September 22, 2020

TAP, the flag carrier of Portugal, returns to state control



After five years of private management, the hammer of the covid-19 has returned TAP to the control of the Portuguese State, which will have 72.5% of the company’s capital and will inject aid of 1,200 million euros to refloat the Country flag airline.

A last-minute agreement with private shareholders prevented its nationalization, but even so the company will return to public control five years after its controversial privatization, although it will maintain a private presence in its capital: 22.5% remains in the hands of the Portuguese businessman Humberto Pedrosa and 5% of the workers.

The next step will be a restructuring plan to make viable the airline that the government of the socialist António Costa insists on calling “strategic”.

SYMBOL WITH 75 YEARS OF LIFE

Born in 1945, in the midst of the dictatorship, TAP is one of the flagship companies of Portugal and has an important weight in its economy: it employs more than 10,000 workers, allocates 1,300 million euros in purchases from national companies and contributes 300 million to public coffers through taxes and Social Security rates.

According to data from the company itself, in 2018 it contributed 3,500 million euros to the Portuguese economy -including the direct impacts of the tourists it transported-, which represents around 1.7% of Portuguese GDP.

Most of its life TAP has been under state control: it was born as a public service, it became managed by a limited company -although with a strong presence of the State- between 1953 and 1975 and with the arrival of democracy it returned to direct management from public hands.

But the arrival of the financial crisis ended up dictating its transition to the private sector in 2015.

PRIVATIZATION POLICY

After several failed attempts in the previous years, the government of the conservative Pedro Passos Coelho sold in 2015 61% of the company to the private Gateway consortium, made up of the Portuguese businessman Humberto Pedrosa and the Brazilian-American David Neeleman, owner of the Blue airline. .

The operation was strongly contested by the left-wing opposition and the unions, which staged protests against what they considered an act of “destruction of the country’s economy.”

The socialists, already led by António Costa, then promised to reverse the process if they managed to get to the government.

At the end of that same year, Costa took office as prime minister and in 2016 partially reversed the privatization, which left his shareholder structure as it remained until this year: 50% of capital in the hands of the State, 45% for Gateway and the remaining 5% for workers.

Although the State was its largest shareholder, the agreement ceded the management of the company to the private consortium.

IN SEARCH OF THE REFLOT

In a five-year period of management and private investment, the company managed to get some air and grow in the market: it went from 10 to 17 million passengers a year, increased its fleet of nearly 75 aircraft to over one hundred and multiplied its offer of destinations and frequencies, which also allowed it to grow from some 8,600 workers to 10,600.

But the economic situation of the group never became strong, and in five years it only managed to register benefits in the 2017 financial year, a modest green number of 21 million euros.

The airline closed 2019 with losses of almost 106 million, which the management blamed on the enormous investment to renew its fleet and the problems of the saturated Lisbon airport.

The state of its finances was still too delicate to cope with a crisis like that of covid-19, which forced the airline to stop its activity almost completely: it went from 3,000 weekly flights to just 5, all to the Portuguese islands, and suspended the contract for 90% of its workers.

In the first quarter of 2020 alone, TAP losses shot up to € 395 million.

To avoid its nationalization, the Executive of Costa promoted a rescue plan that provided for a capital injection of 1,200 million euros and a feasibility project for the company, which will be restructured.

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