Portugal Wants To Privatize National Carrier TAP, Sell 49.9% Stake

The government of Portugal is looking to privatize national carrier TAP Air Portugal, with the goal of selling a large stake within a year. Is that likely to happen, and if so, which airline group stands to benefit the most?

TAP Air Portugal privatization effort underway

Portugal’s government has relaunched an effort to privatize TAP Air Portugal, with the goal of selling a 49.9% stake within a year, with the possibility to give up a majority stake over time. As part of this, employees would also be offered a 5% stake in the company.

Prime Minister Luis Montenegro states that he’s “convinced that there will be many interested parties.” For years there have been talks of privatizing TAP, so this is only the latest such effort, and it’s anyone’s guess how this plays out.

The latest round of privatization stalled earlier this year, when the country’s center-right minority government collapsed. The coalition returned to power after a May election, but doesn’t have a majority in parliament, so that could cause the sale to be blocked.

Historically, TAP hasn’t been a terribly profitable airline, but its performance has improved over time. In 2021, the airline reported a record €1.6 billion loss, following the coronavirus pandemic. This caused a restructuring, which saw the government invest €3.2 billion in the airline.

The airline has returned to profitability in recent years, though we’re talking about fairly mild profits. The company’s profits over the past three years (2022-2024) have been €65.6 million, €177.3 million, and €53.7 million.

In looking for a partner in this privatization, the government obviously hopes for as many synergies as possible, to improve the company’s long term prospect of profitability.

Infrastructure Minister Miguel Pinto Luz has stated that “we believe we can complete the privatization within a year,” emphasizing that even airlines from outside the European Union could express interest. The next step is for potential investors to prequalify for the sale.

There should be lots of interest in TAP Air Portugal

While TAP Air Portugal isn’t independently some massively profitable airline, the company offers some significant synergies for other airline groups. Specifically, TAP has a strong network to Brazil, to Africa, and to the United States. This obviously holds significant strategic value for several airlines.

We know that all three of the major European airline groups — Air France-KLM, IAG, and Lufthansa — have been interested in TAP Air Portugal at one point or another, primarily due to the carrier’s strength in Brazil, with the Africa network being a secondary strength.

The challenge is, it’s kind of hard to figure out how North America operations would complement the existing arrangements of airline groups. Obviously North America to Europe flying is heavily dominated by joint ventures (split by alliance, sort of), which have a lot of pricing power.

Historically, TAP has operated pretty independently to North America, often undercutting other carriers on price, with attractive fares in all cabins, including for one-way flights. Could we see TAP join one of the major joint ventures? Obviously it would totally change the carrier’s pricing model and market position.

Then there’s the whole issue of regulatory approval. Getting regulatory approval for such a deal will be no small task, given the number of parties that have to sign off on agreements like this, and the concessions required.

My gut says that both Air France-KLM and Lufthansa Group would have the most to gain with TAP, purely in terms of their existing geography and networks. There’s also upside for IAG, though not as much geographically, given where Aer Lingus, British Airways, and Iberia, have hubs.

One other wrinkle here is that there’s also talk of Spain’s Air Europa being acquired by one of the airline groups. We know IAG tried to acquire Air Europa in the past, but the deal was ultimately blocked, given that the company already owns Iberia.

It seems likely to me that Air France-KLM and Lufthansa Group will compete for TAP Air Portugal and Air Europa, with each airline group investing in one of those two carriers.

Bottom line

The government of Portugal is once again looking to privatize TAP Air Portugal, initially hoping to sell a 49.9% stake, with the goal of giving up majority control over time. While the goal of privatization has been there for a long time, it sounds like serious efforts are once again ramping up.

There’s no doubt going to be some interest from all three major European airline groups, and even some other parties. Air France-KLM and Lufthansa Group have a lot to gain in terms of synergies, so let’s see how this plays out.

How do you see TAP’s privatization plans evolving?