TAP CEO Sees Difficult Regulatory Approval Processes For Lufthansa Deal

MEXICO CITY—The selection of Lufthansa to take a stake in TAP Air Portugal has made TAP’s CEO very happy, but he warns that the difficult part of bringing the two airlines together lies ahead as they seek regulatory approvals.

The Portuguese government announced on Oct. 14 that Lufthansa’s bid for an initial minority stake in TAP had been accepted. Air France-KLM and Lufthansa Group were the final remaining bidders after other companies, including International Airlines Group, withdrew.

However, the Lufthansa-TAP deal must still be approved by regulators in the European Commission, Brazil and the U.S.

Speaking at the ALTA AGM & Airline Leaders Forum in Mexico City on Monday, TAP CEO Luís Rodrigues admitted he did not know how the processes would work or how long it would take to gain approvals. But he acknowledged that the EC process would be “very complex” and that regulators would examine the deal “route by route.”

“We are not part of the process other than providing the information they want,” he said.

For now, he compared the deal to a new marriage. “Like any marriage, I think you only see beauty to start with and that’s what is happening so far. But I think we have to be pragmatic and what you will see next will be the regulatory phase and that will not be about beauty.”

Rodrigues said he was “very happy” with the decision, pointing out that Lufthansa Group’s most recent stake in another European airline, ITA Airways of Italy, had cultural synergies.

“[Lufthansa] was a very good choice; we just now have to be sure of the execution,” he said.

Lufthansa Group will initially buy 44.9% of TAP as part of TAP’s privatization process. Lufthansa said it had offered €1.025 billion ($1.150 billion) for that stake, which could increase to 49.9% for €1.2 billion, because of an up to 5% of shares initially offered to employees along with a financial fee.

The Portuguese carrier was particularly attractive because of its long connection with the fast-growing South American market, especially Brazil. But recent plans by the Brazilian government to implement a tax reform modernization program in 2027 that some say could add a roughly 26% tariff onto visiting tourist costs are raising concerns.

“We were very much surprised when this discussion started in Brazil, because Brazil has so much growth opportunity,” Rodrigues said. “People have asked me, ‘when will you go east?’ And I have said, ‘never,’ because the potential to grow in Brazil is huge; almost unimaginable. I thought, they are going to make the same mistakes we have made in Europe. If Brazil thinks they can set up a 26% tariff and get away with it, the answer is that the reaction by other countries will be huge. Brazil has a lot to gain by not taxing tourists. There’s room to grow for everyone … I hope [the tariff] will never happen.”