Analysis-BA owner IAG seen as frontrunner to sell TAP as European airline consolidation heats up Reuters

Joanna Plucinska, Sergio Goncalves and Andres Gonzalez

DUBLIN (Reuters) – IAG, the owner of British Airways, is likely to be the favorite to buy a stake in Portuguese carrier TAP, valued at around $1 billion, bankers and analysts said, marking the next stage in the consolidation of the European market.

Aviation executives highlighted at the Airline Economics financial conference in Dublin last week the need for consolidation in the industry as it struggles with high costs and a price-conscious consumer base. They said it would also help carriers compete more effectively with US, Gulf and Asian rivals.

The heads of Europe’s major airlines hope that the Portuguese government will soon begin formal talks on selling either a minority or a majority stake in the national carrier.

A spokesman for Portugal’s infrastructure ministry, which is overseeing the sale, said: “The government is still listening, assessing market interest… but the sale will take place this year.”

Figures from airline industry analyst Cirium presented in Dublin show that 36 European airlines account for 80% of the continent’s capacity, compared with six in the United States.

Major regional carriers IAG, Air France-KLM and Lufthansa have expressed interest in a possible purchase of TAP, hoping to gain access to the lucrative South American market and build a new hub for southern Europe.

A banker familiar with the deal said IAG, which owns Iberia and Aer Lingus, is the keenest and possibly strongest candidate to do a deal with TAP, and analysts point to its success with Iberia in Madrid as a good starting point for a southern European multihub base.

Lufthansa has also spent time lobbying government officials in Lisbon as it seeks to expand its presence in southern Europe after buying a stake in Italy’s ITA Airways.

Lufthansa declined to comment.

Jonathan Sullivan, chief corporate development officer at IAG, told reporters in Dublin that the group is not ruling out taking a minority stake that would also provide “a path to a majority stake”, Portuguese news site Observador reported last week.

Asked by Reuters about IAG’s interest in selling TAP, IAG said Sullivan also stressed that TAP would remain “a proudly Portuguese company, just as Aer Lingus is proudly Irish and British Airways is proudly British”.

Analysts say this could prove to be an important element in IAG’s potential success – retaining the carrier’s national identity is important to Portuguese government officials.

British Airways’ merger with Iberia in 2011 to form IAG is thought to have largely preserved the carrier’s Spanish identity.

POLITICAL TURBULENCE

Political upheaval in Portugal and regulatory scrutiny have raised concerns that the talks could face further delays.

“The timeline seems to be slipping a bit again and it could happen as early as 2026,” said Dudley Shanley, Goodbody aviation analyst.

The previous socialist administration in Portugal approved the privatization of at least 51% of TAP in September 2023, but the sale did not take off as the country held snap elections in March 2024.

Portuguese Prime Minister Luis Montenegro, who had previously insisted on the full privatization of TAP, signaled in October that a partial sale was a possibility, after the opposition expressed concerns about a full sale.

If a minority stake of just under 20 percent is sold, Portuguese authorities would avoid an assessment of the transaction by EU competition regulators in Brussels.

Airline executives point to the Portuguese government’s indecision and EU regulators as key obstacles to further airline consolidation.

The last big deal – the sale of a stake in the Italian carrier ITA Lufthansa – took more than a year of wrangling with Brussels over concessions. In the end, Lufthansa had to give up slots at major airports such as Milan’s Linate in order to gain approval.

Also, the concerns of the European Commission eventually prompted IAG to abandon the takeover of Air Europa, in which it has a 20% stake.

IAG’s ownership of Iberia could lead to similar competition challenges in the bidding process for TAP, analysts say. This could force it to offer major concessions as Lufthansa did in its ITA agreement.