TAP Air Portugal's Airbus order will face close scrutiny from the European Commission with the carrier planning a 10 per cent increase in capacity after the end of its restructuring programme in 1997. The Commission's authorisation of US$1.1 billion state aid package in 1994 included limits on its European capacity growth.

The airline is to acquire 22 Airbus narrowbodies, by buying 18 A319s (five of which can be converted to A320s) and leasing four A319s, reportedly from ILFC. Deliveries are due to start in in December 1997 and run to June 2000. The aircraft will replace TAP's eight B737-200s and eight B737-300s. The airline has also sold its two remaining L.1011s which have been replaced by A340s.

While the Commission has cleared the order, informed sources say the carrier will continue to be monitored. The state aid approval came on condition of a 9.5 per cent cut in TAP's capacity between 1993 and 1997 and the first A319 deliveries will take it slightly over this threshold.

TAP says it believes the fleet renewal meets all conditions and confirms it will not seek government guarantees to finance the new aircraft. However, one Lisbon-based banker says the Portuguese government may provide a further capital injection after 1997. Its last authorised payment of $330 million is due next year. The source says an application will be made next year with the state arguing the funding is not state aid.

Francisco Bordalo, commercial director at Portugalia, says the independent would be likely to lodge a complaint if TAP seeks a second injection. 'We wouldn't view a second tranche with such understanding,' he says.

Doug Cameron

Source: Airline Business