Portugal picks Lufthansa over Air France-KLM for TAP stake in €1.2 billion first-phase sale

Portugal will sell up to 49.9% of TAP Air Portugal to Lufthansa for €1.201 billion, the government said Wednesday, picking the German group over Air France-KLM because its offer was larger and, unlike its rival's, included no payment that depended on the airline's future results.

A fixed price beat a conditional one

Portugal's government on Wednesday, Oct. 14, chose Lufthansa over Air France-KLM as the buyer of a 44.9% stake in TAP Air Portugal, ending a two-bidder contest for one of Europe's last independent flag carriers. The Council of Ministers approved the sale on Wednesday, and the government said the first phase will bring in €1.201 billion, a figure that includes a further 5% tranche reserved for TAP employees that Lufthansa can take up if staff do not exercise their right to buy it. The state keeps 50.1%.

The government said the two final offers were similar on the industrial plan and contract terms, so the decision came down to money and certainty. Lufthansa's offer was up to 16% higher, and none of it depended on future results. A breakdown from the government's presentation, published by Portuguese business outlet ECO, shows Lufthansa offering a reference price of €1.025 billion for the 44.9% stake, against €850 million from Air France-KLM. The French-Dutch group offered more in timing adjustments, which cover the wait until closing and the effect of selling the ground-handling and catering units that TAP's EU restructuring plan required: €86 million to Lufthansa's €58 million. For the employee tranche, Lufthansa offered €118 million and Air France-KLM €102 million.

That left Air France-KLM at €1.038 billion, or €163 million short. It had added a €100 million earn-out, payable only if TAP reached 2028 EBITDA of at least €1.036 billion with net financial debt of no more than €2.9 billion. Even if that were paid in full, the government calculated that Lufthansa's offer would still be €63 million, or about 6%, higher.

The state keeps control, Lufthansa runs the airline

Selling a minority first was deliberate: the government said it designed the process to maximize the control premium it can collect later. The state keeps a majority of TAP's capital and names five of the nine board members, including the chair. Lufthansa will be responsible for executive and operational management, Prime Minister Luís Montenegro said after the cabinet meeting. It will name three executive directors, and the state will name one.

Both bidders had accepted the conditions the government treated as essential: keeping the TAP brand and headquarters, strengthening the Lisbon hub, keeping flights to Portugal's Atlantic islands and keeping labor relations stable. On top of that, Lufthansa's plan bases eight aircraft at Porto and, according to the government, grows TAP's fleet to 117 aircraft by 2035 and 130 after that, which officials put at €3 billion to €4 billion of fleet investment, with up to eight Airbus A350-900s moving to TAP after 2030. The government also cited roughly €300 million of investment and 700 jobs at a Lufthansa Technik maintenance site in Santa Maria da Feira, near Porto.

For Lufthansa, TAP would be the next step in a strategy of buying national carriers while keeping their brands. When it filed its bid in July, the group pointed to SWISS, Austrian Airlines, Brussels Airlines and ITA Airways as examples, and chief executive Carsten Spohr said he wanted to make TAP the leading airline for the South Atlantic, with Lisbon as a strategic hub. TAP is already a Star Alliance partner of Lufthansa. Air France-KLM had offered to make Lisbon its exclusive southern European hub, with backing from Delta Air Lines and the SkyTeam alliance.

A second phase valued at €2.552 billion

Both bidders also made firm offers for a majority of TAP, which the government says would be sold later in a separate process. Lufthansa's majority offer would bring in another €1.351 billion: €863 million in cash and €488 million in Lufthansa shares, equal to about 5% of the combined group. That would make the Portuguese state Lufthansa's second-largest shareholder, behind Kühne Aviation, which holds about 20% of Lufthansa. Together, the two phases value TAP at €2.552 billion.

The government says that equals 6.4 times TAP's 2025 EBITDA, and it compared that multiple with the 3.6 times it says Apollo paid for easyJet. It also said independent valuations made in 2023 ranged from €700 million to €1.7 billion. The government argues that the stake swap and future dividends could eventually let taxpayers recover the €3.2 billion the state put into TAP over the past decade, but that depends on Lufthansa's share price and on the second phase happening.

What still has to happen

The deal is not done. Contracts still have to be signed, and the sale needs approval from the European Commission and Portugal's civil aviation authority. The government expects to complete it by early 2028. Finance Minister Joaquim Miranda Sarmento had said last week that the process would take 18 to 24 months.

Brussels has set conditions on a deal like this before. When Lufthansa bought into ITA Airways, the European Commission cleared it in July 2024 only after an in-depth investigation, and only on condition that Lufthansa and Italy's finance ministry carry out remedies they offered on some short-haul and long-haul routes and on slots at Milan Linate. TAP's review will test how much overlap regulators see between a Lisbon hub focused on the South Atlantic and Lufthansa's hubs in central Europe.