Barry Cross/LONDON

Behind the scenes manoeuvring by the Portuguese Government has effectively made it impossible for the SAir Group to fulfil an agreement to buy a 42% stake in Lisbon-based regional carrier Portugália.

A deal between the two airlines was signed on 8 June 1999, nine months before the Swiss group was invited to become a strategic investor in national flag carrier TAP, in which it took a 32% stake in February this year. However, it was only in May that the Portuguese Government decided to refer the sale to the European Commission for approval, a move which company chairman Joïo Ribeiro da Fonseca later labelled as "shameful".

With both TAP and Portugália operating as part of the Qualiflyer group, there seemed little doubt that the EC would refuse to approve the deal on the grounds of an effective monopoly of service provision on several key routes. On 11 August, SAir said it was severing its links with Portugália given that its stake in the carrier could no longer be considered valid. On the same day, two other new shareholders, Partest and Caixa Geral de Depósitos, which both have government financial involvement, followed suit, with Banco Commercial Portugues subsequently confirming its own decision not to buy an earlier agreed 9% stake.

The incumbent majority shareholder, the Espirito Santo bank (GES) is threatening legal action against the government, while Ribeira da Fonseca talks about two years' work having been wasted.

Both Lufthansa and Air France have come forward as possible new equity partners. However, analysts believe that the presence of more than half a million Portuguese workers in Paris sways the balance in favour of Air France, which many believe is a far better strategic partner for TAP than Sair.

Source: Airline Business