Portugal's cabinet settled TAP's path on Wednesday, choosing Lufthansa over Air France-KLM. Prime Minister Luis Montenegro said Lufthansa's pitch was 16% richer and values TAP at €2.55 billion, or $2.8 billion. The initial purchase is 44.9%, with the option to reach 49.9% if staff opt not to buy the 5% ring-fenced for them.
Montenegro said Lufthansa's bid would generate €1.201 billion should the stake rise to 49.9%, versus €1.038 billion under Air France-KLM's proposal. He added, "We are guaranteeing TAP's growth - growth in its fleet, passengers, destinations and connections, as well as investment not only in TAP but across Portugal's aviation sector."
Bloomberg News had reported earlier that Lufthansa was the preferred buyer.
Lufthansa says the tie-up will plug Lisbon into its hub network and tighten its grip on the South Atlantic, reinforcing routes to Brazil along with other Latin American and African destinations. CEO Carsten Spohr said, "The deal allows us to consistently pursue our internationalization strategy and sustainably strengthen our position in the South Atlantic market."
The German group will assume TAP's executive and operational management and argues the carrier fits its multi-airline, multi-hub model. It points to experience steering network airlines across Europe to help TAP expand and sharpen its competitiveness. The acquisition follows Lufthansa's stake purchase in ITA Airways and adds to a portfolio that also includes Austrian Airlines, Brussels Airlines and Swiss. Both Lufthansa and TAP are Star Alliance members and already have a commercial partnership.
Lufthansa also signaled interest in eventually buying the state's remaining 50.1% of TAP. That follow-on plan would include €863 million in extra cash and a share swap of about €488 million, leaving Portugal with about 5% of a combined Lufthansa and TAP company and making it the second-largest shareholder.
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Air France-KLM CEO Ben Smith wrote on LinkedIn, "We put forward an offer that was strong and comprehensive, respectful of TAP's brand and heritage, and ambitious in its vision for the airline's future development." The group will now focus on integrating SAS AB following its move to secure majority control.
Shares of both bidders fell on Wednesday.
Portugal has argued that TAP, which obtained billions of euros of public support during the pandemic, must be part of a larger airline group to build scale and protect its long-term prospects. Higher fuel costs pushed the bottom line into the red, with a €99 million loss for the first half. Bernstein analyst Alex Irving summed up the trade-off: "There is much to like about the asset itself: strong position in a defendable geographic niche that concentrates traffic on Europe-Brazil, and control of 50% of slots in Europe's 9th-largest hub airport," but "the deal comes at a steep price." He also highlighted TAP's relatively young fleet compared with Lufthansa's, which can help fuel efficiency and unit costs.
Lufthansa is pushing to lift profitability in a crowded European market. High costs at its flagship airline make that harder, so the group is shifting capacity to lower-cost units and plans to eliminate 4,000 administrative roles by 2030.
This is a classic scale-and-network bet. Lisbon becomes another spoke in Lufthansa's multi-hub wheel, and TAP's South Atlantic strength plugs a gap where demand is sturdy. The price is not cheap and integration is never easy, but a younger fleet and tighter Brazil connectivity could help the economics. Keep in mind both bidders' shares slipped on the news, a reminder that even good strategic moves can take time to pay off in the market most of us actually live in.
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