BARRY CROSS LONDON Following months of delay, the SAirGroup has finally purchased a stake in financially troubled Portuguese flag carrier TAP Air Portugal.

The size of SAir's holding - 39% - is much larger than the previously mooted 20% stake that the Swiss negotiated in the summer, reflecting the parlous financial state in which Air Portugal had found itself. Had the desperately needed cash injection not taken place at the start of February, TAP's 8,800 workforce may not have been paid in March.

A new holding company, TAP SGPS, will be set up, in which SAir will initially hold 34%, later increasing its stake to 39%. Another 10% of the equity will be allocated to the workforce in return for agreed productivity gains, while the remaining 51% will be retained by the Portuguese state. SAir has agreed to pay Escudos 30.9 billion ($150 million) for its initial holding.

SAir will nominate three of the seven board members, but will hold an effective veto over all future strategic decisions. In line with the Portuguese government's stated intention of maintaining the essential national character of TAP, however, the holding company's first president will be Portuguese.

Organised labour in Portugal lays the blame for last year's Escudos 23 billion loss on the decision by TAP to enter the Qualiflyer alliance grouping, led by SAir carrier Swissair. However, a report into alliance options prepared for the airline's management by consultants McKinsey, identified Qualiflyer as the favourite, calculating expected annual benefits of at least Escudos 4.5 billion for TAP.

Nevertheless, TAP president Norberto Pilar admits the experience of operating as part of Qualiflyer in 1999 "was not a great success", although he emphasises this is not the main reason why TAP has performed so badly. Operational issues involving pilots, inadequate incentives to travel agents and the introduction of a new reservations system are all viewed as worse problems.

The McKinsey report says that up to Escudos 1.7 billion a year would be saved by integrating TAP's route network with that of fellow Qualiflyer member, Portugália. The report also says Swissair could switch capacity away from South Atlantic routes, where TAP is particularly active, and its partner Sabena could abandon parallel services to Cape Verde.

Source: Airline Business