TAP SGPS ordered to pay Azul €177 million by 23 June

The former TAP SGPS, now renamed SIAVILO, has until June 23 to pay a €177 million debt which had been contracted in the form of a loan in 2016 from the Brazilian airline Azul and Parpública, an umbrella holding controlling Portugal’s State-owned companies.

But that amount has now shot up to €235 million including interest on the debt. According to Jornal de Negócios, Banco Montepio had issued a pay-by-date order on May 27 after a decision was reached at an extraordinary meeting of bond holders on April 15 that TAP SGPS has failed to pay the debt.

The €235 million, €175,272,269.73 correspond to the loan and compound interest claimed by Azul – the airline founded by David Neeleman, who was a shareholder and CEO of Azul and who was the largest shareholder of TAP through the Atlantic Gateway consortium – to which more than €1.6 million in simple interest has been added, bringing the total to almost €177 million. As for Parpública, TAP SGPS owes €57.8 million, plus €541,000 in interest, according to Jornal de Negócios.

Azul is in trouble. In May it was announced that Azul, a Brazilian airline, had filed for Chapter 11 bankruptcy protection in the US as it seeks to restructure billions of dollars in mostly pandemic-era debt.

Azul shares fell as much as 12% after the filing before paring losses to trade down around 3%. The stock is now down 70% year to date, with JPMorgan analysts downgrading their recommendation to “Underweight” – meaning Sell – citing significant equity dilution expectations.

The airline’s net debt soared 50% year on year to BRL31.35Bn by the first quarter, with its leverage ratio hitting 5.2 times its earnings. Rising interest payments particularly pressured the carrier, with costs increasing 10-fold since 2019 whilst Brazil’s real weakened 50%.

The €90 million originally lent to Azul, together with the €30 million lent by Parpública are at the centre of a case recently lodged by TAP at a Lisbon trade dispute court .

TAP claims that the bond loan issued in 2016 was a loan from a shareholder partner that did not need guarantees.

According to news source Público this Wednesday, Azul alleges that a legal challenge filed by TAP has “a single purpose: to illicitly enrich itself at the expense of sacrificing the right to private property of Azul and ALAB,” which is part of the same group.

“We are facing a real coup aimed at deceiving and harming the defendants, of which this lawsuit and the court are mere means and instruments to achieve that end,” the Brazilian company argued in court.

The privatisation of TAP Air Portugal is underway and expected to be completed in 2025. The Portuguese government has decided to sell anything between 49% and 100% of TAP’s capital through direct negotiation, seeking a strategic partner who will maintain the airline’s hub and headquarters in Lisbon and preserve routes to North America and Brazil.