Deutsche Lufthansa Targets TAP Stake to Expand Brazil Reach, Unlock €450M in Synergies

Key Points

• Lufthansa was selected to acquire an initial 44.9% stake in TAP Air Portugal for €1.025 billion, potentially rising to 49.9% and roughly €1.2 billion including fees. Closing is expected in the first half of 2028, subject to regulatory and other approvals.
• The investment would expand Lufthansa’s South Atlantic presence, with TAP’s Lisbon and Porto hubs providing greater access to Brazil and Latin America. Lufthansa estimates its Europe–Latin America market share would rise from 9% to about 20%.
• Lufthansa expects up to €450 million in annual net synergies, with benefits from network coordination, commercial operations, procurement, MRO, cargo and loyalty programs. The deal is projected to be earnings-accretive in the first full year after closing and generate a double-digit return on capital employed.

Deutsche Lufthansa ETR: LHA said Portugal’s government selected the Lufthansa Group’s offer in the privatization process for TAP Air Portugal, positioning the transaction as a way to expand its South Atlantic network, add Lisbon to its multi-hub system and generate financial returns from a profitable airline.

The proposed transaction would give Lufthansa an initial 44.9% stake in TAP for €1.025 billion. The stake could rise to as much as 49.9%, depending on employee participation in a reserved 5% share allocation, with a 1.5% annual ticking fee potentially bringing the total investment to €1.2 billion. Lufthansa said the transaction would be financed from available cash and would not require an equity issuance.

Signing is expected shortly, while closing is anticipated in the first half of 2028, subject to customary conditions. The company said the valuation, including synergies, is in line with trading multiples for European full-service network carriers.

South Atlantic and Brazil Expansion

Chief Executive Officer Carsten Spohr said TAP fits Lufthansa’s strategy to grow internationally and reduce its reliance on operations originating in Germany. He described Portugal as an attractive growth economy and TAP as a strategic gateway to Latin America, particularly Brazil.

Lufthansa currently has a 9% market share between Europe and Latin America, making it the sixth-largest player in the South Atlantic market, according to Spohr. Combining with TAP would raise that share to about 20%, placing Lufthansa on par with International Airlines Group in the region, he said.

Spohr said Lisbon would become Lufthansa’s westernmost and southernmost hub, while Porto also offers growth potential for both local traffic and connections to Brazil and North America. TAP has a 46% share of the Lisbon market and operates what Spohr described as one of the youngest and most modern fleets among global airlines.

“This is something where you have to think in decades when it comes to consolidation,” Spohr said, calling the proposed investment a generational decision rather than a short-term transaction.

Synergies and Financial Targets

Chief Financial Officer Till Streichert said Lufthansa has identified up to €450 million in net annual run-rate synergies across TAP and the Lufthansa Group. Those estimates include integration costs and other items, he said.

The principal sources of value are expected to include network optimization, commercial cooperation, procurement, maintenance, repair and overhaul activities, and cargo. Lufthansa also cited opportunities in sales and distribution, ancillary revenue and loyalty programs.

Streichert said a majority of the expected synergies would accrue at TAP, with the smaller portion generated at Lufthansa. The companies have agreed to a dividend-distribution step-up mechanism that could reach 75% during a period of minority ownership, which Streichert said serves as a proxy for the split of synergy benefits.

TAP generated an EBITDA margin of about 17% and an EBIT margin of 6% in 2025, according to Streichert, who said its results in the prior two years were somewhat stronger. He acknowledged pressure on TAP’s first-half earnings amid broader industry conditions, including elevated fuel prices, but said Lufthansa’s earnings-accretion outlook is based on an expected closing in 2028 rather than current conditions.

Lufthansa expects the deal to be earnings-per-share accretive in the first full year following closing and to produce a double-digit return on capital employed. Streichert said the expected return would be accretive to Lufthansa’s current performance and support, if not exceed, its 15% to 20% return-on-capital-employed target range.

The company expects synergy realization to build over time. Streichert said roughly two-thirds of the benefits could be achieved within about three years, with full realization taking around four years.

Governance and Path to Majority Ownership

Although Lufthansa’s initial stake would remain below 50%, the company said the governance structure would provide meaningful influence over TAP’s strategic and operational development. The framework includes joint control through qualified-majority provisions.

Under the proposed structure, Lufthansa would nominate three executives to TAP’s executive committee, while Portugal’s government would nominate one. Lufthansa would have four directors on the board, compared with five for the Portuguese government. Streichert said the executive committee would be responsible for day-to-day operations, while major investments and strategic plans would be considered by the board.

Lufthansa has also submitted a non-binding proposal outlining parameters for potentially acquiring TAP’s remaining 50.1% stake in a later transaction. That process remains separate and subject to further negotiations. The proposal contemplates Portugal’s government becoming a Lufthansa Group shareholder with a stake of up to 5%.

Spohr said a future majority acquisition would create additional upside but is not required for the initial investment case. He added that TAP’s relatively limited overlap with Lufthansa’s existing network distinguishes it from other group hubs and allows the company to generate value even while holding a minority stake.

Regulatory and Labor Considerations

Lufthansa expects the transaction to require regulatory approval in Brussels. Spohr said the lower network overlap between TAP and Lufthansa compared with other potential buyers should make the antitrust process more straightforward, though he said remedy decisions must be left to competition authorities.

He also said Lufthansa had received supportive feedback from several Portuguese labor groups, including a ground-staff union and regional pilots. Spohr said meetings with unions indicated they understood Lufthansa’s record of developing acquired airlines and expanding international operations.

The proposed partnership, Streichert said, combines “strong industrial logic,” value creation and disciplined financing, while providing a potential route to eventual majority ownership.

About Deutsche Lufthansa (ETR:LHA)

Deutsche Lufthansa AG operates as an aviation company worldwide. It operates in three segments: Passenger Airlines; Logistics; and Maintenance, Repair and Overhaul Services (MRO). The Passenger Airlines segment offers products and services to passengers of Lufthansa Airlines, SWISS, Austrian Airlines, Brussels Airlines, and Eurowings. Its Logistics segment offers airfreight container management, urgent shipments, and customs clearance services; and e-commerce solutions. The MRO segment provides maintenance, repair, and overhaul services for civil commercial aircraft serving original equipment manufacturers, aircraft leasing companies, operators of VIP jets, government, armed forces, and airlines.

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