'TAP's terms of reference serve more to the national battle between parties'

As we approach the release of the terms of reference for TAP's partial privatization, aviation expert Pedro Castro analyzes how this deal might unfold and what the government did well or poorly in the process. He also discusses Portela—which he says the government wants to discredit—and the new airport.

How do you view the privatization process of 49.9% of TAP? For private investors, what is planned at this stage is 44.9%, a minority stake. I believe that private investors will give this decision a very negative evaluation for several reasons, the most notable of which are: 1) the lack of coordination and party will for a full privatization, which is completely up in the air; 2) the high risk inherent in sharing this company with this State, because TAP is an electoral pawn in the hands of unions and political parties; 3) the type of governance currently on the table – with this populist and electoralist State enjoying a blocking power on the Board of Directors, this State we have will not hesitate to sideline economic and financial aspects in relation to political maneuvers and shenanigans that are in its own exclusive interest, always using a media-manipulating and difficult-to-refut "cliché" represented by the trapdoor of the "strategic national interest." The strategy of selling only 44.9% to the private sector maximizes the risk of continuing to have an ungovernable company and a minority shareholder trapped in a toxic relationship with its majority 'partner,' who will change his mind every time the government's political affiliation changes. Fernando Medina stated this in an opinion piece, clearly recognizing: "If there's one lesson we can learn from the period of TAP's partial privatization in 2015 leading up to its full nationalization, it's that the coexistence between private and public operators has every chance of failing." It's a shame we're repeating those mistakes.

What could go wrong? Nothing can go terribly wrong, because the government has already said what it's up to: 'If we don't like the proposals, we'll cancel, and there will be no compensation for anyone.' This stance has two effects: 1) it could drive away potential investors who, after evaluating the specifications, might prefer to allocate the resources needed to prepare a proposal to acquire TAP to other projects with greater potential for success; 2) it increases the risk of litigation – if the state thinks it can cancel everything based on any subjective reason without any challenge, it may be mistaken. In addition to the risk of the government canceling the privatization unilaterally, this sale could also be abandoned; or few proposals may be submitted relative to the number of interested parties; or very low bids may be submitted – and this may have nothing to do with the value of TAP's airline business itself, but rather with the format chosen for its sale by the government. The specific case of the 25% sale of the private company Air Europa, which is currently underway, can serve as a guide: one of the interested parties – IAG – was blocked by Brussels due to the high concentration of business it would represent, particularly in Madrid; the other two interested parties – the Air France/KLM group and the Lufthansa Group – withdrew from the race and did not submit any offers. Both groups are very busy with their recent acquisitions – SAS and ITA Airways/Air Baltic, respectively. In the end, only Turkish Airlines remained, submitting the only binding offer – a very small number.

Do these advances and retreats of recent years undermine the credibility of the flag carrier? Not TAP itself. It undermines the credibility of the company's salesperson—these are quite different things. Our state is very fragile and incipient, which is why it still has to resort to third-world principles based on the exercise of its political/partisan power to assert itself. This is evident in multiple aspects of our economy, perhaps most blatant in aviation, as it is such an open, evolved, and competitive business where this type of public control is a thing of the past—even in Greece and Italy, iconic airlines are already museums, without any losses resulting from it… quite the opposite! Ireland, which, to put it mildly, is a sunless, expensive country with poor food and no tourism, gave Europe one of the most expansionist and profitable private airlines in the world. In the same timeframe and under the same market conditions, what has the Portuguese state achieved?! It's the sole shareholder of four airlines, and all of them are a 'bottomless pit,' to use the Prime Minister's expression to describe to the world the company we're trying to sell in this third decade of the 21st century. What undermines credibility is this impression that we're dealing with a very primitive state and a country that neither governs itself nor allows itself to be governed.

