Lufthansa and IAG Compete with Air France-KLM for TAP Air Portugal
Air France-KLM has reiterated its interest in TAP Air Portugal as the state-owned Portuguese flag carrier enters preliminary stages of privatization, and may be open to a partial or outright sale.
This move has caught the attention of other European airline groups, including Lufthansa and IAG, who are also reportedly interested in acquiring TAP. The competition for TAP could result in a lengthy acquisition saga like the one we saw with ITA Airways.
TAP Air Portugal’s strong presence in Brazil has emerged as a key factor for Air France-KLM. TAP currently operates flights to over 10 destinations in Brazil out of its Lisbon Airport (LIS) base. Air France-KLM, on the other hand, serves three Brazil airports – São Paulo, Rio de Janeiro, and Fortaleza – with a fourth Carribean milk run to Belém coming this May. As Brazilian aviation is on the way to a full recovery after reaching 82% of its pre-pandemic traffic over 2022, there is immense potential for airlines to tap into the market. In 2022, of the 97.85 million passengers, 15.62 million were international travelers, with TAP Air Portugal carrying 1.59 million of those, second only to LATAM Brasil (2.49 million). This highlights the growth opportunity for airlines that have a foothold in Brazil.
Consolidation is key for Air France-KLM, especially in Europe. This is not the first time the airline group has expressed interest in the Portuguese carrier. In October, Air France-KLM’s CEO, Ben Smith, had said that “if the right circumstances are in place, we’re interested.” TAP’s potential acquisition would help Air France-KLM to strengthen its position in Europe.
However, Air France-KLM is not the only airline group that has expressed an interest in acquiring TAP. Lufthansa and IAG are reportedly also interested in acquiring the Portuguese airline. As we have seen with ITA Airways, the competition could lead to a lengthy acquisition saga. A consortium including Air France-KLM and Delta Air Lines seemed to have an ITA deal in the bag after it was granted exclusive negotiation rights. Still, a deal could not be reached, and indications now point towards a Lufthansa deal closing in March or April. IAG is also pushing ahead with its deal to acquire Air Europa, leaving Air France-KLM eager to catch up with its consolidating rivals.
Air France-KLM received financial bailouts from the French and Dutch governments over the COVID-19 pandemic, which have legally restricted the airline group from acquiring significant stakes in other airlines. However, as reported by FlightGlobal, the airline group expects to exit these restrictions by April through refinancing measures that would pave the way for more sizable market acquisitions. CEO Smith said during an earnings call, “We are really pleased the constraints have been removed – we can negotiate with confidence and more legitimacy with any opportunities that present themselves.”
In 2022, Air France-KLM revealed that it had returned to a full-year profit, with a net profit of €728 million ($773 million) and an 84% increase in revenue from 2021. This positive financial outcome suggests that the airline group is well-positioned to pursue strategic acquisitions, such as TAP.
Air France-KLM’s interest in TAP Air Portugal is a strategic move to expand its network in Brazil, but it may face competition from Lufthansa and IAG. As the airline group expects to exit its financial restrictions by April, it will be in a strong position to negotiate potential acquisitions. The acquisition of TAP by any of these airline groups would strengthen their position in Europe and allow them to tap into the growth opportunities offered by Brazil’s aviation
