Portugal has selected Lufthansa Group to acquire a minority stake in TAP Air Portugal, ending a closely watched privatization contest between two of Europe's largest airline groups.
The German company will initially acquire 44.9% of TAP, with another 5% reserved for the Portuguese airline's employees. Lufthansa could increase its stake to 49.9% if employees do not take up the entire allocation, Prime Minister Luís Montenegro announced on Wednesday.
The transaction could reach €1.2 billion (US$1.4 billion) if Lufthansa acquires the full 49.9% stake. The offer for the initial 44.9% is worth slightly more than €1 billion (US$1.2 billion).
Air France-KLM was the other finalist in the privatization process. Lufthansa's proposal was 16% higher than the competing offer, according to the Portuguese government.
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Portugal will retain majority ownership of TAP after the transaction, which remains subject to regulatory approvals and is expected to be completed in 2028.
Lufthansa keeps TAP within Star Alliance
The selection keeps TAP within Star Alliance, where it has been a member since 2005. Lufthansa Group is one of the alliance's founding members, while Air France-KLM belongs to the rival SkyTeam alliance.
TAP would join a portfolio of airlines in which Lufthansa has built controlling or significant stakes, including Lufthansa, SWISS, Austrian Airlines, Brussels Airlines and ITA Airways.
Portugal evaluated more than the purchase price in selecting a strategic investor. The privatization process included requirements concerning TAP's brand, Lisbon hub, connectivity with Portuguese-speaking markets and the airline's contribution to the country's economy.
Lufthansa's proposal includes plans to develop TAP's network and establish an aviation training center in Portugal.
Brazil network adds strategic value
TAP's position between Europe and Brazil is one of its most distinctive assets. The Portuguese airline operates more destinations in Brazil than any other European carrier, giving Lufthansa Group additional access to a market where European airline groups compete heavily for connecting traffic.
The Portuguese carrier also provides extensive links with Portuguese-speaking countries in Africa and uses Lisbon as its principal connecting hub between Europe, South America and Africa.
Lufthansa had publicly expressed interest in TAP for years and formally entered the latest privatization process alongside Air France-KLM. International Airlines Group, parent of British Airways and Iberia, had previously shown interest but did not submit a final bid.
The Portuguese government has left open the possibility of selling its remaining stake after the initial transaction is completed. Any subsequent privatization would require a separate decision and would not form part of Lufthansa's current acquisition.
