AG PLANNING TO BID FOR PORTUGUESE FLAG CARRIER TAP, WHICH THE COUNTRY’S GOVERNMENT IS BEING FORCED TO SELL

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By TESTCustomwebLP TESTCustomwebLP May 9, 2011 19:45

AG PLANNING TO BID FOR PORTUGUESE FLAG CARRIER TAP, WHICH THE COUNTRY’S GOVERNMENT IS BEING FORCED TO SELL

Anyone thinking that the sovereign debt crisis in Europe will not have a direct effect on the future of aviation should look away now as this is the first state owned aviation asset to hit the fire sale block……… On a day when this editorial lead could have been any one of a number of big stories, I feel that before we get into Willie Walsh controlling the Atlantic and getting a great slice of the Brazilian action we should mention some points from other stories below. Firstly how is it that Emirates is canning its fuel surcharge when jet fuel is standing at $130 a barrel? Secondly what will the airlines in the Middle East do with 2,340 new aircraft which Boeing says the region needs to order? Emirates, Etihad and the like are ramping up the future risk factor. Emirates are already funding new aircraft delivery through wacky methods such as floating an aircraft IPO, literally.

TAP

International Airlines Group (IAG) has already held informal talks with TAP following the €78 billion EU/IMF bailout. A condition of the bailout is that the Portuguese government privatise the airline as soon as possible. There can be no argument to the fact that IAG is a perfect fit for TAP, sure there will have to be route harmonisation and there will be job losses but the long-term outlook would be strong and impressive.

An investment bank has been hired to conduct a formal auction of TAP, which is expected to be launched later this summer.

Newly formed IAG is already the third largest scheduled airline group in Europe and the sixth largest in the world, based on revenues, with BA and Iberia flying to more than 200 destinations on more than 400 aircraft, while last year they carried 55 million passengers.

TAP, which made a €3.5 million ($A4.81 million) loss last year and is thought to be valued at around €500 million ($A687.1 million), has an attractive long-haul network that includes a large share of routes between Europe and Brazil, as well as a number of African routes into former Portuguese colonies.

The group is expected to finance any bid it makes through shares, which would dilute the stock held by existing shareholders.

Before we get carried away though consider Lufthansa, they must be thinking about lunching a formal bid and have been mentioned over the weekend. Far more interesting though would be if LatAm were to throw its hat into the ring with an official bid. The new alliance between Brazil’s TAM Linhas Aereas and Chile’s LAN, which will become the biggest carrier in Latin America if it gets final regulatory clearance, would become a strong global player in time for the Olympics and FIFA World Cup, controlling much of Latin America. Can they get their regulatory approval in time? It might be too closer a run thing for them to think about a bid for TAP.

Consolidation due to outside financial pressures because of the subprime crisis and everything that has come since has proved to be the best catalyst for remedying overcapacity by forcing mergers in the US. The sovereign debt crisis could prove to do the same for the EU.

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By TESTCustomwebLP TESTCustomwebLP May 9, 2011 19:45
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