TAP Portugal privatisation hits turbulence with pilot strike

A 10-day strike by pilots at TAP Portugal, a plunge into losses and sky-high debt have steered the airline, and the government's plans to sell it to private investors, into turbulence.

With investors required to submit offers by Friday, even Prime Minister Pedro Passos Coelho has recognised that the strike -- the longest at the airline in four decades -- threatens to derail his government's second attempt in three years to privatise the airline.

"If the privatisation doesn't take place, the alternative is a restructuring that will certainly include job cuts and a reduction in routes served," he said this past week, in a thinly-veiled warning to the striking pilots.

This is not where Coelho hoped TAP would be when the sale of a 66 percent stake in the airline was launched in November last year.

Coelho's centre-right government had hoped the privatisation of TAP in June would provide a small boost to government coffers, which have been under stress as the country pursued austerity policies under an international bailout programme, and so help its chances of reelection this year.

Four groups of investors were circling TAP, which boasts the most connections with Brazil of any European airline and had been flying high after a 42-percent jump in net profit in 2013 to 34 million euros ($38 million).

But the airline then posted a net loss of 46 million euros for last year due to delays of new planes and repeated strikes. TAP is also short of cash and is weighed down by a debt of over a billion euros.

- 'Everyone' against the strikes -

And then TAP's pilots went on strike on May 1 for ten days.

Portugal is no stranger to strikes. Coelho's government faced numerous stoppages after it embarked on a major belt-tightening plan, slashing public sector salaries and jobs as well has increasing work hours under a three-year, 78-billion euro EU-IMF bailout programme that ended last year.

But this strike is different as most Portugese have little sympathy for the pilots, who are seen as being too well off and harming others with their action.

"When they are on strike the pilots aren't thinking of Portugese who are earning 500 to 600 euros per month washing dishes or waiting on tables in a restaurant. They need tourists to keep their jobs," said Joao Duque, a professor at the Lisbon School of Economics and Management.

"On the left and on the right, everyone is against the strike. The image of the pilots has taken a beating," added Domingos Amaral, an economics professor at the Catholic University of Portugal.

The pilots aren't striking over wages, but what they see as the government breaking an agreement to give them 10 to 20 percent stake in the airline in the case of its privatisation.

"It is a demand that is impossible to satisfy," junior transport minister Sergio Monteiro said this past week.

Under the government's plan, 61 percent of TAP will be sold to an investor and 5 percent go to employees.

Other employees at TAP are also not supporting the strike.

"When competition is constantly increasing we can't betray the trust of our clients," said Fernando Santos, an airport services manager who organised a silent march against the strike.

The pilots themselves are also divided, and TAP has been able to fly a better-than-expected 70 percent of flights.

- 'Edge of an abyss' -

Nevertheless the financial impact will be considerable.

The cost to the tourism industry, a key sector for employment in Portugal, could see losses on the order of 100 million euros.

The first five days of the strike cost TAP 17 million euros, according to government calculations, and the full 10 days could end up costing it 35 million euros.

"TAP won't survive a 10-day strike" and the other stoppages the pilots are planning, said Francisco Calheiros, head of the Portuguese Tourism Confederation.

Even before the strike the airline was technically insolvent, pointed out Alvaro Costa, an economics professor at the University of Porto.

"TAP is on the edge of an abyss. The pilots have only sped up a process already underway," he said.

As for privatisation, Costa has little hope of success as the conditions agreed by the government and unions include a prohibition on job cuts while the state still holds a stake in the airline.

Under the current financial and sale conditions "the chances of seeing TAP privatised are minimal," said Costa.

Investors have until Friday to submit offers.

One company that had expressed interest, the Spanish group Globalia which owns Air Europa airline, recently threw in the towel saying it could not invest only to have its "hands and feet tied" in turning TAP around.

One potential investor is South American businessman German Efromovich, owner of the Colombian carrier Avianca, who made a bid for the airline in 2012.

American businessman Frank Lorenzo and Portuguese entrepreneur Miguel Pais do Amaral have also expressed interest, as has US-Brazilian businessman David Neeleman, founder of JetBlue in the United States and Azul in Brazil.