Barry Cross LONDON

Following two and a half years of labour unrest, TAP Air Portugal has signed an agreement with pilots' union (SPAC). As part of the new deal, all employees will now receive previously agreed increases of 3% for both 1998 and 1999.

The pilots' working week will drop from 50h to 48h, but the daily hours will vary in accordance with the length of the flight involved. Accompanying productivity gains will be rewarded with 10%-20% of the total capital of a revamped TAP, which is to be divided eventually into three segments: transport, maintenance and ground handling.

The agreement mirrors the recommendations of the arbitration committee on pay, with just a few minor salary adjustments. Whereas Portuguese flag carrier TAP had claimed that this would add Esc26 billion ($157 million)to the salary bill, thereby making the company unviable, a newly appointed management team points out that only an additional Esc1.25 billion will have to be found, an increase for this year of just 1.8%.

The SAirGroup has resumed exploratory talks with TAP about taking a 20% stake. However, TAP's earlier valuation of Esc70 billion is expected to be negotiated downwards, with Swissair apparently willing to pay just Esc10 billion, valuing TAP at Esc50 billion.

TAP is going through one of its worst- ever periods, accruing vast losses, according to president Norberto Pilar. Industry sources claim that first half operational revenue was down by 9% on last year and is 15.8% under budget.

Attributing the serious financial situation in part to the cyclical downturn in the European aviation market, Pilar also blames "structural problems" within the company, "an incorrect pricing policy" and the "degradation of TAP's product" following its integration into the Qualiflyer sales structure.

The Modernisation and Recuperation Plan being implemented will need the "total self-denial of all employees" as TAP passes through "a worrying moment that is without parallel" in the company's recent history, says Pilar.

Promotions will be reeled in, with TAP concentrating on trunk routes and increasing direct long-haul flights. A resurrection of the codesharing agreement which TAP formerly had with Portugália, the domestic carrier in which Swissair has recently acquired a 49% stake, could also be on the cards.

Source: Airline Business