IAG now frontrunner in the race to buy stake in TAP Air Portugal say analysts

With the long-awaited and rather convoluted takeover of ITA Airways by Lufthansa now a done deal, one could be forgiven for thinking that airline consolidation in Europe is over for now. But with the Portuguese Government still teeing up the sale of a majority or minority stake in its national carrier TAP Air Portugal (TAP) sometime in 2025, the jostling for dominance among the continent’s largest airline groups is far from over.

According to airline analysts, with Lufthansa executives now having their hands full with figuring out how best to integrate ITA Airways into the Lufthansa Group fold, International Airline Group (IAG), the owner of British Airways, Iberia, LEVEL, and Aer Lingus, is now seen as the frontrunner in the bidding war to take control of the Portuguese carrier.

TAP, currently valued at approximately $1 billion, would be an attractive and complimentary addition to the IAG group of airlines. With Iberia, Vueling, and Barcelona-based LEVEL already bringing significant traffic to the group, the addition of another strong Iberian Peninsula carrier could strengthen IAG’s presence across the Atlantic, particularly in the burgeoning market of Brazil, where traffic numbers to European destinations have been soaring since the end of the pandemic.

Europe’s airline executives have been keeping a watchful eye open for any movement from the Portuguese Government that might indicate that the sale of TAP is on. Hopes are high that a sale could be back on the table for some time in 2025.

SvedOliver / ShutterstockWhile the retention of the TAP brand is considered by many to be of paramount importance to the current owners of TAP, they will also be aware of the need for further consolidation of the European airline industry as it contends with rising costs, a price-sensitive customer base, and possibly most importantly, the rising competitive proposition being posed by expanding US carriers and the ‘Big Three’ Gulf carriers, Qatar Airways, Emirates, and Etihad, plus the challenge being presented by a soaring Turkish Airlines.

Consolidation gathers pace

Over recent years, European consolidation has gathered pace with a few key players now accounting for the vast majority of air traffic to and from, as well as within, Europe. Air France-KLM led the way (with low-cost subsidiaries Transavia and Transavia France), with the Lufthansa Group becoming a dominant force having brought ITA Airways under its umbrella of companies that includes Brussels Airlines,  SWISS, Austrian, and Discover, among others.

IAG could therefore be thought to be falling behind in the race for European domination, and executives at IAG will be well aware of this. Hence, why the acquisition of at least part of TAP would give the Group a better foothold in the western end of Europe which could provide a springboard for expansive growth across South American markets, a region thought to be one of the ones with most growth potential in the coming years.

IAGWhile the Lufthansa Group has long since had its hat in the ring for any potential stake in TAP that may be made available, analysts are thought to be favoring an IAG-led bid as the most likely to succeed. While IAG posted profits of $2.1 billion for Q3 of 2024, the German-based airline group has faced several issues over the past two years and continues to grapple with its cost base, improving efficiency and restrictions to growing its fleet and expansion caused by manufacturer delays. Air France-KLM has also expressed an interest in a possible TAP stake in the past.

The sale of TAP has also become something of a political football in recent times, with the sale becoming an on-off affair for the past twelve months. Political upheaval in Portugal, the sacking of TAP’s former CEO, and increased regulatory scrutiny have all combined to raise concerns that sale talks could face further delay. In September 2023, the previous Socialist administration in Portugal approved the privatization of at least 51% of TAP. However, this plan was scuppered due to a snap general election being called in March 2024.

However, Portugal’s new Prime Minister Luis Montenegro, who had previously insisted on the total privatization of TAP, intimated in October 2024 that a partial sale was now a possibility after the opposition parties expressed concerns about a total sale and the loss of TAP’s Portuguese identity. Should a minority stake of just under 20% be sold, the Portuguese authorities would also avoid the deal drawing the attention of EU competition authorities in Brussels, which could delay any potential deal by months, if not, years.

John Gress Media Inc / ShutterstockHowever, even if IAG were to prove to be the winning bidder, it is considered likely that the Group would be forced to accept a raft of concessions for any deal to go ahead, just as Lufthansa did in its ITA deal. Such punitive concessions have led to the downfall of takeover talks in the past, as in the case of the proposed deal involving IAG’s full takeover of Air Europa in August 2024, in which it holds a limited 20% stake.

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