to the Covid-19 pandemic but has not yet completed its assessment of the restructuring plan.