Transportes Aereos Portugueses, S.A.

views updated

Transportes Aereos Portugueses, S.A.

Aeroporto De Lisboa Edificio 25
Apartado 5194
Lisbon 1704
Portugal
(01) 841-5000

399 Market Street
Newark, New Jersey 07105
U.S.A.
(201) 344-6889
Fax: (201) 344-8966

State-Owned Company
Founded: 1945
Employees: 10,500
Sales: US $1.2 billion

Transportes Aereos Portugueses (TAP Air Portugal) is Portugal’s national airline, flying more than 26 million miles a year to 85 destinations on three continents and carrying an annual average of over 3 million passengers. Its main maintenance and repair facility—which also does extensive work for other airlines—is located at Lisbon Airport. Additional maintenance facilities include complete stations in Africa and Brazil; maintenance personnel from the Lisbon facility are also stationed at virtually all TAP destinations. TAP promotes and sells tours of Portugal and the Azores, some of which are packaged with stops in other European or African destinations.

TAP was founded by the Portuguese Secretariat for Civil Aviation on March 14, 1945. Its original mission was to provide regular air services between Portugal and its colonial territories in Africa. In founding the company, the Portuguese government expected that operations would be turned over to private companies once the airline began turning a profit.

The following year TAP acquired its first DC-3 Dakota and established routes between Lisbon, Portugal, and Madrid, Spain. It also began what was to become a profitable colonial service. Its first flights to Africa landed in Luanda, Angola, and Lourenco Marques, Mozambique.

In January of 1947 the airline inaugurated monthly DC-3 colonial service to Luanda and Lourenco Marques. It had acquired DC-4s for the service but could not use them because of inadequate airports at African destinations. In July of that year the company started to operate the internal route between Lisbon and Oporto. By the end of 1947, its first full year of service, TAP had flown 568,000 miles and had a net income of 30 million Escudos—one Escudo at that time equaled approximately $0.035—most of which came from government subsidies.

In the last two years of the 1940s TAP grew steadily. It began acquiring DC-4 Skymasters and joined the international airline organization, IATA, as an active member. In 1948 it opened routes from Lisbon to Paris and to Seville in Spain. New destinations for 1949 included London and Sao Tome, which is located off the coast of West Africa.

At the beginning of the 1950s the Portuguese government announced plans to sell TAP to private interests, subject to the restriction that majority ownership must remain in Portuguese hands. Contrary to the original plan—which called for privatization once the airline reached profitability—the Portuguese government’s decision to sell TAP was, according to the 1955 World Airline Record, partly prompted by continuing heavy losses. To encourage private capital, the government also granted TAP a 20-year exclusive franchise on its existing network as well as new routes to South Africa and South America.

After rejecting several bids for the airline, including one by a company affiliated with the United States carrier Pan American, a 75 percent interest was sold in 1953 to a syndicate composed of Portuguese banking, shipping, and mercantile firms. The new owners transformed TAP into a private company called Transportes Aereos Protugueses SARL, which in turn merged with Aero-Portuguesa, taking over that company’s 455-mile route to Tangier and Casablanca. Aero-Portuguesa was Portugal’s first airline. Founded in 1934 to provide connecting flights linking Lisbon with Air France’s South Atlantic airmail service at Casablanca, Aero-Portuguesa saw its post-World War II ambitions cut short by the establishment of TAP.

Under private ownership, TAP expanded its route structure, increased the frequency of its flights, and modernized its fleet of planes. In 1955 it acquired its first Lockheed L-1049-G Super Constellation plane and withdrew its DC-4s from African routes. In 1958 it began flying to Brussels and commenced service to colonial Leopoldville, which is now known as Kinshasa, in Zaire.

TAP marked the opening of the 1960s by establishing routes to Portugal’s island possession Porto Santo, and by collaborating with Brazil’s state airline, Panair do Brazil, to inaugurate its Flight of Friendship between Lisbon and Rio de Janeiro. New destinations in 1961 included the African cities of Beira in Mozambique and Bissau in Guinea-Bissau.

TAP entered the jet age with the acquisition of its first Caravelle, in 1962. The following year it began jet operations to Africa with chartered aircraft. Meanwhile it continued adding flights to both European and colonial destinations. TAP began flying to Santa Maria (Azores) and to Las Palmas in 1962 and commenced flights to Frankfurt, Geneva, and Munich in 1963. The following year the airline launched direct flights from Lisbon to Funchal and scheduled Lisbon/Sal/Bissau service with Super Constellation.

