What is the difference between 49% and 100%?

As part of an EU bail-out that kept its finances from collapsing, the government of Portugal agreed to sell of a variety of state-owned companies, including flag carrier TAP Portugal. TAP has the strongest network of any European carrier to the huge Brazilian market, and there was widespread interest. International Airlines Group (parent of BA and Iberia) and the Lufthansa Group were just two of the candidates among many airlines and other investment groups. But as time passed, and the eurozone crisis deepened, the suitors gradually dropped out, until only one was left: the Brazil-based Synergy Group, which owns AviancaTaca and several other airlines, as well as major investments in the energy sector. Portugal has now entered final negotiations with Synergy regarding price, and, barring unforeseen developments will sell TAP to the Brazil-based company within a few months.

Which has presented all involved with something of a conundrum: EU law forbids more than 49% ownership of an EU airline by non-EU entities. But at the same time, the EU has required Portugal to sell TAP and the only buyer is a non-EU entity. Now what? EU law is clear that European airlines must be majority owned by European entities, but Synergy is hardly going to invest in a money-losing airline over which it has no control.

What now appears likely to happen is that Synergy will make its bid in partnership with EU nationals (individuals or companies), Portugal will accept the bid, the EC will grant approval, and TAP will be sold to a European entity with a minority shareholding by Synergy. All in compliance with the letter of EU law. Pretty much as happened in the case of Air Cargo Germany, and as appears likely to be the case with Cargolux.

But does anyone really believe that Synergy will not control TAP, or that Volga-Dnepr Group does not control Air Cargo Germany, or that Qatar is not planning to control Cargolux?

The European Union and its member states have had to face the reality that without major investment, these airlines were likely headed for failure. No European individuals or companies have shown any willingness to invest (not surprising, given the economic situation in Europe), and the remaining alternatives were either illegal (state aid and foreign ownership), or unacceptable (let the airlines fail). That the EU has chosen to use smoke and mirrors to make 100% appear to be just 49% is no bad thing. The airlines may have to be downsized, but they will continue to fly. Some jobs will be lost, but that is surely better than all the jobs being lost.

Perhaps someday true international consolidation will be accepted, but until that day we will just have to accept that the difference between 49% and 100% is less than it appears.

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