We're still waiting for the terms of reference. What can we expect from this? I expect this document to be highly political and, above all, to satisfy the parliamentary debate, with an overwhelmingly radical and archaic majority of parties on this issue. It will be a document that serves more for the national battle—between parties, in Parliament, on social media, and in the media—and less for supporting a serious and technically rational privatization. I expect a drafting that reveals concerns about the domestic and electoral narrative and completely ignores investors—the true beneficiaries of this operation. Legally, I believe the document will contain impositions that clash with European law, namely the imposition of the company's headquarters in Portugal, contradicting the principle of free establishment. The Court of Justice of the European Union already ruled on this same issue in 2021, in the context of TAP. This imposition will be implemented in these terms, but through a different channel: it will be based on the State's blocking majority shareholders and not on what the terms of reference say about it. Portugal insists on these old, imposing formulas to remain attractive, and this is a clear admission of our failure in the European Union, as statistics confirm. Indeed, Portugal is not an attractive country to host anything—neither Jerónimo Martins nor unicorns—because we ignore the new rules of a game we should already be mastering 40 years after joining the EU. Malta, which only joined in 2004, understood this more quickly: it is now a magnet for aircraft registrations and aircraft leasing company headquarters. Portugal, for its part, continues to rely on the strength of public capital to guarantee what should be achieved through competitiveness and attractiveness. Aeronautically speaking, this specification will also include a significant limitation: it imposes the hub model, as if that were a panacea. In a world moving toward decarbonization, with a preference for point-to-point services and operational efficiency, wanting Lisbon to function as a hub for exchanges between flights is, at the very least, debatable. It doesn't serve the country as a whole, it doesn't serve passengers with Portugal as their destination or origin, and above all, it doesn't serve TAP itself. Issues of true governance, such as the imposition of a minimum price for the partial sale of the 'good TAP', will be poorly addressed or simply omitted. Ultimately, this booklet will serve as a mere formal script to set the starting gun. Interested investors want access to critical company information, the commitments made, and the financial reality hidden behind the curtain, which will only be possible once all the seller's formal steps are out in the open, including this final step of the terms of reference.

Are there still any questions to be answered in this reprivatization process? The biggest question concerns the 'remedies' from Brussels and the competition authorities of other jurisdictions that may be called upon to validate this purchase – we have no way of knowing what will be prescribed, as this will depend on the specific case and the specific status of this group's consolidation within the European and global landscape. This doubt has very long deadlines for clarification (which, from now on, jeopardizes the completion of the desired timetable for the transaction), and the Portuguese government will never be the one to clarify these aspects, especially since it exceeds its powers. And it's a good thing that it does, because we would be poor judges in our own case. The extent of the remedies could easily make this deal less attractive to investors, and that's why it's so important to pay close attention to this final phase of the process, assuming there will be binding offers, of course.

Regarding the interested groups: Is there one that would be better for Portugal, or are they all on equal footing? The best thing for Portugal would be to have a state that pursues a public mobility and transportation policy that considers the entire territory—mainland and islands—and all modes of transport—land, sea, and air. Unfortunately, we don't have that: we have a state that, instead of considering public transportation and mobility policy, operates in the market with its own companies that provide poor service, distort market rules, and fail to serve the general public interest—serving private interests, fueling partisan political clientelism, and fueling sterile, ineffective parliamentary philosophical debates. Moreover, all groups potentially interested in TAP will make this massive and risky investment with the same goal: to increase profit margins and maximize the return on their investment, both in terms of revenue and cost synergies. In terms of concrete strategy, each will have a different approach, but the ultimate goal is the same for all.

The future buyer of TAP will manage the airline; however, it is up to the State to appoint directors to the board of directors and have a say in strategic decisions. How do you see this management? I don't know which private sector would accept it: those who buy and invest at this level and on this scale want to be in charge, want the prospect of being in charge, and certainly don't want politics involved. Without a concrete deadline for this type of complicated management to end and without guarantees that the country will one day be governed by minimally reasonable people, I don't know which private sector would want to take this risk.

Now that Marcelo Rebelo de Sousa has authorized the reprivatization, what can we expect from here on out? What I hope from the President is that he remains silent on this matter and that no more stories emerge like the one revealed by the Parliamentary Commission of Inquiry regarding the request to change the Maputo-Lisbon flight to coincide with his schedule, which left a bitter taste in the mouth of any aviation manager. This is yet another example of totally undesirable third-worldism, and I hope it never recurs, not even as anecdotes.

