Skift Take

Brazil's growing reputation as the gateway to Latin America would be cemented even further if Synergy Group ends up buying TAP.

Portugal’s auction of state-owned airline TAP SGPS SA has been shunned by Europe’s three biggest carriers, boosting prospects for a Latin American takeover of a company analysts say may fetch 500 million euros ($653 million).

Air France-KLM Group, Deutsche Lufthansa SA and British Airways parent IAG failed to bid by a deadline last week, the companies told Bloomberg. Among non-binding offers was one from Brazil’s Synergy Group, owner of the Avianca airline brands, according to three people with knowledge of the sale process.

TAP would offer dozens of connections beyond Lisbon for Synergy’s Avianca Brazil unit and provide the first instance of a company in an ex-colony buying the flag-carrier of its former ruler. European airlines attracted by TAP’s South America routes are preoccupied with absorbing earlier purchases, and Lufthansa may also be standing aside because its Star Alliance, which currently includes TAP, features an Avianca sister company.

“TAP’s only value is in its Latin American network,” said Yan Derocles, an aviation analyst at Oddo & Cie in Paris. “Star is weaker there but Avianca Taca is a member, so you can offset this issue through them. And it’s quite a good entry point for Avianca to jump into Europe, even if it’s not in the center.”

Portugal is selling TAP after becoming the third euro-area country to seek a bailout from the International Monetary Fund and European Union. Founded in 1945 with two 21-seat Douglas DC- 3s, initial routes included a 12-stop service to Angola and Mozambique. The carrier went private in 1953, with the state retaining a majority stake, before being renationalized in 1975 following the fall of the authoritarian Estado Novo regime.

TAP Valuation

TAP’s first-half loss widened to 112 million euros, hurt by strikes and fuel costs, though the underlying performance has been “pretty good,” said Chris Tarry, a U.K. analyst who has followed the industry for three decades.

Portugal is seeking “reference shareholders” for TAP, the airline has said, an indication that it wants to sell a majority stake, according to Stefan Kick, a research analyst at Silvia Quandt in Frankfurt. That wouldn’t be possible with an investor from beyond the EU, which caps outside ownership at 49 percent.

Donal O’Neill, an analyst at Goodbody Stockbrokers in Dublin, said TAP is worth 500 million euros “at most,” adding: “I’ve seen 1 billion euros mentioned, but in my opinion that’s absolute rubbish.”

Preliminary offers were received by Sept. 14 and final terms for the sale will be approved soon, Luis Marques Guedes, senior spokesman for Portugal’s cabinet, said Sept. 27, at which point bidders will be invited to submit binding proposals. The government expects to conclude the sale by the year’s end, Nuno Vinha, a spokesman for the Economy Ministry, said last month.

Waning Attraction

TAP Chief Executive Officer Fernando Pinto, himself a Brazilian, says that while the economic situation isn’t ideal, the value of 74 weekly flights to both Brazil and Africa and 46 connections in Europe is recognized by the industry. “In that respect the moment is perfect for this privatization,” he said in an interview shown Oct. 3 on business website Dinheiro Vivo.

BA owner International Consolidated Airlines Group SA, which is prioritizing cost cuts at Spanish unit Iberia, said Sept. 17 that it won’t be bidding for TAP after interest “diminished” over the past 12 months. “We have taken a closer look at the business and can confirm that we have decided not to proceed further,” spokeswoman Lorena Monsalves said by e-mail.

IAG probably cooled on a bid since a “political dimension” between Lisbon and Madrid made a deal impractical, Tarry said.

While Lufthansa requested an information memorandum on TAP, its operates to most of the same major cities and has “enough restructuring to do already,” Chief Financial Officer Simone Menne said in an interview on Oct. 2. Spokeswoman Claudia Lange said the company was concentrating on the SCORE savings plan and restructuring its Austrian Airlines unit, “not on acquisitions.”

Long-Haul Links

Air France-KLM wasn’t among nine potential bidders that applied for the information memo. Europe’s biggest airline is “not examining the subject,” spokeswoman Brigitte Barrand said last week, citing Chief Financial Officer Philippe Calavia.

Synergy’s owner, German Efromovich, is seeking long-haul links for the Avianca Brasil business he’s building from the former OceanAir, said one of the people, who declined to be identified because the bid process is private. A spokesman for the company in Sao Paulo declined to comment.

Synergy also controls Avianca Taca Holding SA, Colombia’s biggest airline, which Efromovich bought for $64 million when it was close to bankruptcy in 2004. The company added El Salvador’s Taca in 2010 and with Avianca Brasil — which it may ultimately absorb — controls Latin America’s largest route network.

Avianca Interest

Avianca Brasil had a 5.1 percent share of Brazil’s domestic market in August, according to the National Agency of Civil Aviation, ranking behind the Tam SA unit of Latam Airlines Group SA, Sao Paulo-based Gol Linhas Aereas Inteligentes SA and discount carrier Azul Linhas Aereas Brasileiras SA.

Avianca Taca CEO Fabio Villegas said in an interview April 13 that his carrier’s Brazilian affiliate was “interested in analyzing” the TAP sale. Guillermo Bran, Avianca Taca’s head of alliances, said via e-mail that TAP could also provide Colombian passengers with connections to Lisbon and Oporto via Madrid and Barcelona, as well as linking with Taca in Venezuela and Miami.

TAP was also instrumental in Avianca Taca’s decision to join the Star airline grouping, of which it became a member in June, having shared the experience and knowledge gained during its own admission in 2005, Bran said Sept. 25.

Avianca Taca’s Star allegiances mean Lufthansa may benefit from a Synergy purchase of TAP without having to bid itself, though Avianca Brasil isn’t currently a member. While Star is the biggest global alliance with 27 airlines, its only other South American recruit is Tam, which is debating a move to the rival Star grouping following a merger with Chile’s Lan.

TAP’s disposal, featuring a capital increase and the sale of shares to one or more investors, must retain a “strong link” with Portugal, the government said Aug. 2. Banco Espirito Santo SA, Barclays Plc, Citigroup Inc. and Credit Suisse Group AG are advising on the sale and that of airport manager ANA- Aeroportos de Portugal SA, state-holding company Parpublica said May 24.

The ANA disposal includes TAP’s Lisbon hub, the development of which is vital for the airline to “grow strongly,” Kick said.

Synergy submitted one of three non-binding bids for TAP, alongside Etihad Airways of Abu Dhabi, the No. 3 Gulf carrier, and an unidentified Asian company, Diario Economico reported Sept. 18. Etihad spokesman Thomas Clarke declined to comment.

–With assistance from Katerina Petroff in Sao Paulo, Kari Lundgren in London and Mat. Editors: Chris Jasper, Heather Harris


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Tags: brazil, portugal, tap airlines

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