“Structural crisis” in aviation set to influence Lufthansa’s bid for TAP

A TAP aircraft soars into the sky near Lufthansa’s headquarters, right next to Frankfurt Airport. “It’s a sign”, exclaimed Andreas Bartels, who heads communications for the German group, dispelling any doubts that Lufthansa will submit a non-binding offer for the privatisation of the Portuguese airline by Thursday.

The intention is voiced by Tamur Goudarzi-Pour, the executive director responsible for the group’s strategy. “We are part of the process and intend to make a non-binding offer this week”, he said at a meeting with Portuguese journalists on Monday.

The war in the Middle East – which has already doubled the price of aviation fuel, cancelled routes and is affecting demand – is not deterring Lufthansa. However, the context of the aviation sector could negatively influence the valuation of TAP.

Tamur Goudarzi-Pour has no doubt that we are witnessing “a structural crisis in the aviation industry”, “due to the effects already being seen on fuel prices and availability”. Lufthansa has been forced to suspend eight routes until the end of October and announced on Tuesday a rescheduling of its summer operations, which includes more flights to the Iberian Peninsula.

Asked about the impact this might have on the price offered for TAP, the executive stated: “As this is structural, we must factor it into our bid.” “It does not mean we are offering a discount because of Iran. We have to consider the structural trajectory of the industry”, he said, adding that it is not yet known “how severe the crisis will be”.

“We are already seeing structural effects taking place in the sector. Therefore, this will naturally be one of the components of our assessment”, added Tamur Goudarzi-Pour, noting further that participation in the privatisation of the Portuguese carrier has “a long-term perspective”, meaning that Lufthansa, which celebrates its 100th anniversary in 2026, will “submit a proposal that is also sustainable over the coming years”.

We are already seeing structural changes taking place in the sector. This will therefore naturally be one of the factors we take into account in our assessment.

The manager made a point of emphasising that the crisis highlights the importance of being part of a large aviation group, which in Lufthansa’s case also includes Swiss, Brussels Airlines, Austrian Airlines, ITA Airways, Eurowings and Discover Airlines. “When working with a group of airlines, it is possible, in the event of a crisis, to coordinate operations across the various hubs in order to achieve greater resilience”, he noted.

Cabin crew and Azul lawsuits to be analysed during due diligence

It is not just the aviation crisis that could lower TAP’s value. The manager was also asked about the potential cost of legal proceedings brought by cabin crew or the €189 million debt claimed by the Brazilian airline Azul in court.

“Any outstanding issues at Azul or among cabin crew — agreements, disagreements, all these aspects — will be put on the table if the Government chooses us for the next phase, and we will have to continue to analyse them”, replied Tamur Goudarzi-Pour, adding that a more detailed preliminary audit (due diligence) of TAP will only be carried out in the next phase. Once the situation is clearer, the matter will be “discussed with the Government”.

The non-binding proposal will have to include a financial offer, but one that does not commit Lufthansa. The figure may change when the binding proposal is submitted, depending on the findings of the due diligence.

Who chooses the CEO?

The fact that the Government has put only a minority stake up for sale has already been deemed problematic by one of the interested parties: the IAG group, owner of British Airways and Iberia, which, according to reports in the international press, is reportedly inclined not even to submit a non-binding bid.

Lufthansa would have preferred “a clear path to a majority”, as is the case with ITA Airways, where it has the option to increase its stake from 41% to 90%, but “will not withdraw from the process at this stage because the Government has said that a majority is not possible”, assured the German group’s executive director.

The issue of capital matters because of the influence the buyer may have on management. The Portuguese government has stated that, despite selling a minority stake, control will be handed over to the private shareholder, whilst maintaining the obligation to preserve the brand, the hub in Lisbon and the links to the diaspora and the PALOP (Portuguese-speaking African countries).

According to the manager, this “is necessary to reap the benefits” of the first phase. The issue will already form part of the non-binding proposal, but will need to be discussed in greater depth with the Government, with whom Lufthansa recently held further talks.

Tamur Goudarzi-Pour declined to comment on whether Lufthansa wanted the power to appoint TAP’s CEO, but it is expected that a model similar to that of ITA will be followed, where the chief executive, Jörg Eberhart, was appointed by the German group. Of the five-member board of directors, three were chosen by Giorgia Meloni’s government, including the chairman.

“It was clear from the outset: the Italian government told Lufthansa that it did not want to run the company, but wanted transparency and the ability to oversee the process”, explained Eberhart. “This is the cornerstone of ITA’s governance, but there are some matters on which the shareholders decide jointly, and so far these have been unanimous decisions.”

As an independent entity, it may well achieve some profitability, but that is not sustainable. To grow and have an attractive market, we need the synergies of a larger group.

