TAP Portugal has got approval for a Covid aid package from the European Commission. The government-backed package will compensate TAP for the financial damage directly caused by the Covid-crisis between March 19-June 30, 2020. It is additional to the state aid received last year under the TAP restructuring plan. However, this plan continues to be under assessment in Brussels, EU-Commissioner Margrethe Vestager said on April 23.
The EUR 462 million in state aid will be provided as a loan to TAP under the EU compensation scheme for Covid damages. The loan may be converted into equity and disbursed by the company in one or several installments, the EC says. By September, the government has to report back to Brussels how the airline has actually suffered financially, based on independent verification of the audited accounts. If TAP is deemed to have been overcompensated by the Portuguese state, it will have to refund the excessive support. For now, the EC has ruled that the compensation seems to have been directly linked to the effects of the Covid-crisis.
Jury still out on restructuring plan
TAP might have got approval for the Covid aid package, but it is awaiting a final ruling from Brussels for the restructuring plan that lays the foundation for a smaller and leaner airline. It received initial EC backing in June 2020 but the final version was submitted only on December 10. The plan includes EUR 1.2 billion in state loans and loan guarantees that were received on December 31, giving the government an additional 22.5 percent share in TAP SGPS holding or 72.5 percent in total. The loan has pushed net debts of TAP up to EUR 2.071 billion.
The plan called TAP 3.0 is built on four pillars: the restructuring of the group’s balance sheet by 2023, the adjustment of capacity including rightsizing of the fleet and network, the reduction/improvement of operating costs by EUR 1.3 billion in 2025, and the enhancement of revenues. TAP has the support from fourteen unions for so-called emergency agreements to execute the plan, which will save 750 jobs. However, between 490 and 600 jobs will be reduced, which comes on top of some 690 staff that have accepted voluntary lay-off. Last December, the airline said it will reduce staff numbers from 10.000 to 8.000. The fleet will be reduced from 96 aircraft by late December to 88 by the end of 2021.
Graphic illustrating the elements of the TAP restructuring plan. (TAP Portugal)
EC-approval of the plan is instrumental to the future of TAP, as the management says in the financial statements for 2020. The need for additional funding isn’t ruled out, depending on how it recovers from the Covid-crisis. “The factors described above, considering the potential impact on the air transport sector and on the future operational activity of the Group, may lead to the need to obtain additional financial resources in relation to those estimated in the Restructuring Plan that may be approved, which represents a material uncertainty that may cast doubt on the Group’s ability to maintain the continuity of its business.”
“Nevertheless, and taking into consideration the base scenario considered in the projections embedded in the Restructuring Plan approved by the Board of Directors in December 2020, and the expectation regarding its approval by the European Commission, the Board of Directors believes that the continuity of the business and liquidity of TAP Group is assured, based on the financing of the estimated cash requirements, on this date, for the period of twelve months.”
Net loss 2020 EUR -1.230 billion
On April 23, TAP reported a EUR -1.230 billion net loss for 2020 compared to EUR -95.6 million in 2019. The operating loss was EUR-964.8 million versus a positive EUR 47.2 million. Total operating revenues were EUR 1.060 billion, down from EUR 3.298 billion. Passenger revenues were 70.9 percent down on last year, passengers carried 72.9 percent. Between April and June, so the period for which Brussels has approved state aid, capacity was at -98 percent. Cargo revenues were down -8.5 percent, so TAP hasn’t been able to benefit from higher yields in the cargo market despite operating numerous special (medical) flights. In February this year, TAP again had to suspend 93 percent of its operations as travel restrictions hit most of the markets it served. It continued a skeleton domestic and international network.
While taking delivery of seven new Airbus aircraft, the net size of the fleet went down by nine as sixteen older Airbus’ were retired or converted to full-freighters (two A330-200s). Of the fleet, 57 percent are A320/A321neo’s or A330neo’s. The airline wants to benefit from the capabilities of its six A321LRs by using them to the max in the current weak market.
Deliveries of fifteen A320neo-family aircraft have been deferred, with some to this year but others from 2021-2022 to 2025-2027. Two A330-900s have been deferred from 2022 to 2024. TAP has also renegotiated with all lessors about rent payments and maintenance reserves.
