Lufthansa and Air France-KLM submit bids for Portuguese airline TAP

Background of the privatization

The background to the sale process is TAP's financial situation, which was severely hit by the Covid pandemic and had to be supported in 2020 with state aid of more than 3.2 billion euros. Since then, the company has been working on repayment and a restart under pressure from the EU Commission and the European Central Bank. Portugal has committed to repaying the aid and making the airline economically viable in the long term.

For the Lufthansa Group, an acquisition would be a further step toward consolidating European air traffic. The group had most recently drawn attention through the integration of Brussels Airlines and the preparation of the takeover of ITA Airways in Italy. With TAP, the crane group would gain strong slots at Lisbon airport and one of the most important hubs between Europe and Latin America.

Interests of the bidders

Air France-KLM, in turn, sees TAP as an opportunity to expand its own route network on the South Atlantic axis. The group, in which the French and Dutch governments hold stakes, could also strengthen its presence in Africa with TAP, where the Portuguese airline historically maintains strong connections, for example to Luanda, Maputo, or São Tomé.

Observers expect the Portuguese government to first examine strategic fit and the impact on employment. TAP has been wholly owned by the Portuguese state since its nationalization in 2020; the airline employs around 7,000 people and operates a fleet of around 90 aircraft. Critics fear that a sale to a foreign bidder would lead to job cuts and weaken national connectivity.

Significance for European air traffic

Meanwhile, several analyst houses have updated their assessments of Lufthansa. Bernstein Research rated the stock "Market-Perform" on July 21, RBC Capital Markets "Sector Perform" on July 16. Already on July 14, Goldman Sachs had issued a "Sell" rating with high confidence. These assessments are also feeding into the ongoing discussion about the value of a possible TAP involvement.

The Portuguese government announced its intention to conclude the process quickly but transparently. No date for a final decision was given. Observers assume that a preferred bidder could be named within the coming weeks.

What is clear is that the bids now on the table mark the beginning of the decisive negotiation phase. Should the Lufthansa Group receive the award, the group would further cement its position as the largest aviation group in Europe. If Air France-KLM were successful, it would be the group's biggest acquisition since the merger with Royal Dutch Airlines in 2004.

Both bidders must prepare for strict conditions from the Portuguese government as well as antitrust review by the EU Commission. Industry experts consider it possible that conditions to maintain certain routes and jobs will be required in order to limit political resistance in Lisbon and Brussels.

Regardless of the outcome, TAP is regarded as one of the most closely watched aviation deals in Europe since the sale of British Airways to IAG in 2012. The Portuguese government hopes the sale will not only result in the repayment of state aid, but also bring a long-term strengthening of the national aviation industry.