Tuesday, 5 February 2013

Interview: Fernando Pinto, TAP Portugal CEO

Synergy still front-runner for TAP privatisation: Pinto

TAP Portugal chief executive Fernando Pinto says he is confident that Synergy Group, the parent of Avianca-Taca, will resubmit its bid for the Portuguese flag carrier when the privatisation process resumes. But he adds that British Airways parent IAG "might" also rekindle its interest now the Eurozone crisis has abated.

The Portuguese government rejected Synergy's bid in December 2012, citing concerns about financial guarantees. The Brazilian conglomerate had been the sole bidder, after IAG and Lufthansa withdrew their early expressions of interest.

Pinto says that in principle the government had accepted Synergy's offer - comprising a down payment of €35 million ($47.5 million) plus a €315 million investment - but that "fine details on the actual paperwork" had ultimately scuppered the deal. "It was a matter of timing, and a matter of having the correct paperwork," he explains.

TAP has outstanding debts of €1.2 billion, which according to Pinto are being amortised at a rate of about €100 million per year.

"The banks that were helping the government on the separation said the guarantees are not all there," he says, acknowledging that the rejection was seen as "controversial" in some quarters. Singling out provisos in Synergy's letter-of-intent that stated "subject to final approval by the bank board", Pinto says the government was "not comfortable" with the wording.

But he reiterates that Synergy remains "almost a perfect fit" for Portugal's flag carrier. With the government expected to restart the privatisation "very soon" - most likely this year, though potentially in early 2014 - he says it remains the front-runner in the process.

"They are still a potential buyer, of course," Pinto confirms. "They're very interested. They will definitely come back and correct some of the issues that were indicated to be a problem." Describing TAP's European network and Avianca-Taca's South American footprint as complementary, he insists: "It makes sense for them and for us."

However, Pinto says he would not be surprised if IAG - which is also the parent of Spanish flag carrier Iberia - re-enters the process. IAG had previously been considered a prime candidate for the privatisation, but it withdrew its interest in May 2012 as the Eurozone crisis took hold and unions moved to obstruct restructuring efforts at Iberia.

"Part of the reason that they did not advance strongly was because of problems they were having with Iberia," Pinto notes. "They had to solve those problems. But maybe when we restart the process they could be ready. My view is that, strategically, we are a good fit for IAG too, because of our importance in terms of traffic into Brazil and Africa. A lot of it is complementary.

"I haven't talked directly with them because I couldn't - this kind of negotiation was not allowed in the middle of the process [involving Synergy]. But what I'm saying is that they might come back."

Synergy did not immediately respond to a request for comment. A spokesperson for IAG told Flightglobal that it "withdrew from the TAP privatisation process last year, and our position has not changed since then".

Asked about the prospect of investment by one of the Gulf carriers, Pinto says that although "some of them" analysed the privatisation documents, things did not progress any further. He adds that while TAP's South American services would be attractive to a Gulf partner, the resultant "two-hub distribution" model might not be optimal. "Their normal strategy is to go through one hub only," he notes.

Turning to TAP's corporate structure, Pinto says the government is still deciding whether to bundle all its subsidiaries into the privatisation process.

"They are looking at two possibilities," he confirms. "One is selling parts of the group separately, and then selling a percentage of the airline itself. And the other is the same model as last time - selling the whole thing."

Insisting that TAP's numerous subsidiaries are "all in good shape", Pinto singles out ground handling firm Groundforce as having turned around recent difficulties. Duty-free sales firm Lojas Francas is also performing "very well", he says, while Brazilian maintenance offshoot VEM is on-track to break even in 2015. VEM grew sales by 20% last year and is targeting 50% growth in the first quarter of 2013.

The Portuguese government had said last year that it will cap the shareholding of non-European investors in TAP at 49.9%, but Synergy chairman Germán Efromovich is believed to have circumvented that ceiling by obtaining a Polish passport based on his ancestry.

Portugal agreed to sell off several state-owned companies in 2011 as a precondition for its €78 billion bail-out package from the European Union and the International Monetary Fund.

TAP adding one aircraft per year ahead of A350 arrival

TAP Portugal will take delivery of one aircraft per year in the run-up to the arrival of its first Airbus A350 in 2017, chief executive Fernando Pinto tells Flightglobal.

"We're talking about adding one aeroplane every year," he confirms. "Three widebodies and two narrowbodies. But this is just our plan, and we can adjust it."

TAP operates an all-Airbus fleet of 55 aircraft, comprising 39 A320-family aircraft, 12 A330s and four A340s.

The new widebody aircraft will be A330s, Pinto says. TAP's existing A340s will then likely be phased out after the first unit from its 12-aircraft A350 order arrives in 2017.

Pinto says TAP was able to continue growing throughout the Eurozone crisis, propelled by growth in Brazilian and African markets as well as "traditional destinations like France, Germany and England".

Though the economic downturn resulted in a 3% reduction in domestic sales over the past two years, he says "we kept growing" across the rest of the network.

Traffic increased by 4.8% in the 2012 financial year to 31 December, outpacing capacity growth of 4.1% and pushing load factor up by 0.5 percentage points to 76.8%.

TAP eyes China, Japan for first A350 routes

TAP Portugal will look to deploy its upcoming Airbus A350s on new routes to China and Japan when they start arriving in 2017, chief executive Fernando Pinto says.

The Portuguese flag carrier has not served any Asian destinations since 1999, but Pinto says "historic ties" with Japan as well as "the volume and quality" of traffic into and out of Beijing makes both markets attractive to TAP.

"These two [China and Japan] are very important," he tells Flightglobal. "We will expand into Asia when we have the A350s. But for now it would be very hard with the A340s."

TAP's route network also includes a heavy focus on former Portuguese colonies in west Africa, and Pinto says the airline continues to explore new opportunities for growth across all sub-regions on the continent.

"We keep studying Africa and keeping growing in Africa, including destinations where the Portuguese have never been [colonially]," he says. "There are a lot of relationships with construction companies, and commerce and so on. Our strategy to Africa has been working very well."

Though TAP operates extensively to Brazil, its only other South American market is Venezuela. "We could look at one or two more countries in South America, definitely, or even in central America," Pinto says.

But the airline will first wait for clarity from the government about its stalled privatisation process, as Bogota-based Synergy Group, the parent of Avianca-Taca, is expected to re-submit a bid.

TAP has no plans to expand in North America beyond its existing services to Miami and New York, Pinto says, but he stresses that its partnerships with United Airlines and US Airways have worked "very well".