Government wants Lufthansa to acquire part of TAP. It could help save the restructuring plan

The European Commission on Friday re-approved the €1.2 billion rescue aid for TAP, but it decided to open an in-depth investigation to further assess the compliance of the proposed restructuring plan.

According to ECO, this new phase of the investigation will take at least another three months and during this period the Portuguese government will have to negotiate with the European Commission to convince Brussels of the value of the restructuring plan.

One of the government’s key tactics is the possibility of private investment in TAP’s capital and ECO knows that the state has already contacted Lufthansa so that the German flag carrier can take a minority stake in the Portuguese company. The European Commission would look favourably on this operation and could help unblock the approval of the restructuring plan.

And apparently, there is reciprocal interest, with Lufthansa having already given signals to the government that it wants to move into TAP. This is not the first time that Lufthansa has expressed an interest in TAP’s capital and it has even been in advanced negotiations with David Neeleman to take a stake in the Portuguese flag carrier. In February 2020 Neeleman and the Germans were about to sign an agreement when the pandemic arrived and aborted the deal.

Now the government has again signalled to the European Commission and Lufthansa that it has an interest in this deal, which besides helping to facilitate the approval of the restructuring plan, would also lead to synergies with TAP, as the businesses of the two airlines are complementary.

Lufthansa will have to free itself from public aid

But for the government’s and Lufthansa’s ambitions to become a reality, there is still a hurdle to overcome. Lufthansa has also received public aid and until it returns this money it cannot, under EU rules, acquire a stake in another company.

But according to market reports, the German company may be able to return the public aid money by the end of September (probably by financing itself through a bond issue), at which point it will be free, if the deal goes ahead, to acquire a stake in TAP’s share capital.

The possibility of TAP negotiating with other investors has not been ruled out. But the government had made it a condition that the partner must understand the business and need to be a company with a complementary operation in relation to TAP.

EU sends TAP restructuring plan for “in-depth investigation”

The European Commission announced this Friday that it has opened an investigation to assess whether the €3.2 billion restructuring aid Portugal intends to grant to TAP is in line with EU rules on state aid for companies in difficulty. The plan’s approval could take another three months.

“The opening of an investigation gives Portugal and interested third parties the opportunity to submit comments. It does not prejudge the outcome of the investigation,” the Commission explains. One of those interested parties will certainly be Ryanair, as the company filed a complaint in the General Court of the European Union after the €1.2 billion injection of capital into the Portuguese airline in 2020.

The Court rejected the Portuguese State’s injection, forcing the European Commission to approve a new decision, which also happened today. Which means the money will not have to be repaid by TAP.

“We have adopted a new decision re-approving rescue aid for the Portuguese TAP airline, following the recent judgment of the General Court annulling the Commission’s original decision. This ensures that the disbursed rescue aid to TAP will not have to be repaid, while efforts continue to develop a sound restructuring plan that ensures TAP’s viability in the long-term, without the need for continued State support,” says Executive Vice-President Vestager, in charge of competition policy.

“In this context, we have also opened an investigation into the restructuring aid notified by Portugal. We will continue our constructive engagement with the Portuguese authorities on this issue,” adds the European Commissioner.

The Commission explains that the in-depth investigation will examine in particular whether TAP or market operators would sufficiently contribute to the restructuring costs, thus ensuring that the restructuring plan does not overly rely on public funding and that therefore the aid is proportionate.”

Brussels will also assess “whether appropriate measures to limit the distortions of competition created by the aid would accompany the restructuring.”

In a statement sent through CMVM, TAP said that “the opening of an investigation, which is a regular process established in the applicable European rules, will give Portugal and interested third parties the opportunity to submit comments and it does not prejudge the outcome of the investigation. Moreover, it does not affect the €1.2 billion rescue aid that was granted to the TAP Group, which approval has been confirmed today by the European Commission.”

The TAP group recorded losses of €1.42 billion in 2020, with the airline business contributing €1.2 billion.

(Article last updated at 12h33 p.m.)