The Portuguese government has set aside a EUR500 million euro (USD585.2 million) loan guarantee in its 2021 budget for flag carrier TAP Air Portugal (TP, Lisbon), in addition to a EUR1.2 billion (USD1.4 billion) loan already approved earlier to help the airline survive the impact of COVID-19.

“Everything indicates that an additional amount of money will be needed next year, and our estimate at the moment is that it will be close to EUR500 million,” Finance Minister João Leão said when presenting the 2021 State budget report. He said this was the base scenario the government was working from. However, the figure could change given the current uncertainties faced by the airline industry and the fact that the European Commission would still rule on the airline’s restructuring plan.

The regulator in June approved the EUR1.2 billion state loan, contingent on the airline drawing up a restructuring plan within six months. The plan would be sent to the EC in November, with the regulator due to decide by December 6, said Secretary of State for the Treasury, Miguel Cruz. It was unclear whether Brussels would have to approve the additional State guarantee.

News reports in Lisbon said the Portuguese government had chosen Deutsche Bank as its financial advisor in the process. One of Deutsche Bank's missions would be to determine if a restructured TAP would be able to raise debt or find a strategic equity partner.

The Portuguese government said the EUR1.2 billion loan was expected to be fully consumed this year; and that the additional funding guarantee would be provided “as a matter of caution” to underwrite any loans the airline could raise commercially, reported the newspaper, Observador.

According to the budget report, the full amount TAP would need next year was still uncertain. Variables that could impact the final sum included the effects of the pandemic and its impact on travel demand; financial restructuring options that may be adopted in the restructuring plan; and the decision to be taken by the EC. The government loan guarantee should be seen in the light of TAP’s importance for national economic recovery, and to support the airline’s restructuring towards sustainability and competitiveness, reported Lusa News Agency.

TAP recorded a loss of EUR582 million (USD680.9 million) in the first half of 2020 because of COVID-19’s impact on travel. Its strategy has been to cut costs and curb investments to survive the crisis.

Infrastructure Minister Pedro Nuno Santos told Reuters that TAP was unlikely to succeed alone in the global aviation market and must be open to consolidation in the medium term. He said before the pandemic TAP had been "coveted by several very important airlines", naming Lufthansa (LH, Frankfurt Int'l), but adding it was not the only one.

In terms of a rescue deal agreed in June 2020, the Portuguese government increased its shareholding in TAP to 72.5% after paying EUR55 million (USD65 million) for a 22.5% stake that was held by David Neeleman through his 50% participation in the Atlantic Gateway consortium. The other partner in the consortium, Humberto Pedrosa, continues to be a 22.5% shareholder in the airline, albeit directly rather than through the Atlantic Gateway consortium, which has ceased to exist. TAP employees own the remaining 5% stake in the airline.