TAP secures EC nod for €462mn in additional state aid

The European Commission has green-lighted another EUR462 million euros (USD556.6 million) in Portuguese state support for TAP Air Portugal (TP, Lisbon) in compensation for losses sustained between March 19 and June 30, 2020, due to COVID-19 travel restrictions. The EC in a statement said the assistance, approved under European Union state aid rules, would take the form of a loan that may be converted into capital and will be disbursed to TAP in one or several instalments. In order to ensure that there will be no overcompensation, Portugal, by September 2021, will review and report back to the commission on the amount of actual damage suffered, following independent verification based on the company’s audited accounts. Any public support received by TAP in excess of the actual damage will have to be returned to Portugal. This followed EC approval on June 10, 2020, of EUR1.2 billion (USD1.4 billion) in Portuguese state aid to TAP, received between July 17 December 31, 2020. In exchange the Portuguese government acquired 22.5%, now owning 72.5% of holding company TAP SGPS. The rescue aid, in the form of an interest-bearing loan and loan guarantees, secured TAP’s immediate liquidity needs while the airline prepared its long-term viability plan. In exchange, the government submitted a restructuring plan for TAP to the EC within six months on December 10, 2020, which the EC is currently reviewing under a separate procedure. “We continue being in close and constructive contact with the Portuguese authorities in this context,” said EC Executive Vice-President Margrethe Vestager in charge of competition policy. The state aid boosted TAP’s cash position to EUR518.8 million (USD625 million) at the end of 2020, compared to EUR426.3 million (USD513.6 million) on December 31, 2019, according to the airline’s 4Q20 and FY2020 results. Accordingly, the TAP Group aims to reduce its fleet to 88 aircraft at the end of 2021, a reduction of 8% but still higher than the 75 aircraft that made up its fleet in 2015. Operational savings of EUR1.3 billion (USD1.5 billion) are expected by 2025, arising from fleet-related negotiations, as well as savings of EUR200 million (USD240 million) to EUR225 million (USD271 million) in 2025, when compared to 2019, in negotiations with other operational suppliers. Meanwhile, according to the airline 2020 Management Report and Consolidated Accounts, more than 65% of TAP’s gross financial debt will only be amortized from 2024 onward. Due to the pandemic and the consequent deterioration of EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortisation, and Restructuring), the TAP Group failed to comply with certain financial covenants, namely those related to the maintenance of equity and the compliance with the Adjusted Net Debt/EBITDAR ratio as fixed in certain borrowings.