Tapped Out - TAP Portugal has had a good run, but buyers beware: its fortunes are crumbling

TAP Portugal has had a good runLet’s try this again.

As early as the 1990s, Portugal’s government recognized the vulnerability of its national airline in a fast-changing and deregulated global airline industry. So in early 2000, it sold 34% of TAP Portugal to Swissair. Or did it? Shortly thereafter, the suddenly struggling Swiss carrier abandoned the purchase—and then itself met the fate that many feared for TAP: Swissair collapsed. Next, the government revived the privatization process, but efforts fizzled after the 9/11 attacks in the U.S. Fast forward to 2012, and Portugal again found a buyer: the parent company of Avianca. Or did it? The bid was deemed unacceptable for financial reasons, and it was back to square one. Now the privatization process is once again being revived. But bad news: the timing couldn’t be worse.

This spring, Portugal expects to have received and evaluated bids for a majority stake in TAP, with the state planning to keep about a third for two years and employees in line to own about 5%. The government says interested parties indeed exist—rumored suitors run from Avianca’s parent company again to the Brazilian airlines Azul and Gol to Spain’s Air Europa. In a blast from the past, even the old U.S. airline magnate Frank Lorenzo is said to be involved in a consortium of interested investors.

The problem: TAP isn’t likely to fetch the purchase price it once could have commanded. The airline’s prized possessions, after all, are its Brazilian and African networks, underpinned by legacy colonial connections and Lisbon’s near-perfect geography for linking all of Europe with Latin America and in some cases parts of Europe with parts of Africa. But by now, as a litany of airline earnings reports have made clear, the Brazilian market is not the place to be, with no signs of imminent recovery. Don’t believe others? TAP’s own local average fares across all classes of service on the Lisbon-São Paulo route—the second highest revenue market in TAP’s international network (see page 12)—appear to have declined roughly $135 per round trip in 2014 compared to 2013, according to PaxIS Plus data provided by IATA Consulting. As TAP’s longtime CEO Fernando Pinto (himself a native Brazilian) confirmed to IATA’s Airlines International: “[2014] wasn’t a great year for us. After a strong start, we encountered significant problems in Brazil.” Nor does TAP have only the same broad Brazilian problems as everyone else. TAP suffered a big blow when…

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