Plans to expand South American operations using TAP’s Brazil network
Complementary existing routes offer scope to ease competition concerns
EU approval expected through remedies such as transferring takeoff and landing slots

Germany’s Lufthansa Group has secured a foothold for expanding its transatlantic network after beating Air France-KLM to be selected as the buyer of a stake in Portugal’s state-owned airline TAP. TAP’s strength on routes linking Europe and Brazil will, in particular, allow Lufthansa to bolster its presence in South America. Although the acquisition still faces a European Union (EU) antitrust review, approval is considered likely because the airlines’ networks complement each other and remedies could address concerns about reduced competition.

Lufthansa Takes the Lead in the Race to Acquire TAP

On the 14th, local time, Portugal’s government approved a proposal at a cabinet meeting selecting Lufthansa as the buyer of a 44.9% stake in TAP. Under the sale plan, Lufthansa will acquire 44.9% of TAP. Employees will receive priority to purchase 5% of the total shares, with Lufthansa permitted to acquire any shares they do not purchase. This would bring its maximum stake to 49.9%, with the sale, including the employee allocation, valued at EUR 1.201 billion (approximately USD 1.38 billion). The Portuguese government will retain the remaining 50.1% to remain the largest shareholder, while entrusting management and flight operations to Lufthansa.

Lufthansa’s bid received high marks for its price and payment terms. Portuguese Prime Minister Luís Montenegro explained that Lufthansa’s offer was 16% higher than that of rival Air France-KLM and involved less transaction uncertainty. Its offer to pay the entire purchase price in cash reportedly also worked in its favor. The Portuguese government said it also considered TAP’s growth plan and the potential for additional investment in the country’s aviation industry. Following the buyer selection, a final agreement and EU regulatory approval are still required. The Portuguese government expects approval to take 18–24 months and is seeking to close the transaction in 2028.

Table 1. Terms and Progress of Lufthansa’s Acquisition of a Stake in TAP

Turning to Private Investment After Injecting EUR 3.2 Billion

The sale comes as Portugal renews efforts to privatize TAP, which was renationalized during the COVID-19 pandemic. The Portuguese government stepped in to rescue TAP after the sharp decline in air travel demand in 2020 plunged the airline into financial distress, subsequently injecting EUR 3.2 billion (approximately USD 3.72 billion) in public funds. Reprivatization is intended to recover those funds and attract the private investment needed to expand the airline’s fleet and routes. The sale process was suspended after the government collapsed in March last year, then resumed in July after Montenegro’s government returned to power following the general election in May of the same year. At the time, the government set out principles requiring the retention of the TAP brand and Lisbon hub, as well as the preservation of key routes connecting Portuguese expatriate communities and Portuguese-speaking countries.

The acquisition contest gathered momentum when Europe’s three largest airline groups expressed interest in participating. In November last year, Lufthansa, Air France-KLM, and British Airways’ parent company, International Airlines Group (IAG), submitted expressions of interest to Portugal’s state-owned holding company Parpública. The competitive landscape subsequently shifted when IAG withdrew from bidding, saying it would focus on growth opportunities at its existing subsidiaries. Only Lufthansa and Air France-KLM submitted preliminary proposals in April this year. Both submitted binding acquisition proposals in late July, held further negotiations with the Portuguese government, and submitted final offers in late September.

Integration Experience at the Heart of Lufthansa’s Strategy

The key factor behind European airlines’ interest in TAP was its transatlantic network. From its Lisbon hub, TAP connects Brazil, the United States, and Portuguese-speaking countries in Africa, with particular strength on routes between Europe and Brazil. Airport takeoff and landing slots that secure operating times on key routes were also among the assets that attracted prospective buyers. During the bidding process, Air France-KLM unveiled a plan to make Lisbon the group’s only Southern European hub. It intended to strengthen its Brazilian operations by adding TAP’s routes to the domestic connections it already had through its partnership with Brazilian airline GOL.

Lufthansa highlighted its longstanding partnership with TAP and its business presence in Portugal as strengths in the acquisition contest. The two airlines have worked together as members of Star Alliance, and Lufthansa proposed a long-term partnership when it formally announced its participation in the bidding last November. Airlines within the group operate more than 280 flights a week to and from Portugal, where Lufthansa has maintained a presence for more than 70 years. Lufthansa also emphasized its experience bringing airlines such as SWISS, Austrian Airlines, Brussels Airlines, and ITA Airways into the group. It plans to apply its experience of expanding operations while preserving each airline’s brand and national identity to the integration of TAP.

Improving Profitability Through Joint Purchasing and Network Connections

A principal objective of such airline integration is to achieve economies of scale through joint purchasing and shared operating systems. Buying aircraft, engines, and parts together allows airlines to use their order volumes to negotiate more favorable prices. Sharing reservation and ticketing systems and overseas sales networks previously operated separately by each airline is another way to cut costs. Standardizing aircraft types also creates opportunities to pool maintenance parts and integrate pilot training systems. When acquiring ITA Airways, Lufthansa likewise identified the integration of information technology (IT), procurement systems, and sales operations as key sources of synergy.

Integrating route networks also helps increase load factors on long-haul flights. Connecting passengers arriving on subsidiaries’ short-haul routes to long-haul flights at hub airports allows the group to draw customers from a wider area. This improves profitability by filling empty seats on existing flights while limiting the costs associated with operating additional services. Linking mileage programs and booking services also encourages passengers to use flights within the group. Lufthansa integrated ITA Airways’ reservation, sales, and fare systems into the group’s systems in May this year. In cargo operations, Lufthansa Cargo has been selling space in ITA Airways’ cargo holds since last year, making joint use of its existing sales network.

Complementary South Atlantic Networks Could Ease the Antitrust Hurdle

However, Lufthansa must pass an EU antitrust review before it can integrate TAP into the group’s operating structure. The TAP acquisition review is expected to focus on fares and seat capacity on routes where the two airlines compete, as well as the concentration of airport takeoff and landing slots. In its earlier review of the ITA Airways acquisition, the European Commission examined competition not only between nonstop flights but also between connecting flights. On North American routes, it also considered services operated by United Airlines and Air Canada, which have joint ventures with Lufthansa. The TAP review is similarly likely to examine both direct route overlaps between the two airlines and the competitive landscape that includes their partner airlines.

Lufthansa is emphasizing that TAP’s South Atlantic network complements its own business. The argument that the two airlines compete only to a limited extent in the same markets is expected to support its case in approval negotiations. There is also a precedent for securing approval by offering remedies on routes where concerns about reduced competition arise. When the European Commission approved the acquisition of a stake in ITA Airways in July 2024, it imposed conditions requiring support for competitors’ entry on certain European routes and the transfer of takeoff and landing slots at Milan Linate Airport. It also required measures to expand competitors’ nonstop services and improve connecting options on North American routes. In the TAP acquisition, the allocation of takeoff and landing slots and guarantees of access for competitors are likewise expected to be negotiated, focusing on routes flagged during the review.