The CEO of ITA listed the advantages of the integration, such as the greater ease of purchasing aircraft and Lufthansa’s ability, given its scale, to secure more favourable contracts with suppliers, particularly with aircraft leasing companies.

Lufthansa warns of IAG’s growth in Brazil

TAP’s high market share on flights between Europe and Brazil, at around 20%, has been highlighted as the airline’s main attraction by all interested parties, including the Air France-KLM group, which is also expected to make a non-binding offer.

“We’re already in Brazil, but with TAP we’ve become a major force”, said Tamur Goudarzi-Pour, who sees potential for further growth. “There’s scope to develop Brazil further, as it accounts for half of South America”, he added.

Competitors are also investing. “We know that Madrid [Iberia] significantly increased its capacity last year and this year to Brazil”, noted the manager, admitting that with greater capacity, they can offer more attractive prices. “We are looking at what our competitors are offering, and I am sure TAP is looking at that too”, he pointed out.

With a new airport, the Lufthansa executive director sees the Portuguese airline launching new routes and starting to offer destinations to other South American countries. But, “that’s a story for another time”.

Lufthansa sees Porto as a second hub for TAP

Should it win the tender for TAP’s privatisation, Lufthansa intends for Porto to become a second, smaller hub for the Portuguese airline, with an increase in long-haul flights from Francisco Sá Carneiro Airport. Regarding Lisbon Airport, the German group expects the expansion works being carried out by ANA to be completed within two years.

“We want to see Porto operating as a hub, also with the [Airbus] 321LR”, said Tamur Goudarzi-Pour. The Airbus 321LRs have a greater range, allowing flights from Lisbon or Porto to Brazil or the east coast of the US with lower fuel consumption. This represents a competitive advantage over other European airports.

“It is an excellent aircraft for these destinations”, added the executive, emphasising the importance of “connectivity via Porto” for long-haul flights.

The Portuguese airline already flies to some destinations in Brazil and the US from Porto and has been strengthening these routes. Lufthansa sees Sá Carneiro functioning as a second hub for TAP, albeit on a smaller scale.

We fly to Porto 108 times a week from all our destinations, and there is room for growth. It could therefore play a greater role as TAP’s second hub, and that is something we want to maintain in the future.

“We fly to Porto 108 times a week from all our destinations and there is room for growth. Therefore, it can play a greater role as TAP’s second base, and that is something we want to maintain in the future”, said the head of strategy for the Lufthansa Group.

Like the other parties interested in the privatisation, Lufthansa also promises to boost TAP’s traffic to Brazil and North America by using its extensive network to attract more passengers. It adds an advantage over other hubs in the Lufthansa group: travelling from North America to Africa via Lisbon is 10% shorter. “We bring passengers to Lisbon and Porto and distribute them to North America, South America or Portuguese-speaking Africa”, he explained.

Expansion works at Lisbon Airport “really must be carried out” within two years

The Lufthansa Group’s executive director also highlighted the importance of “managing the success of the Lisbon hub” so that it “does not fall victim to that very success”.

He therefore argued that “it is very urgent and important that the expansion planned for Lisbon Airport be carried out over the next two years”. Whether this involves expanding the terminal or increasing the number of take-offs and landings, he noted.

The works involve the expansion of the south pier of Terminal 1, which will be equipped with 10 new boarding gates with telescopic bridges and a new 33,000-square-metre area, representing an investment of over 250 million euros. Construction has already begun, with completion scheduled for the end of 2027. The concessionaire also has a plan underway to increase the number of movements per hour and the number of passengers to over 40 million, which is due to be submitted in May for environmental assessment.

“They must be implemented now. They are vital for growth to continue”, emphasised Tamur Goudarzi-Pour, who recently met with the Mayor of Lisbon, Carlos Moedas. Lufthansa has also already met with ANA, which, according to the German group’s director, “reaffirmed the plan” for Humberto Delgado Airport.

It is very important that this [Luís de Camões Airport] is completed on time, because we know it could take up to 10 years. But this is the long-term growth trajectory that can be achieved.

He also hopes that Lisbon’s new airport will be built on schedule: “It is very important that this is completed on time, because we know it could take up to 10 years. But this is the long-term growth trajectory that can be achieved.”

The increase in the number of TAP aircraft also depends on the development of airport capacity. “We will also see, with the fleet growth plan that TAP has planned, how this can be implemented in conjunction with the infrastructure conditions that are being made available”, emphasised Tamur Goudarzi-Pour.

The solution may, once again, lie with Sá Carneiro. “We can manage this by bringing some connectivity to Porto.”

(ECO travelled to Frankfurt at the invitation of Lufthansa)