TAP losses increase as privatisation plans continue

By CHRIS GRAEME [email protected]

Plans to privatise troubled Portuguese national carrier TAP are pressing ahead despite less than optimistic news concerning the airline’s finances.

In the first six months of the year its budgetary overspend soared from €79 million to €137 million– an increase of 73.4% on the first half of 2010, despite the fact that passenger numbers were up by 4.5 million in the same period.

According to figures released by the group, TAP’s total receipts stood at €1.094 billion but the soaring costs of aviation fuel was mainly responsible for an increase in the company’s financial black hole.

TAP’s CEO Fernando Pinto explained that rising fuel costs pushed up the company’s running costs to €325 million alone on fuel, an increase of 42.7% on the first six months in 2010, when its fuel bill was €227.7 million.

TAP’s fuel bill has more than doubled in just two years, being 106% higher today than in the beginning of the first half of 2009 – when petrol prices fell because of the financial crisis and the fallout from the collapse of Lehman Brothers.

However, despite less than positive financial results, improved passenger numbers and the profitability of its Brazil service still makes the company attractive to possible buyers which include IAG (Iberia and British Airways) and Lufthansa.

The government is planning to privatise TAP by the end of the year: the State has already chosen two financial entities to carry out evaluations – Caixa BI and Citibank.

A third company, BESI, is also analysing TAP’s company accounts on behalf of a potential buyer.

Another company said to be interested in buying up TAP include the Brazilian company LAN/TAM  (in a merger).

A TAP official, on reacting to effects of the soaring costs of fuel on the national carrier and its future profitability and attractiveness to a potential buyer, said:

“Potential interested parties will surely look at the group’s global performance and potential, which is enjoying well above European average increased passenger numbers and successful efforts to control other costs.”

TAP’s main attractiveness is its lucrative routes to Angola, Mozambique and Brazil including a number of new routes to Brazilian cities.

Looking at its operational results for the first half of 2011, these stood at €117 million in the red compared with €49 million in the first half of 2010.

The company says that increased passenger numbers by 4.5 million between January and June 2011 which it calls “sustained growth” coupled with reduced operational costs in other areas (not counting fuel costs) means that TAP is a viable proposition for any potential buyer.

The company expects the second half of 2011 to be more profitable than the first half owing to the holiday period and its seasonal nature including both the summer and Christmas holidays.

However, there was likely to be a falloff in demand between October and mid-December when the number of flights on some routes would also be reduced to reflect falling demand and save money.

As is the case with all public companies, TAP has to slash its expenditure by 15% as agreed in the Memorandum of Understanding between the Portuguese government and the Troika.

TAP will be able to offset some of these costs under a regime of exception covering fuel and aircraft leasing costs which are beyond the company’s control.