British Airways and its merger partner Iberia are understood to be poised to bid for the Portuguese flag-carrier TAP, which the country’s government is being forced to sell.
The airlines, which joined forces in January to create International Airlines Group (IAG), are reported to have already held informal talks with TAP, according to the Sunday Times newspaper.
The Portuguese government is being forced to privatise the airline as a condition of its €78 billion euro bail-out by the EU and International Monetary Fund.
An investment bank has been hired to conduct a formal auction of TAP, which is expected to be launched later this summer.
IAG chief executive Willie Walsh is understood to be keen to expand the group aggressively, and has reportedly drawn up a list of 12 other airlines he would consider buying, which TAP is thought to top.
Newly-formed IAG is already the third largest scheduled airline group in Europe and the sixth largest in the world, based on revenues, with BA and Iberia flying to more than 200 destinations on more than 400 aircraft. Last year they carried 55 million passengers.
TAP, which made a €3.5 million loss last year and is thought to be valued at around €500 million, has an attractive long-haul network that includes a large share of routes between Europe and Brazil, as well as a number of African routes into former Portuguese colonies.
It is thought that the airline is particularly attractive as a target for IAG, as it is easier to get regulatory clearance on European deals.
The group is expected to finance any bid it makes through shares, which would dilute the stock held by existing shareholders.
But it is thought that IAG will face stiff competition from other airlines, including Germany’s Lufthansa and LatAm, a new alliance between Brazil’s TAM Linhas Aereas and Chile’s LAN, which will become the biggest carrier in Latin America if it gets regulatory clearance.
Last week IAG posted a 15 per cent rise in revenues for the three months to the end of March of €3.6 billion, as it benefited from improved passenger volumes, including from premium seats.
Pre-tax losses narrowed sharply to €47 million, from €273 million for the equivalent three months a year earlier, despite fuel costs jumping by 31 per cent to €1.1 billion in the period.
An IAG official later said: “We are not currently in talks with any airlines.”