You've even said that 'when they say TAP isn't relevant to the rest of the country, it's true.' Why? TAP represents 16 of the 70 million passengers at our airports. Most of these passengers are on flights to and from Lisbon. About five million of these TAP passengers are in Lisbon by chance: they simply change planes. TAP's importance is entirely based on this Lisbon hub and is a direct result of the business model chosen, that of the Portela hub. The consequence of this choice is precisely this: for the rest of the country, TAP doesn't matter; and in Lisbon, its relevance is replaceable. As is well known, Portela has a waiting list of airlines that want to fly but are unable to because TAP occupies 50% of the available slots... let's imagine if this obstacle were to disappear one day. The most radical example relative to the rest of the country is Faro Airport, the gateway to the region with the most international tourism in the country. Well, TAP carries only 300,000 of the 10 million passengers that pass through Faro – TAP's relevance to the tourism sector, the Algarve's economic engine, is completely negligible. In Funchal, of the more than 100 routes, only two are operated by TAP – with the other two operating on a very seasonal basis. In Porto, TAP ranks a distant third. This is the reality of the numbers, which contrasts radically with the talk and rhetoric of politicians.

Regarding the new airport: you always argued that another one wasn't necessary. Why? Lisbon airport cannot be viewed in isolation, and that was the (In)dependent Technical Commission's most tragic mistake. Lisbon airport must be viewed from the perspective of the country's various airports (mainland and islands). As their connectivity increasingly develops with direct flights and routes to more destinations, they become less dependent on the need to fly 'via' Lisbon, as was the case in the early days of aviation. Air transport must also be evaluated in light of transportation developments. For example, the number of flights from London to Brussels and London to Paris has declined dramatically over the years due to Eurostar. There's no law prohibiting these flights; the market chooses the most efficient and productive means of getting from A to B. In congested airports, this traffic conversion to other modes is essential and is even encouraged by airlines – Air France no longer operates flights between Paris and Brussels, assigning its flight code to the TGV; Austrian Airlines does the same on its Vienna-Salzburg routes; in the United States and Finland, this is done with buses. We also have to imagine what mobility will be like in the coming decades. I'm convinced we'll look at this ritual of wasted hours in airports and on airplanes the same way we would today if someone said they were going to send a work fax instead of an email.

Is this the desire to discredit Portela? That's the only way to sell a project of this magnitude, where many people close to political decision-makers will make a lot of money—imagine the thousands of contracts of all kinds, the land access, the military compensation, and even the creation of a new airport city from scratch. This defies all logic: it's impossible that, given the current state of the country—starting with housing, the railway, or the poor reach of the Lisbon Metro, which doesn't reach where people live, and this is just to name a few portfolios from this same Ministry of Infrastructure—the major national concern is the airport of one of its cities (Lisbon), and what's more, not even from the perspective of serving the local population—it's because of the hub, of one day having 50 million passengers/year changing planes between Europe and Brazil, in a kind of colonial revenge and Tordesillas-style competition with Madrid.

How do you see the works at Portela Airport? First, they should include regulatory compensation for the population: in exchange for increased capacity, a guaranteed enforcement of a total flight ban (landings and takeoffs) between midnight and 6 a.m. This is what happens in several European hubs, such as Frankfurt and Zurich. Second, a clearer incentive to use large aircraft: most airlines can choose to use planes with between 100 and 300 seats. The larger the planes, the fewer flights, which helped balance traffic during the remaining hours of the day. Moreover, some of the announced works are adjusted to the country's actual size, the current distribution of passengers across the various airports, and those recommended for the future, but they are already late. Too late. On the other hand, there are still necessary works that no one talks about because they are less "sexy," such as those related to the cargo terminal or the jet fuel supply system. All of this is a direct consequence of the decision-makers leaving the concessionaire completely at the mercy of the political winds surrounding the new Lisbon airport: it was supposed to be here, then there, and now there, and now there's one, but then there are two, and in the end, maybe three, in a total government cacophony. The result: without knowing the return on investment in Portela, without obtaining the necessary government authorizations due to pure partisan sabotage, and without any long-term perspective, ANA-Vinci merely patched things together, here and there, only what was strictly necessary. What we have today at Portela is not the result of the concessionaire ANA-VINCI's desire to avoid spending money; it is the result of our State being a terrible grantor, which performs its functions very poorly. If I were ANA-Vinci, I would have done exactly the same, even at the risk of being falsely accused of 'guilt' in the media. The biggest culprit is indeed our incompetent State.