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Lufthansa (LHAGR; Baa3/BBB-/BBB-) Reportedly seeking 20%/€180m stake in Air Portugal

TRANSPORTATION

Reports over the weekend are Lufty is seeking a 20% stake in TAP for ~€180-200m - not large enough to be a mover and winning the bid is not necessarily negative. As always with M&A contingent on price paid and doesn't look like a large premium here.

  • TAP Air Portugal is the flag carrier of the country and currently government owned. It has been of interest to LHA/IAG/AFFP. The Portugal gov. has wind up and down the stake many times - it currently says it wants to sell-off at least 51%.
  • We would be inclined to see Air-France winning the bid as most concerning - co is not having a great year, BS is the most levered of the three and we already see overhanging supply risk. Reminder last week it finally closed on a 19.9%/€130m non-controlling stake in Scandinavian Airlines - we would not read that as reducing M&A appetite given former was finalised earlier last year and it has reiterated interest in TAP since.
  • Re. IAG it recently gave up on upsizing its 20% stake in Air Europa (for €400m) instead paying up a €50m break fee. Reports are that has not depressed its M&A appetite and may have increased focus on winning the TAP bid.
  • Re. Lufthansa it won regulatory approval recently for a €325m/41% stake in Italian ITA airways; raters saw as positive on limited integration risk and eventual synergies, equity analyst more mixed.

Not much surprise the big-3 are fighting over TAP; the co is running HSD EBIT margin - higher than most of their flagship airlines - and is strategically valuable as a gate into South America/Brazil. TAP currently deploys 37% of capacity goes into Europe, 33% into South America, 22% in NA and 9% in MEA for reference. The co itself has a single €375m Dec '24 rated Ba3/BB- vs. Portugal government (A3/A- Pos); Moody's giving it no uplift, S&P 1-notch. Its trading at par, yet to be called and unclear if it will refi while there is a pending sale. Investors who caught the falling knife (traded below €60 in 2020) have done well through a rough road that included the government stepping in with a €3.2b rescue funding.

Sources Piece (use translate button at the top) here.

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