Bloomberg News

Lufthansa to Consider Bid for Star Partner TAP in Portugal

May 16, 2012

Portugal’s government has agreed to sell TAP this year as part of a plan to raise funds and comply with the terms of a 78 billion-euro bailout from the European Union and the International Monetary Fund. Photographer: Mario Proenca/Bloomberg

Portugal’s government has agreed to sell TAP this year as part of a plan to raise funds and comply with the terms of a 78 billion-euro bailout from the European Union and the International Monetary Fund. Photographer: Mario Proenca/Bloomberg

Deutsche Lufthansa AG (LHA) is considering a bid for state-owned carrier TAP SGPS SA to strengthen its position in South America and protect its partnership with a key member of the Star Alliance.

“We will always look if someone approaches us, especially if it’s a Star carrier, so we will definitely also look at TAP,” Christoph Meier, a Lufthansa spokesman, said in a phone interview. “There are definitely reasons why they would be interesting. Their home market, for one.”

TAP-Transportes Aereos Portuguese SGPS SA Chief Executive Officer Fernando Pinto said last month there are more investor groups interested in the state-controlled airline besides International Consolidated Airlines Group SA (IAG), which has repeatedly expressed its desire to buy the carrier.

Portugal’s government has agreed to sell TAP this year as part of a plan to raise funds and comply with the terms of a 78 billion-euro ($99 billion) bailout from the European Union and the International Monetary Fund. Lufthansa has 11 percent of the market to South America from Europe, compared with 22 percent for IAG and 21 percent for Air France-KLM (AF) Group, according to Stephen Furlong, a Dublin-based Davy Holdings analyst.

Lufthansa is “much smaller than the other two, and you can see why they might have interest in expanding in Latin America,” said Furlong, who has a “neutral” rating on Lufthansa. “The worth will be less financial and more what’s the franchise network flow and value from Latin America and particularly Brazil.”

Shares Drop

Lufthansa fell as much as 13 cents, or 1.5 percent, to 8.57 euros and was down 0.3 percent as of 10:23 a.m. in Frankfurt trading. The stock has declined 5.5 percent this year, valuing the Cologne, Germany-based airline at 3.97 billion euros.

TAP’s privatization process has begun with informal contacts between the government and interested bidders, Pinto, who is advising the Portuguese government on the sale, said April 17. The government still doesn’t have an estimate on how much the company is worth and formal meetings with the groups haven’t started, he said at the time.

The government has yet to decide what percentage of TAP it plans to sell to investors, Pinto said, adding that the airline’s future owner will have to inject capital in the company.

Meier was confirming comments made by Lufthansa CEO Christoph Franz in an interview with the Financial Times. Franz said the priority remains turning around the unprofitable Austrian Airlines unit.

BMI Sale

“The Lufthansa CEO has for the first time explicitly expressed an interest in buying the Portugese carrier TAP, which adds spice to a sale that has already attracted IAG,” Joe Gill, an analyst at Bloxham Stockbrokers in Dublin, said in a note today. “He also underlined the consolidation impulse that is beating strongly across Europe which will result in more mergers and failures among some carriers.”

Lufthansa completed the sale of U.K. unit BMI to IAG on April 20, after failing with attempts to turn around the unprofitable carrier.

To contact the reporter on this story: Alex Webb in Frankfurt at awebb25@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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