Luís Rodrigues’ six jobs at the head of TAP, from the relationship with the guardianship to the summer
The outgoing CEO, Christine Ourmières-Widener, even said that running TAP was “the most difficult job in the country”. As of this Friday, the task falls to Luís Rodrigues.
Luís Rodrigues will take the helm of TAP this Friday, at a time of strong financial recovery for the airline, but under enormous political and media noise and the threat of labor instability. It is in these waters that he will have to navigate the compliance with the restructuring plan and the sale of the capital to private parties.
ECO has prepared an overview of the main challenges for the new CEO and Chairman of the Board of TAP:
1. Negotiate new company agreements with the unions
Managing the relationship with the unions will probably be Luís Rodrigues’ most difficult task. In the PowerPoint presentation of the 2022 results, it is clearly stated in bold letters that “it is crucial to have new competitive collective agreements. Which in this case means changing the existing company agreements, reducing costs and improving productivity. A need that arises from the restructuring plan and that should not change with the arrival of the new manager.
The unions have already gone on the offensive, pre-emptively. In a joint statement released on Thursday, they demanded an immediate end to wage cuts and freezes, a return to the collective agreements that existed before the Covid-19 pandemic, and the reinstatement of workers targeted for collective dismissal. They are threatening to strike (although they do not use the word) if the company and the government do not change their position on these issues.
At SATA, Luís Rodrigues has established good relations with the unions. A group of 100 workers even signed a manifesto to keep him at the helm of the airline. Praised for his ability to build consensus, the new CEO will face an even tougher test at TAP.
2. Managing summer flights
The summer months are the busiest for TAP, but this is also the time when it faces its greatest operational difficulties. In addition to the congestion at Humberto Delgado Airport, there are human resource constraints within the company itself. There is a shortage of maintenance technicians, which causes problems in the availability of aircraft and other personnel.
The president of the Union of Civil Aviation Pilots told ECO on Thursday that TAP will have to cancel 200 flights in May alone due to a lack of pilots and cabin crew. Tiago Faria Lopes predicts a “chaotic summer, similar to 2015”. Luís Rodrigues has a few months to avoid that.
To limit downtime, the company has used ACMI (Aircraft, Crew, Maintenance and Insurance) contracts with other companies, a kind of all-inclusive aircraft rental: aircraft, personnel, maintenance and insurance. It has done so again this year, ECO reports.
3. Compliance with the restructuring plan and debt reduction
TAP returned to profitability in 2022, which had not happened for five years, closing the year with a positive result of 65.6 million. The restructuring plan did not foresee a return to profitability until 2025. Luís Rodrigues took over and the company was flying smoothly towards the targets agreed with Brussels. However, economic uncertainty remains high and much can happen between now and 2024, when the administration’s mandate ends.
One of the most demanding tasks will be to continue to reduce the debt, which at the end of 2022 will stand at 2,740 million, 14.7% less than in 2019. A sum that is still too high. If the company compares well with its European peers in terms of operating profitability, when the cost of debt is included, TAP lags far behind, penalizing its capacity for growth.
Reducing leverage (it is at 3.5 times EBITDA) will continue to be a priority with the new CEO. This includes further revenue growth and cost containment. The fall in fuel prices has helped so far.
The restructuring plan agreed with Brussels foresees the company issuing debt on the market after the state capital injections. The rise in interest rates and TAP’s high risk rating complicate the operation.
4. Bringing TAP’s privatization to a successful conclusion
Luís Rodrigues arrives at the company with the reprivatization process underway. The US investment bank Evercore has been working with TAP for about nine months to prepare the dossier and contact interested parties, although without a contract.
The Minister of Finance said in early February that the capital sale would be submitted to the Council of Ministers “soon,” but this has not yet happened. What is certain is that the reprivatization will go ahead and that there are already three major interested parties: Lufthansa, Air France-KLM and the IAG group. The latter, which owns British Airways and Iberia, has begun hiring legal and communications advisors, according to ECO.
The previous CEO, Christine Ourmières-Widener, told the parliamentary investigatory commission that she found it “difficult” to complete the reprivatization this year. Luís Rodrigues has already helped to privatize SATA and will now have to do the same for TAP.
5. Managing relations with the government
The experience of the outgoing CEO and Chairman shows that one of the main complexities of the position is managing the relationship with TAP’s dual authority: Infrastructure and Finance.
The chairman of the board said this week at the hearing of the parliamentary commission of inquiry that the Ministry of Infrastructure exercised excessive control and interfered in what he considered “trivial” management acts, especially if they could have some media impact. He also complained about the slowness of the Ministry of Finance in responding to issues of great importance to the company. For Manuel Beja, the airline also suffers from governance problems and communication channels with the government, as evidenced by the departure of former director Alexandra Reis.
Then there is the challenge of managing an airline of TAP’s size and meeting the demands of being a public company. The events of the past few months may have been a learning experience for both the government and the company. One thing is guaranteed: politics will not leave TAP.
6. Restore TAP’s image
The controversies of the last few months have tarnished the image of managers and government leaders, but also of TAP. The parliamentary commission of inquiry, which will hear 58 personalities, will keep the company on the media and political radar. The Airline and Airport Workers’ Union has even compared the work in Parliament to a “Mexican soap opera” that denigrates the company and its employees.
One of Luís Rodrigues’ challenges will be to improve the company’s image among customers and the Portuguese public. This will include the ability to negotiate with the unions, avoid the chaos of the summer, improve financial results, successfully complete the reprivatization (and generate good revenue for the state), and manage the relationship with the government.
