2009
Annual Report
ANNUAL REPORT | 2009
Message from the Chairman of the General and Supervisory Board
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Message from the Chairman of the General and Supervisory Board The net income derived from air transport, TAP’s core business, showed a considerable recovery in 2009 (+ 266 M€) in relation to the previous year. The consequent profit achieved an unprecedented value, providing a decisive contribution to re-equilibrium of the consolidated net income of the Group. One of the most remarkable aspects of this evolution was that it took place in the context of the greatest crisis ever in air transport. This crisis has been reflected in a strong contraction in European traffic and in heavy overall losses for most of the sector, which reached almost 10 billion USD. The recovery of TAP’s net income was largely due to the success of the Company’s adjustment to the new recessive constraints of global air transport. This adjustment has involved a broad series of measures, incident on the Company’s income and costs, which have involved the strengthening of commercial dynamics and restructuring of the operation – through the reconfiguration of the route networks, temporary resizing of the offer, reprogramming of flight schedules – and through a considerable effort in the area of cost contention.
This action successfully mitigated the effects of the generalised decrease in air traffic, moderating the fall in income (-11%) in comparison with that suffered by most European companies of the sector, and was determinant in the result achieved. However, this loss of income was sufficiently pronounced, in absolute terms, to annul over 80% of TAP’s savings (296 M€) gained through the fall in the price of fuel. Therefore a considerable part of the improvement in TAP’s net income must be imputed to the reduction in other costs, achieved both through the reconfiguration of the operation and via efficiency gains. The analysis of TAP’s performance in 2009 thus provides clear evidence of the essential conditions for the future sustainability of the Company: flexibility of its operating network and cost structure, and management agility relative to the contingencies of the business. These conditions must be present to a sufficient degree in order for the Company to be capable of responding, in an adequate and timely manner, to the challenges posed by air transport, a sector in constant mutation, strongly competitive and which has proved to be particularly vulnerable to a vast number of exogenous shocks.
The active combination of these factors, decisive to TAP’s outstanding performance in 2009, must be pursued and strengthened in the future. However, the Company’s viability, in view of the continuous oscillations of global economic and financial circumstances depends, apart from these conditions, on another, also crucial, aspect: on its having an underlying solid base of own capital. Considering the fragility of the current net worth of TAP, it has thus become imperative to urgently proceed with the recapitalisation of the Company, an issue which, without prejudice to the due cooperation of the Company’s governing bodies in the search for the most appropriate solutions, is situated within the decision-making sphere of the Shareholder. And it is under these circumstances that I would like to express the gratitude of the General and Supervisory Board to the Management, Workers and Employees of TAP, for their personal contribution which has allowed the Company, through the significant strengthening of its competitiveness, to meet the enormous challenges of 2009 with remarkable success.
Manuel Pinto Barbosa
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Interview with the Chairman of the Executive Board of Directors
ANNUAL REPORT | 2009
Interview with the Chairman of the Executive Board of Directors
2009 was a difficult year as a result of the worldwide crisis. At TAP, the year was marked by the achievement of good results and the conclusion of the Strategic Plan 2007-2009. When this plan was elaborated, in 2006, the economic climate was very different. Was the plan accomplished? In 2007 we managed to accomplish what had been planned, but in 2008 we came up against serious difficulties, similarly to the majority of companies throughout the world, due to oil prices. In 2009 we, nevertheless, managed to pursue a very different trend to the majority of other companies, achieving very good results, especially in comparison with the sector. In fact, if we only consider TAP S.A., which involves the Air Transport and Maintenance area of Lisbon, we achieved results far above those obtained by the majority of European companies. 2009 was, undoubtedly, a very difficult year, which plunged the world into economic and financial collapse. Such results were only possible due to the significant adjustments of our offer and the adoption of many other additional measures. I must add that, in 2009, we not only achieved, but actually surpassed, the targets of the strategic plan.
Did TAP reveal considerable flexibility, relative to what was outlined in the Strategic Plan, in adapting itself to new circumstances? Yes, that is what is important. The Strategic Plan is a three-year, medium-term guide, that must be followed, but the Company has to demonstrate the necessary flexibility to adjust to different scenarios. That is why we elaborate budgets every year, which are already adjusted, and throughout each year we continue to adjust the offer, the commercial policy, the financial aspects … I would say that we had enormous success in the adjustments that we made, even in terms of cost reductions, in order to achieve results. They were not exactly the same assumptions of the Strategic Plan three years earlier, but adjusted to the reality of the moment with an adequate reduction of the offer when, according to the plan, it was expected to increase. Was the reduction of costs essential, not only through a decrease of the offer but also in terms of support services? Not only in 2009. The Company has registered an increase in efficiency over the last few years. The objective is, through the automation of processes and staff training,
among other aspects, to allow the Company to produce always more, with less. This is the only path that will allow TAP to remain competitive. In a year, such as 2009, in which the offer is reduced, there is a tendency to produce less per capita. It is thus essential to intensify efforts to reduce other cost factors, and that materialized. We have extremely important Company areas that improved their level of efficiency, having contributed significantly towards results: the aggregation of PGA operations, for example, allowed the support areas to provide, practically with the same number of staff, additional services to another company, thus diluting costs. Consequently, in global terms, at Grupo TAP an increase in efficiency was also achieved. In addition, we developed several cost reduction programmes and it is also important to mention the personal sacrifice of employees, regarding whom it has not been possible to, in the last few years, increase their salaries in line with the inflation rate.