In 1965 TAP continued its acquisition of jets with the purchase of its first Boeing 707. It flew its first jet from Lisbon to Brussels and its first Flight of Friendship to Rio exclusively operated by TAP. The following year the company inaugurated its first jet flight to Rio de Janeiro and opened a route from Lisbon to New York City. In 1967 the company’s first Boeing 727-100 came into service. By the end of that year, all TAP flights except for local short hops were jet operated.

During the last half of the 1960s TAP continued to expand its route structure. New destinations for 1965 included Johannesburg, South Africa, and Faro, which is on Portugal’s southern coast. Service to Zurich (via Geneva), Copenhagen, the African city of Salisbury, Buenos Aires in Argentina and Recife in Brazil began in 1966. Amsterdam and Sao Paulo were added as were flights from Faro to Frankfurt in 1967. The following year the company began flying to Dusseldorf and added a stop at the island of Santa Maria to its flights from Lisbon to New York.

In 1970 the government of Portugal awarded TAP the Tourism Gold Medal for services rendered to the Portuguese tourism industry. The airline, however, did not rest on its laurels. That year it added a stop in Boston to its New York route. In 1971 TAP began flights to Montreal and to Ponía Delgada and Terceira in the Azores. In preparation for the company’s first Boeing 747-B, which was to arrive the following year, TAP also completed a new administrative services center, new maintenance hangars, and computer and training centers at Lisbon Airport.

In 1973 TAP, like other airlines, was hit hard by the steep rise in jet fuel prices that followed the 1973 war in the Middle East and the Arab oil embargo. Despite financial woes, the airline continued with its expansion plans. It began flights from Oporto to Paris; implemented a computerized reservations, load control, and check-in system called TAPMATIC; and became the first European company to completely service the J.T.9D jet engine during the first quarter of 1974.

The socialist revolution that engulfed Portugal in 1974 affected both the management of the airline and, perhaps more importantly, the environment in which TAP operated. As with many other important Portuguese companies, the government nationalized TAP in 1975. The effects of nationalization were not immediately apparent. That year, TAP still took delivery of its first Boeing 727-200.

It was on Portugal’s colonies that the country’s socialist government had its most profound effect. By the mid-1970s most of the European powers had given, or were in the process of giving, independence to their African colonies. The economic fallout from decolonization varied according to country and industry. When the government granted independence to Mozambique, Zaire, and Portugal’s other African possessions in 1974 and 1975, the impact was severe. One of TAP’s most profitable sources of revenue had been travel to and from these colonies, accounting for 45 percent of its total traffic and 60 percent of its revenue. With decolonization, TAP lost a considerable flow of traffic, mainly to Africa, and the African link was practically severed. The loss of traffic in turn led to little use of the company’s four Boeing 747s, which were parked and eventually sold in the poor airplane market of the mid-1970s.

On the domestic front, nationalization and revolutionary turmoil increased wages, inflated the labor force, and spoiled industrial relations. The Portuguese government forced TAP to maintain a strong domestic network and serve unprofitable small markets. At the same time, it prevented the airline from raising prices while neglecting to provide promised subsidies, a lapse that led the carrier into a cycle of losses. Finally, incessant government meddling— there were seven board changes in the six years succeeding the 1974 revolution—destabilized the company’s leadership.

Between 1976 and 1978 TAP attempted to make up for the lost African markets by adding flights to Europe and the Americas. Among the airline’s new destinations were Caracas, Kinshasa, Milan, Lyon, Luxembourg, and Salvador da Baia in Brazil. In 1977 the company also began flying from Amsterdam to Funchal via Lisbon and from Geneva to Funchal via Lisbon.

Despite these moves, TAP was still in financial trouble. In 1979 the government appointed new management, which in turn formulated a recovery plan. The company changed its commercial name to TAP Air Portugal, painted its aircraft, and over the long term, planned to purchase new wide-body aircraft for its international fleet.

The financial press reacted positively to the strategy. But in the summer of 1979, air traffic controllers (ANA) went on strike, which reflected on the company’s operation, and the following Christmas a strike by pilots lead to considerable losses. Because of these losses, the government decided early in 1980 to temporarily withdraw its support from the recovery plan.

TAP continued to struggle along, obtaining twin Otter aircraft for service on the regional network and putting CARGOMATIC, a computerized reservations system, on line. Then in July of 1980, pilots went on a three-week strike that cost the airline nearly $28 million. TAP’s financial situation had so deteriorated that the government put the airline under its direct control.

