Portuguese airline deal straps in FOMO premium

Deutsche Lufthansa AG

15/10/2026 10:56

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Oliver Taslic
LONDON, Oct 15 (Reuters Breakingviews) - Deutsche Lufthansa LHAG.DE is putting a high-flying valuation on one of Europe’s last big independent flag carriers. The German group on Wednesday beat rival Air France-KLM AIRF.PA in the race to buy a minority holding in Portugal’s state-owned TAP. The rich proposed price – €1 billion for a 44.9% stake, potentially increasing to €1.2 billion for 49.9% – looks to be driven by a fear of missing out on both healthy transatlantic travel and a dwindling number of viable M&A targets.
The process to privatise TAP, which needed a government bailout during the pandemic, was relaunched last summer after a previous attempt stalled. The plan foresaw the state retaining a majority holding and a 44.9% stake for a private owner, which could rise to 49.9% depending how many employees take up an offered 5% overall shareholding. British Airways owner IAG ICAG.L dropped out in April, after its finance chief bemoaned the lack of a “clear path” to majority ownership. Air France-KLM seemed a logical owner, given its large government shareholders and lack of a southern European hub to complement Paris and Amsterdam. But Lufthansa carried the day with a bid that Portuguese Prime Minister Luís Montenegro said was 16% higher than Air France-KLM’s.
The appeal is clear. With hubs on the western edge of Iberia and strong links into Brazil, TAP enjoyed a 12% share of seats between Europe and South America last year, according to Cirium data. That gives Lufthansa a leg-up into a booming aviation market dominated by IAG, Air France-KLM and Chile-listed LATAM LTM.SN. TAP is also one of the last big independent flag carriers left to buy, while operating margins of 6% in 2025 and 9% in 2024 are respectable. Lufthansa CEO Carsten Spohr also envisages up to €450 million of annual “synergies”, usually meaning cost savings and revenue boosters, which don’t depend on taking full control of TAP.
The issue is the valuation. Bernstein analysts wrote last November that €700 million for the stake would be “comparatively rich”. The winning bid has blown far past that – even though the Iran war has dented the sector’s prospects since then. Using €1.2 billion for a 49.9% stake, the implied equity value for TAP is €2.4 billion. Add the airline’s €2.1 billion of net debt as of June, and the enterprise value Lufthansa is paying works out around €4.5 billion. That’s 6.7 times the last 12 months’ of EBITDA to June. For comparison, the average equivalent multiple for IAG, Lufthansa, Air France-KLM and Finnair FIA1S.HE is 3.2, according to Visible Alpha. True, the TAP multiple potentially falls to 4.3 after including the full €450 million of synergies after deducting tax at 17%, based on Breakingviews estimates. But that still looks comparatively pricey.
There are strategic questions, too. Barclays analysts wrote last week that competition between TAP and Italy’s ITA – another South America-heavy airline, which Lufthansa has exercised an option to take a majority stake in – could present a “challenge”. Still, investors don’t seem too begrudging: shares in Lufthansa fell 2% on Wednesday, only slightly more than Air France-KLM or IAG. Greater South Atlantic weighting could help Lufthansa in the end. But it comes through a haze of FOMO.
     
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CONTEXT NEWS
Portugal’s government on October 14 picked Deutsche Lufthansa to buy a stake of up to 49.9% in TAP Air Portugal for €1.2 billion. The German airline group beat its rival Air France-KLM.
Lufthansa said on October 15 that it expects up to €450 million of synergies from the combination.

(Editing by Liam Proud; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on TASLIC/oliver.taslic@thomsonreuters.com))