ANNUAL REPORT | 2009
Interview with the Chairman of the Executive Board of Directors
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Did TAP take an important step in guaranteeing its development and sustainability? I separate the sustainability issue into two areas. The first is economic. In this regard, we have serious concerns, largely due to the bad results of 2008. We inherited an additional concern, which is the Company’s equity. In 2009, however, TAP resumed the recovery process that it had been pursuing since 2004, with increasing results, made possible by focusing on niche markets that allow for sustainable development. The best illustration of this recovery is that, in a year of extreme crisis in the air transport market and in the world economy, such as 2009, TAP S.A. managed to achieve good results and the Grupo TAP came close to breaking even. The other approach to this issue has to do with the social and environmental sustainability of the organization. Regarding this essential aspect, we were pioneers at a worldwide level in the launch of the Carbon Emissions Compensation Programme in partnership with IATA – which earned us the Planet Earth award from UNESCO in 2009. In addition, we continued our CO2 emissions reduction programmes with enormous success. To highlight just a few numbers: we reduced CO2 emissions by 63 thousand tons, in 2009 alone, mainly through the institution of new flight operation processes. We have a strong environmental consciousness and also promote transversal programmes of water and energy reduction, industrial and common waste recycling and awareness raising and mobilization of Grupo TAP employees. We assume our environmental commitment in an increasingly active manner. Was the reduction of costs achieved without sacrificing levels of service quality? On the contrary, we succeeded in greatly improving those levels in 2009. In the past, we had immense difficulties with the quality of service. During 2009, the Company registered significant improvements in terms of punctuality, baggage delivery and in the entire passenger attendance and quality service process as a whole. This was demonstrated through several recognitions, such as the World Travel Award. This fact
also allowed us to grow in terms of the movement of passengers through the hub, coming from Africa and Brazil to Europe and vice-versa, with high levels of quality and Customer satisfaction. We continued the important work at Lisbon airport in partnership with ANA, Groundforce and the Aliens and Borders Service (SEF), in an Integrated Action for Service Improvement (AIMS) project directed at passengers, which was very important. We created new services, such as Personalized Assistances or Premium Boarding, we extended access to Fastrack and the possibility of online check-in for several stopovers … In 2009 we also launched more modern ways to communicate and relate with our Customers, examples of which include the TAP Mobile portal, flashmobs, TAP’s presence on social networks … All of these are new services and a means of improving the relationship with Customers. That growth and improvement in spite of increasingly tougher competition … Partly due to the growth in terms of passengers that TAP has experienced, the Portuguese market has become increasingly interesting for airline companies. There are already about 22 low cost companies operating in Portugal and that forces us to have different, more competitive attitudes to those competitors, with new products, new ways of facing the market, which we have been very successful in achieving. What is important is the existence of a loyal, open and transparent competition but, oftentimes, even in terms of the way the service is provided, there are benefits that distort competition. TAP has, for more than 13 years, received no type of State support. On the contrary, it has brought many benefits to the Portuguese State. To mention just one example, last year TAP was the largest national exporter, at a crucial moment for the Portuguese economy. In 2009 we sold about 1.4 billion euros abroad, an important contribution to the Portuguese economy that should be recognized.
In addition, TAP is also a vital partner of the Tourism sector? We are the main gateway for tourists into Portugal, we are the visiting card of the Country, we are conscious of that and of its increasing importance. There have been increasingly significant efforts undertaken by Portugal to attract tourism and TAP is historically and will continue to be the main instrument of promotion and attraction of tourists. But I would also like to mention that the growth of TAP over the last few years has enabled facilitated access to most countries in Europe. In 2009, in a year of deep crisis, we continued to launch new destinations, such as Moscow, Helsinki and Warsaw. Our frequency of flights to several European capitals greatly facilitates economic trade processes and business and tourism contacts, which has allowed Portugal to obtain a position of greater relevance in Europe. In addition, the ties with Brazil and several countries in Africa also foment the development of Portugal as a bridge to all these markets. Regarding recent investments, did 2009 confirm them as appropriate choices? Last year, M&E Brazil reached break-even point, not yet at an operational level, but with extraordinary results, demonstrating that it already has a strategy to, in time, achieve the return that we expect from that business. Another extremely important investment, following the previous year’s consolidation, was that of PGA, whose return was above expectations. PGA is a fundamental tool for our participation in medium-sized markets.
