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Lufthansa and United airlines revealed to be eyeing a stake in TAP Air Portugal after government conflict

tap conflictTAP Air Portugal could soon have new owners. This comes as serial commercial airline founder and entrepreneur David Neeleman is reportedly looking to sell his consortium’s 45% share of the airline, and two buyers are already lined up to take it. The US’ United Airlines in partnership with German powerhouse Lufthansa have allegedly already begun negotiations for the stake; what could this mean for TAP’s future?

TAP is currently part-owned by the Atlantic Gateway Consortium, a partnership between Brazilian-American David Neeleman and Portuguese entrepreneur Humberto Pedrosa. Atlantic Gateway owns 45% of the airline, while 50% is owned by the Portuguese state, and 5% by employees.

It is Mr. Neeleman’s 45% share that is up for sale. Previously, journalists had speculated that there were several companies in the running for the stake, including Air France-KLM and IAG. However, now it is being reported that Lufthansa and United Airlines have already begun negotiations.

Speculation suggests that Mr. Neeleman has experienced conflict with the Portuguese government. It is thought that this was over wanting to list the company on the stock exchange, a move that Costa’s ruling socialist government was strongly against. As such, Neeleman has supposedly taken the decision to pull away from the airline.

An investment in TAP would be a logical step, particularly for Lufthansa. The German carrier is already gaining ground in Brazil, which is the most important international market for TAP, and for a number of Portuguese travellers. American carrier United Airlines has also been rumoured to be attempting to secure a greater footprint in South America.

TAP has had a solid grip on South America for some time. Earlier this year, the airline signed a partnership agreement with carrier Azul to increase connectivity for passengers between Europe and Brazil. Just last week, TAP announced an expanded contract with fellow Star Alliance carrier Avianca also, boosting its network in Latin America even further.

With this in mind, Tap has announced its intention to boost European tourists to Brazil by 200,000. With the backing of Lufthansa and United, it could achieve that sooner than expected.

However, buying into TAP right now looks, on the face of it, like a poor move. The airline has had some highlights over the past few years, but in terms of profits, it’s yet to deliver a good return. This may put the two airlines off.

TAP’s earnings release for 2019 showed that the carrier had experienced a notable uptick in passenger demand. Over the year, it carried 17.1m passengers, an increase of 8.2% year on year. In fact, since 2015, the airline has noted a 60% growth in passenger traffic.

However, despite the boost in passenger traffic, TAP finished the year with a sizeable loss. The carrier reported a €105.6m loss over the course of 2019, although it did report a positive figure for the second half of the year, suggesting things were moving in the right direction.

The impressive upgrades of its long haul fleet, including being the first to fly the ground-breaking A330neo airplane, put TAP in a solid position to perform better in the coming years. Having taken delivery now of 19 A330neos and 14 A320neo family aircraft, the carrier has driven down the average age of its long haul fleet from 15 to just 3.9 years.

As such, the airline’s long haul ops should become noticeably cheaper to operate, thanks to the boost in fuel efficiency offered by the new neo airplanes. Moreover, with its new Avianca codeshare and the might United Airlines and Lufthansa behind it as potential stakeholders, TAP could soar to new heights over the course of the next few years.