TAP Privatization D-Day: Air France-KLM Bids as Aviation Crisis Clouds Deadline

Thursday marks the deadline for non-binding proposals in the privatization of TAP, Portugal's flag carrier, and the process could not be unfolding at a worse time for the global aviation industry. Air France-KLM confirmed early today that it has submitted its bid to Parpública, the state holding company managing the sale. Lufthansa is expected to follow before the close of business. The future of IAG, owner of British Airways and Iberia, in the race remains an open question.

The Franco-Dutch group struck an optimistic tone. CEO Benjamin Smith said the company believes "the next chapter of this airline's story should be written as part of the Air France-KLM Group," pledging to strengthen operations in Lisbon while expanding connectivity from Porto. The pitch leans heavily on Air France-KLM's multi-hub strategy, its transatlantic partnership with Delta Air Lines and Virgin Atlantic, and its experience operating alongside state shareholders — a pointed selling point given that the Portuguese government will retain at least 50.1 percent of TAP after the sale.

A Turbulent Backdrop

Just six weeks ago, the privatization looked like a textbook seller's market. All three major European airline groups were at the table, and the industry was posting record profits. That picture has deteriorated sharply.

The escalating Middle East conflict has closed swathes of airspace over the Gulf and parts of the eastern Mediterranean, forcing costly route diversions. Jet fuel prices have roughly doubled, driven by disrupted supply chains through the Strait of Hormuz. Ryanair CEO Michael O'Leary warned this week that if the strait does not reopen by month's end, between 10 and 25 percent of Europe's fuel supply could be at risk. Airlines including SAS, United Airlines, and Volotea have already begun cancelling scheduled flights.

For TAP specifically, the crisis is a double-edged sword. The airline's strongest routes — to Brazil, Africa, and the Americas — are less affected by the Middle East disruption than competitors' Asian networks. But rising fuel costs erode margins across the board, and TAP's adjusted operating margin of 6.9 percent in the first nine months of 2025 leaves less buffer than the IAG group's 15.1 percent.

Two Suitors, or Three?

Reports in the Financial Times in mid-March suggested IAG had communicated its intention to withdraw from the process to the Portuguese government. If confirmed, it would be a significant blow. IAG has the deepest pockets of the three — its 2025 operating profit was roughly 2.5 times that of either rival — and the competitive tension of a three-way race helps the seller.

Still, two credible bidders remain. Lufthansa's strategy chief Tamur Goudarzi-Pour confirmed on Monday that the group intends to submit an offer, though he acknowledged the crisis would "influence pricing." Air France-KLM, for its part, emphasized the complementarity of its network with TAP's and the strategic value of Lisbon as a southern European hub.

What It Means for Portugal

The sale of 44.9 percent of TAP — potentially rising to 49.9 percent if employees don't fully subscribe their reserved 5 percent stake — has been a priority for the Montenegro government. The proceeds would provide fiscal breathing room at a time when the Bank of Portugal has slashed its 2026 growth forecast to 1.8 percent.

For the hundreds of thousands of residents — Portuguese and foreign — who depend on TAP's route network for connections to family, business, and the wider world, the identity of the buyer matters. Air France-KLM's promise to preserve TAP's "Portuguese heritage" and boost connectivity from Porto will be scrutinized closely. Lisbon's position as a gateway between Europe, the Americas, and Lusophone Africa is a genuine strategic asset, but one that only delivers value if the new owner invests in growing the network rather than cannibalizing it.

The aviation crisis adds an uncomfortable layer of uncertainty to what was supposed to be a straightforward sale. Higher fuel costs mean lower valuations. Fewer bidders mean less leverage. And the geopolitical storm that drove up those fuel costs shows no sign of abating — a reality that may ultimately depress the price Portugal receives for its most strategically important company.

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• Public Transport Companies Warn of Service Cuts as Fuel Costs Deepen