Political crisis in Portugal affects privatization of TAP – 01/12/2024 – Market

The unexpected fall of the Portuguese government — motivated by corruption investigations in the Executive’s hard core — affected the privatization plans of the airline TAP, which has the Portuguese State as its main shareholder.

The decision on the sale of the company, previously taken for granted, will now be in the hands of the winners of the early elections, scheduled for March 10th.

The decree authorizing the sale of at least 51% of the airline’s capital was published just over a week before the scandal was revealed, which led to the Prime Minister, António Costa’s resignation, on November 7th.

Amid political turbulence and alleging a lack of transparency in the process, the president of Portugal, Marcelo Rebelo de Sousa, decided to veto the text, returning the proposal to deputies.

The dissolution of Parliament and the election of a new government mean that the decision on the company’s fate will be left to the next tenants of Palácio de São Bento.

Despite the wear and tear caused by investigations into the resigning government, the Socialist Party, in power since November 2015, appears to be in the lead in voting intention polls. New leader of the party and candidate for prime minister, deputy Pedro Nuno Santos has already declared himself against the loss of state control over the airline.

Former Minister of Infrastructure, the department responsible precisely for issues relating to TAP, the candidate stated that the State saved the company.

Hardly affected by circulation restrictions during the Covid-19 pandemic, the airline received 1.2 billion euros (R$6.4 billion) from the Portuguese government, as part of a restructuring plan.

“The government saved the company. TAP was a company with many problems. When the pandemic hit, the planes were grounded, they were not operating. In the two years before the pandemic, there had been losses due to private management. Everyone would lose their jobs at TAP if the government had not intervened in the company”, he stated, in an interview with broadcaster SIC on December 27th.

For the socialist general secretary, the Portuguese government must open capital to private groups, “but must not give up the majority [acionária].”

Second in the polls, the main opposition party, the center-right PSD, is in favor of selling the airline, but not in the model proposed by the current government. Party leader and candidate for prime minister, Luís Montenegro classified the socialists’ proposal as a “political and financial crime”.

Openly in favor of privatization, TAP CEO, Luís Rodrigues, recognizes that the fall of the government delays a definition of the company.

“I am in favor of privatization because it is difficult for a company that operates in a brutally competitive and global market to be conditioned by a shareholder [governo português] which has its own rules that I don’t criticize, but respect”, he stated, during an interview with the foreign press in Portugal.

“The new shareholder representatives will obviously have the duty and the right to speak out as soon as they are elected. As at this moment we do not know who they are nor are we going to exercise guesswork, we will not comment on this [privatização].”

The CEO of TAP stated that the mentality in running the company has been to act “as if there were not going to be privatization”.

“If we remain paralyzed with fear, they will say that we are useless. If we try to be, as we are trying, one of the most attractive companies in the industry, whoever arrives will see our good work”, he said.

Control of TAP has always been a sensitive topic in Portugal. After more than two decades of back and forth, the Portuguese government, then led by the PSD (Social Democratic Party), officially privatized the company at the end of 2015, selling the majority of the capital to the Atlantic Gateway consortium, with the participation of the Portuguese Humberto Pedrosa and American David Neeleman, founder of Azul.

Shortly afterwards, with the Socialist Party coming to power, the government then decided to start undoing the deal, recovering its stake in the company in 2016. The renationalization takes place definitively in 2020, under the leadership of the then Minister of Infrastructure — now a candidate for Prime Minister—Pedro Nuno Santos.

Nationalization was carried out to facilitate the injection of public capital to save the company from the crisis caused by the pandemic.

Approved by the European Commission in 2021, TAP’s restructuring plan foresees several cost-cutting measures, such as fleet reduction, cutting more than 2,000 jobs and reducing salaries.

The measures are in force until 2025 and, for now, they still directly impact the company.

The main market for the company, where it has more than 80 weekly flights departing from 11 capitals, Brazil is the biggest candidate for expanding routes and frequencies after the end of the restrictions imposed by European authorities.

In departures between Guarulhos and Portugal alone, TAP transported, in 2023, more than 564 thousand passengers, which represents a growth of almost 23% compared to the previous year.

After suffering five years of losses, TAP returned to profit in 2022. In the first nine months of 2023, the most up-to-date data already released, the company had a record positive result, reaching 203.5 million euros (R$ 1, 1 billion).

The company’s profits, in the third quarter of last year alone, were 180.5 million (R$ 962.7 billion).

Although it achieved good business results, TAP experienced days of political and administrative turmoil last year, which made the company even the target of a CPI (parliamentary commission of inquiry) in Parliament.

The main point of tension was the revelation, in a report by the newspaper Correio da Manhã, of the payment of compensation of half a million euros (R$2.7 million) to former manager Alexandra Reis. Ten months after leaving the company, the executive took up the position of Secretary of State for the Treasury in the socialist government.

A report by the IGF (General Inspectorate of Finance) concluded that the amounts paid to Alexandra Reis were undue and requested the return of 450 thousand euros to public coffers.

The case generated enormous political tension and led to a series of dismissals, including the then CEO, Christine Ourmières-Widener, who was fired for just cause. The French executive is suing the Portuguese government.

The restructuring plan’s heavy salary limitations also led to strikes and disruptions in services, including a two-day strike in December 2022, which caused the cancellation of 360 flights and affected thousands of Brazilians with company tickets.