SAirGroup has agreed to take a stake in Tap Air Portugal, but a dispute over pilots' pay may jeopardise the Portuguese carrier's fragile profitability and remaining privatisation plans.
As expected, Swissair's parent is to cement its relationship with the Portuguese flag carrier by taking a 20% stake, pending European Union approval by June. SAirGroup's payment of Esc15 billion ($81 million) will be used to boost the carrier's share capital to Esc75 million. This follows similar moves by the Swiss carrier to take equity stakes in other members of its 10-strong European Qualiflyer alliance.
The Portuguese Government, sole owner of TAP, has also agreed to offer Swissair the option of raising its stake in TAP to 30% within the next four years. A further 10% of TAP shares is to be allocated to employees and 9% is either to be floated or sold to other strategic investors, while the state will retain a 51% stake. No dates for these equity sales have been set.
TAP hopes that to benefit from the link with Swissair which has 40%higher yields, says TAP financial director Mario Jose Santos de Matos. The medium term goal is to raise yields by 2% annually for the next three years. Since TAP joined Qualiflyer in April last year, work on improving service quality, harmonising its cabin interiors and fleet with Swissair have been under way. TAP will have an all-Airbus fleet by June next year and, with a merging of ground services with other alliance members, costs are coming down.
The carrier is profitable following a European Commission-monitored restructuring programme and strong traffic growth in the past two years. In 1998 it recorded its second consecutive year of profits - Esc1.6 billion on an operating revenue of Esc155 billion - after 13 years of losses. Weakening yields and tougher competition in its home market, which has shaved 2-3 points off its 51% market share since January, have meant the best the carrier could hope for was a similar profit in 1999, says Santos. But even this modest profit forecast may now be optimistic as long as labour disputes remain unresolved.
TAP faces no immediate resolution to a long-running dispute with its pilots over pay and conditions. Tension reached fever pitch last year when pilots went on strike during the Lisbon Expo' 98 international exhibition, an action which provoked the government to ban the strike.
Anew pilot agreement, recently drafted by a tripartite commission comprising legal representatives appointed by TAP and the Portuguese pilots union APPLA, and overseen by the government, was designed to complete a pay deal agreeable to all. Instead the commission came up with a package that represents a 200% increase - Esc26 billion - in the wage bill for the 450 pilots, says Santos de Matos. Commenting that the results were "absolutely unexpected", he says that the dispute "introduces a delay in the privatisation process and the value of the company could be affected significantly". Santos de Matos adds that "troubles will take place in the near future."
APPLA suggests that the airline is exaggerating the cost of the deal and says it should stick by its commitment to abide by the arbiter's decision, adding that if it does, pilots will allow a phased implementation of the agreement. If it does not, pilots say they are ready to strike. The question has added urgency because the pilots' current agreement was to expire at the end of April.
Meanwhile, sources at TAP say ongoing discussions between the US and Portuguese governments could lead to the signing of a more liberal transatlantic bilateral between the two countries by the end of the year.
Source: Airline Business
