Public Ministry opens TAP inquiry

 In Airlines, Companies, News, TAP

Portugal’s Public Ministry is to open an investigation into the purchase of aircraft by previous TAP administrations.

In statements made to the news agency Lusa, the Procurator-General of the Republic (PGR) disclosed that the “involvement at the time of the minister of Infrastructures and Housing (Pedro Nuno Santos) and the minister of Finances (Fernando Medina) has resulted in an inquiry at the Portuguese criminal investigation department (DCIAP)”.
The Procurator-General did not specify if the investigation has suspects or legal suspects, restricting itself to stating: “An investigation is underway and subject to legal confidentiality”.
The minister of Infrastructure said in October 2022 that the TAP administration had requested an audit because it suspected that it was paying an amount that it should not have paid for its (new) aircraft (fleet) which was more than its competitors would have paid and that the government had forwarded these conclusions to the Public Ministry.
The investigation is into alleged corruption regarding the financially damaging purchase of 53 airbus planes under former TAP shareholder and airline mogul David Neeleman. Neeleman, it was alleged, received money from Airbus from the negotiation of the airline’s new fleet of planes, which he may then have used to buy his 61% capital share in TAP via Atlantic Gateway.
Atlantic Gateway was the consortium in which TAP minority shareholder Humberto Pedrosa, the owner of Barraqueiro, was also a shareholder.
In other words, the Portuguese Public Ministry is investigating if TAP ended up footing the bill for David Neeleman’s 61% shareholding after the airline mogul may have used money he made by shortchanging the airline on aircraft orders.
Rewinding to 2012, when the Government had tried but failed to privatise the airline, the PSD government of Pedro Passos Coelho privatised 61% of TAP at the end of 2015 to the only credible buyer that had appeared, David Neeleman, owner of the Brazilian airline company Azul.
Before investing share capital in TAP, David Neeleman decided to renegotiate the existing order for 15 A350 airbuses. He decided not to purchase these planes and instead opted for a contract to supply an entire fleet of 53 aircraft: 14 Airbus 330 – 900 Neo and 39 Airbus A320, and Airbus A321 Neo.
According to union sources and reported by ECO, TAP and Finnair would have been the first companies to receive the new A350s and as the first clients, TAP was involved in the development of a new model, with Engineering and Maintenance engineers from TAP going to Airbus’s factory in Toulouse. And being among the first two clients, TAP was to get the new planes at a considerably lower price.
The argument used to buy new and commercially untested products for a knock-down price is not that dissimilar to the case in which Portugal purchased prototype amphibious vehicles at a lower price from the Austria manufacturer Steyr over a decade ago. (These prototypes subsequently leaked.)
It was that larger airlines did not want to be the first to buy hundreds of these new generation planes because they carried risks as they had not be tried and tested over time in the market, and preferred to see how smaller airlines faired first.
In the negotiations with Airbus, David Neeleman changed TAP’s position — according to the same sources his airline Azul would have the right to receive one or two A350s – and pressed ahead with the order for 53 aircraft for TAP. (A330 and A320 Neo) Airbus, which subsequently had a long waiting list for the A350, then managed to sell them for a much higher price than TAP had initially thought it would pay.
It is alleged that €70 million from this alteration in the order and price was used by Neeleman to buy his majority shareholding in TAP. In other words the suspicion is that after negotiating a bargain for the new planes, he renegotiated the deal at a higher price to the detriment of the airline and the State which still held the majority share.
The Brazilian entrepreneur discussed the deal in an interview with the Portuguese current affairs magazine Visão when he said: “What I did was to go to Airbus and said I didn’t want the A350 aircraft because TAP could do without them. But I wanted the A330 and the A321 (Long Range) because they were more profitable”.
With the A321 LR TAP could fly to Toronto, Boston, New York, and even Chicago at lower costs”, David Neeleman had said. “I didn’t take anything from TAP. I am bringing all this value and cannot take out a red cent until TAP’s bank loan has been all paid”, he said in the interview at the time.
In its 2015 annual financial report TAP justified the change in the order for the more expensive planes because it would work out as a “reduction in cost per passenger”, because the “new aircraft were cheaper and more efficient to run on long haul routes where TAP was investing more”.
Last year, the Government received an audit on the contract for the 53 new airbuses negotiated by David Neeleman which showed that the company was “paying more for aircraft than competitor clients” with “higher financial costs”.
It was when TAP tried to renegotiate the contract with Airbus that the discrepancy was uncovered.
The audit, ordered by TAP was assisted by two law firms and an international consultancy amid suspicions of corruption and financially prejudicial management.
The audit has been handed to the Public Ministry criminal investigation body DCIAP by the ministries of Infrastructure and Finance.