TAP - Santa flies TAP 🎅🏻 ✈️
All,
Please find our unchanged analysis here.
As per extensively repeated thesis and calculations (we’ve had enough time since the EC approval was originally promised) the Portuguese state has finally received approval for its restructuring plan of the flag carrier and the bonds are not affected. We noted in our last mail that the deadline for end of year had ominously stopped slipping, but had still been sceptical if the deal could be done before Christmas. It’s done.
Details published:
- The €1.2bn state aid initially provided in 2020 will be equitised. As previously signalled.
- The ancillary business of ground handling and catering on either side of the Atlantic are to be sold. Was always likely, but not sure how much value these carry, given the losses incurred in particular at the insolvent Portuguese SPDH entity.
- The airline is to give up 18 slots per day at the Lisbon airport. This concession has seemingly developed in H221 following the EC’s initial rebuke.
- The fleet is to be reduced and no acquisitions are to be made through the end of the restructuring plan. This is a little tougher than what we have assumed in our model, where the fleet is slowly expanding from 2023 onwards again.
Restructuring Volume:
- €2.55bn of Equity and Quasi Equity measures are Restructuring Aid and are in addition to the €1.2bn of State Aid to be equitised and in line with previous communications.
- Together with another €107m of damages awarded to TAP for the republic’s decision to restrict travel, the total amount is in line with the liquidity shortfall in our model as well as our recap table. Damages for H121 of €462m had previously already been awarded.
- We know from the Portuguese government that the bonds will not be affected by the plan, so they won’t be equitised (which would have been particularly difficult with the NY law 24s).
- We have not heard further detail of the requested buffer and there is no further mention of the cost reductions under the plan which we had quantified with €1.5bn. We expect further detail on both in due course.
Sale of a minority stake:
- We had anticipated that in order to increase the amount of “own contribution” (as the EC calls it), TAP would have to sell new shares of a minority stake to a competitor - Lufthansa possibly or Turkish Airlines. That does not seem to be part of the plan or has at least not yet been communicated, which almost rules it out.
- Instead, TAP has agreed to give up 18 slots per day in Lisbon and to sell its non-core operations (see above).
Positioning:
- The approval of the restructuring comes at a crucial time as the world is struggling with a new variant. It represents a major milestone in securing the future of TAP as a going concern and is a positive result for our bonds.
- We continue to hold a 4% of NAV position in the NY law 24 SUNs until we see the new capital structure. While Omicron is still making the rounds, there remains a strong chance of another lock-down, but precedent for compensation has now been set and the bonds should be structurally sr. to all the new cash that is now finding its way into TAP. So the 12% YTM to Feb 2024 sound reasonably attractive to us - for an airline bond anyway.
Wolfgang
T: +44 203 744 7003