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The possibility of withdrawing the TAP was studied by the company itself, even before proceeding with the request for an emergency loan to the State, confirmed the Secretary of State for Finance. Miguel Cruz explains that these alternatives should be elaborated in the framework of negotiations with the European Commission. “We were in a context where the state did not have control of the shareholders (David Neeleman was still a shareholder). This analysis was done, but the State did not control part of the debt (the company already had bond issues with institutional and retail investors that would have to face a default of payment), we do not control the effects of the litigation, nor the impact of the opening of a company. next to”.
In this press conference the cost of this alternative was not valued, Miguel Cruz also acknowledging that when the Government chose to rescue TAP, under the European competition regime, the effects of the pandemic were not expected either. it lasted so long, which increased the financial needs of the company that the State has to cover. Pedro Nuno Santos also repeated figures on the positive economic impact of the company that had been mentioned, on Friday morning, by the Minister of Economy.
Economy Minister. “Letting TAP disappear was like letting Autoeuropa disappear or worse”
Other idea done What the minister wanted to deconstruct was that, after the fall of TAP, the offer was automatically replaced by other companies. Pedro Nuno Santos explained that this was not what happened with the bankruptcies of Swissair and Sabena, two companies that were part of the group that was going to buy the Portuguese airline, at the beginning of the century. The recovery “took years.” Furthermore, the hub (centralization of flight offers of an airline in an airport) only exists because TAP is based in Lisbon. Many of the flights that currently exist are only viable, thanks to this hub effect that allows feeding routes, for example, to the other side of the Atlantic, with the different flights from European destinations that stop in Lisbon and vice versa.
In total, the financial needs until 2024 can vary between 3,414 million and 3,725 million euros. These amounts include the loan of 1.2 billion euros granted this year by the State. However, this mode will not be repeated. What is expected is that the company can be financed in the market, which in a first phase will involve a public guarantee.
TAP may need 3.7 billion euros by 2024 in the worst case. Courts save Portugália
By 2021, this financing will vary between 970 million euros and 1,164 million euros and will be covered by a guarantee from the State, which, the Government guarantees, will not force a Amending Budget. For 2022, the plan foresees needs between 463 and 503 million, for 2023 between 379 and 438 million and for 2014 between 392 and 420 million.
These needs only translate into public support if TAP needs a State guarantee to obtain private financing. This will be inevitable in 2021, but it is not guaranteed to remain so. It will depend on the execution of the restructuring plan and the evolution of the aviation business and demand. The company may be able to repeat what it has done in the past, issue debt without state aid, to meet these needs. On the other hand, the state guarantee granted to the carrier loans only becomes an effective burden for the state if TAP does not make the payments.
According to the proposal presented to the European Commission, which the Government guarantees to be conservative in light of the sector’s projections, the company should reach an operational balance (in which the income covers the costs of the activity, excluding financial expenses) between 2023 and 2024 TAP is expected to begin repaying the debt and repaying some of the aid starting in 2025.
Apart from this phase there is the entry of private investors in the capital of TAP. There are no market conditions for this to happen, given the financial fragility of the sector and the companies themselves that are prevented from making acquisitions in the context of the aid they are receiving. Given the size of the amounts in question, there are only two alternatives to finance this effort: the State or the debt contracted with the financial system.
In the long term, the Government appreciates TAP’s participation in international alliances with possible investments from larger companies that may allow the State to leave, or at least reduce its participation. Before the pandemic, Lufthansa would be in talks to buy David Neeleman’s capital. Portuguese businessman Humberto Pedrosa remains the sole private shareholder of TAP, but he should not contribute to the needs now identified, in addition to the complementary payments he made to the company and that he has already lost, like David Neeleman.
For a company that will lose 6.7 billion euros of revenue in 2025, compared to what it would have in a scenario without a pandemic, it has no alternative but to adjust costs in the variables it controls. And most of it is what corresponds to the workers. This will be one of the biggest, if not the biggest, challenges of this restructuring plan. Even because, Pedro Nuno Santos admitted, the problems of “inefficiencies” and “competitive disadvantages” of TAP compared to competitors come from the era of public management, and some were even aggravated by private management.
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