In September of 1980 the Portuguese government approved a new, four-year recovery plan for the troubled airline, agreeing to provide subsidies to the flights to and from Portugal’s Atlantic Islands.

Despite predictions of a profit in the 1980 recovery plan, Air Portugal did not move into the black in 1981. The airline did add flights to Manchester and Harare but would experience losses throughout the rest of the decade.

In 1983 TAP began replacing its aging medium-and long-haul fleets with new Boeing 737-200s and Lockheed L-1011-500 Tristars. In addition, the company’s Lisbon maintenance facilities were recognized by the United States Federal Aviation Administration as a “Repair Station” able to perform any type of aircraft maintenance. This designation was important because it meant other airlines could continue to bring their aircraft to TAP for overhaul and maintenance. Among the most important contracts TAP signed for such work was a deal to maintain 35 Boeing 727-100 aircraft for Federal Express Corporation. The Federal Express agreement was extended repeatedly and was planned to run through 1994. By 1992 the Lisbon repair facility was doing more than 60 percent of its work for other airlines.

Also in the early 1980s TAP began efforts aimed at increasing passenger traffic. For tourists, it founded a tour operator company called Air Portugal Tours. For the business traveler, it launched Navigator Class, which replaced first class and has since been compared favorably to first class on other airlines.

Despite these services and profitable repair work, TAP continued losing money. The company devised a recovery plan that called on the airline to streamline regional services and invest in profitable catering and duty-free enterprises.

In the latter half of the 1980s TAP concentrated on profit-making activities and worked to modernize its fleet and equipment. In 1985 it established RN Tours to wholesale and operate tours. The same year, it inaugurated the TAP museum and formed the subsidiaries Air Atlantis for charter flights and LAR for regional air transport. In 1986 it introduced a computerized system for cabin crews, and the following year it ordered Airbus A310-300 and Boeing 737-300 aircraft, and joined the Galileo consortium, which provides computerized reservations and ticketing through travel agents. New destinations that year included Athens, Munich, Vienna, and Toronto.

Though the airline was still not profitable, things were looking up for TAP in the latter years of the 1980s. In 1988 it took delivery of its first Airbus A310-300, landed a new contract to maintain 40 Boeing 727-100s for Federal Express, and became the first company in the world to establish an earth/air phone link by satellite. That year, TAP also established scheduled service to Casablanca, Dublin, Hamburg, Nice, Stuttgart, and Curacao.

Fleet renewal and route expansion continued in 1989, when TAP ordered two Airbus A340s and took delivery of a Lockheed L-1011-500 Tristar, a Boeing 737-300, and an Airbus A310-300. New routes included scheduled service to Newark, Toulouse, Basle, Dakar, and Abidjan.

With the approach of European unity in the late 1980s and early 1990s, TAP also began to concentrate on European flights. In 1990, it established routes to the French cities of Toulouse, Bordeaux, Marseille, and Nice. The following year marked the launch of service between Lisbon and Berlin and the implementation of the Iberic project connecting Lisbon directly with the Spanish cities of Vigo, Seville, Bilbao, Malaga, and Santiago de Compostela.

In 1991 the Portuguese government announced plans to reprivatize all or part of TAP. In anticipation of this event, it transformed the airline into a public limited company and in March of 1992 voted to provide it with $227.1 million to erase 18 years of debts, reform the balance sheet, and prepare for reprivatization. By mid-1992 the government had planned to sell up to 49 percent of TAP. A leading contender for purchase was Spain’s national airline, Iberia, amongst other leading European carriers, such as British Airways.

In terms of operations, TAP took delivery of four Airbus A320-200s and two Boeing 737-300 aircraft in 1992. Initiating flights to Bologna and Santo Domingo, the airline developed a project of revival and change that included new aircraft and packaged Discovery Vacation tours from the United States.

To be as competitive as possible, TAP was advancing itself in 1992 as a valuable link, or secondary hub, for African and South American operations. It planned expansion into the Far East in 1994-96, beginning with Japan and pursuing Portuguese-administered Macao. TAP officials were also negotiating for landing spots at Tokyo’s Narita International Airport. On the down side, TAP faced internal competition from such regional Portuguese carriers as Portugalia. However, beginning in 1992, the department of commercial planning and planning services projected an annual traffic growth rate of seven to eight percent for the next five years.