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TAP Portugal Investor Looks to Sell His Stake to Lufthansa

TAP Portugal Investor Looks to Sell His Stake to Lufthansa

Last week, David Neeleman, the brain behind a number of successful airlines like Westjet, JetBlue, and Azul, announced that he was in negotiations with a consortium led by German airline Lufthansa to sell his stake in Atlantic Gateway, the partner behind the reprivatization of TAP Portugal.

 

David Neeleman and Family at JetBlue Terminal 5 A321neo Launch

This development comes after a four-year rollercoaster ride for the national airline of Portugal that brought in a renaissance: the fleet was revitalized and a new route network established, emphasizing strengths and opening new potential destinations.

Back in 2015, after years of mismanagement, the airline was dependent on local banks to support it and was mostly operating with aircraft that were inducted into the fleet in the 1990s. Then David Neeleman, with his experience in running airlines, formed a consortium with the Chinese HNA Group, and Portuguese businessman Humberto Pedrosa to set up Atlantic Gateway, which took a 45% stake in TAP.

Image Source: Airbus/A Doumenjou

 

TAP, with the new backing, went on an ambitious expansion path, renewing nearly its entire fleet with new types of the Airbus A320 and A330 series. As a launch customer of the A330-900–a variant of the A330 with fuel-efficient engines–TAP benefits from the lowest operating costs for its long-haul routes while utilizing the commonality with its existing fleet. The A321LR can be used on its routes to North America and Africa to explore new markets or complement existing routes to Brazil.

 

 

TAP traditionally was a strong player in the South Atlantic, using its geographic proximity to the Americas to establish an extensive network between Europe and Brazil. The expansion enabled it to open new routes to North America and strengthen its coverage in Africa. The airline grew to carry 17.1 million passengers in 2019, double the number it had ten years earlier. Last year Brazil and Portugal signed new bilateral agreements, removing all restrictions on air traffic.

 

TAP takes delivery of its first A321LR

 

Like with any reprivatization, the job of rebuilding a legacy airline was not easy. Even though the ownership was structured in a way that Portuguese interests had retained a majority share in the company, the deal was challenged in court, claiming that the complex ownership & the reprivatization tender did not fulfill the conditions to operate public service flights and use the bilateral agreements that Portugal had with various countries outside the European Union. After years in court, the European Court of Justice only ruled last week that the tender and the subsequent ownership structure of the airline were indeed legal.

In 2019, as the airline turned a corner, David Neeleman moved on to other projects. Using $100 million in startup capital, he started a new low-cost airline under the project name ‘Moxy’ (later named ‘Breeze’), ordering 60 A223 aircraft. The collapse of Chinese group HNA provided him the opportunity to take over further shares in his other airline Azul, as well as expand his share in Atlantic Gateway to 50%.

On November 27, 2019, he announced that he was looking for buyers of his stake in Atlantic Gateway. The time was right to exit the airline, as his guidance had put it on the right path and the investment was bearing fruit. All major airline alliances had shown interest, and talks were held with the IAG group, Air France KLM & Lufthansa.

As talks were progressing, the bad news came in: the airline posted record losses for the year 2019, citing a bad first half year. With the uncertainty of the impact of the coronavirus on the travel industry, the relationship with the Portuguese government turned sour over proposed bonus payments to the management of the airline in spite of overall losses.

To the surprise of all, David Neeleman announced that he had decided to sell his share to Lufthansa and its transatlantic partner United. The Portuguese government was part of the talks and indicated that it approved the terms under which the deal was negotiated. The 2016 agreement, that required a 5-year lock-in period, was not in question as the sale would be of shares in Atlantic Gateway which would remain a partner overall. Unconfirmed reports indicate that the other major shareholder was also interested in divesting his stake under the deal.

TAP’s future is bright: with a renewed fleet, a decent debt position and increased access to critical markets it is poised for sustained growth on a low operating cost base. The Lufthansa group is interested in gaining further access into the South American and African markets as well as keeping potential competition at bay. What remains to be seen is if the parties can agree on a price in uncertain times.

 

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