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Shareholder Structure of Grupo TAP
ANNUAL REPORT | 2009
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Shareholder Structure of Grupo TAP
ANNUAL REPORT | 2009
Shareholder Structure of Grupo TAP December 31, 2009
At the end of 2009, the Group of companies that were part of the consolidation perimeter of the TAP holding was made up of TAP–Transportes Aéreos Portugueses, SGPS, S.A. and its subsidiaries, according to the organisational diagram below.
100%
100% 100%
100% TAP–AIR TRANSPORT
51%
(*)
51%
TAP–MAINTENANCE AND ENGINEERING
100%
100% 99%
1%
6% 43,9% 50,1% 100%
10% 98,64% TAP–Maintenance and Engineering Brazil, S.A.
(*) Control held by an independent entity, according to the deliberation of the Competition Authority.
0,001%
75%
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Corporate Governance
ANNUAL REPORT | 2009
Corporate Governance Corporate Governance Model The Corporate Governance model adopted by TAP since 2006 has significantly contributed to the consolidation of a management practice based on principles of accountability. The coexistence, in the same governance structure, of the Executive Board of Directors, the General and Supervisory Board, and the Specialised Audit Commission and the Specialised Sustainability and Corporate Governance Commission has enabled, through organic specialisation, a more effective separation of the executive management and corporate supervisory duties. In the performance of these duties, the Corporate Governance of TAP also relies on the Statutory Auditor (Supervisory Body) and the advisory services of an External Auditor. On the other hand, the assessment of the experience of the mandate 2006/2008 has permitted the introduction of amendments to the Articles of Association which are considered more suitable to the Company and a clearer definition of the attributions and duties of its Governing Bodies. Through these amendments to the Company’s memorandum of association, the Shareholders sought to ensure greater effectiveness of Corporate Governance, in this way adding value to the Company. This same line of reasoning has presided, in the context of the current Corporate Governance model, over the interaction between its Governing Bodies, as well as over its relationship with the Shareholder and other Stakeholders of the Company.
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Corporate Governance
ANNUAL REPORT | 2009
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Governing Bodies TAP–Transportes Aéreos Portugueses, SGPS, S.A. TAP, S.A. Through deliberation at the General Meeting Committee of 2nd June, 2009, for the three-year period 2009-2011.
Through deliberation of the General and Supervisory Board, in a meeting on 26th June, 2009.
General Meeting Committee Chairman Paulo Manuel Marques Fernandes Vice-Chairman António Lorena de Sèves Secretary Orlanda do Céu S. Sampaio Pimenta d’ Aguiar
Specialised Auditing Commission Manuel Soares Pinto Barbosa Carlos Alberto Veiga Anjos (up to June 2009) João Luís Traça Borges de Assunção Maria do Rosário Miranda Andrade Ribeiro Vítor (up to June 2009) Rui Manuel Azevedo Pereira da Silva (since June 2009)
Structure of the Executive Board of Directors, the General and Supervisory Board and the Specialised Commissions Executive Board of Directors Chairman Fernando Abs da Cruz Souza Pinto Member Fernando Jorge Alves Sobral 1 Member Luís Manuel da Silva Rodrigues 3 Member Luiz da Gama Mór 6 Member Manoel José Fontes Torres 2 Member Michael Anthony Conolly 5
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COMPANY SECRETARY Through deliberation of the Executive Board of Directors, in a meeting on 23rd June, 2009.
General and Supervisory Board Chairman Manuel Soares Pinto Barbosa 10 Member Carlos Alberto Veiga Anjos 7 Member João Luís Traça Borges de Assunção 13 Member Luís Manuel dos Santos Silva Patrão 12 Member Maria do Rosário Miranda Andrade Ribeiro Vítor Member Rui Manuel Azevedo Pereira da Silva 11 Member Vítor José Cabrita Neto 8
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Specialised Sustainability and Corporate Governance Commission Manuel Soares Pinto Barbosa Carlos Alberto Veiga Anjos João Luís Traça Borges de Assunção Luís Manuel dos Santos Silva Patrão Maria do Rosário Miranda Andrade Ribeiro Vítor Rui Manuel Azevedo Pereira da Silva Vítor José Cabrita Neto
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Company Secretary Orlanda do Céu S. Sampaio Pimenta d’ Aguiar Alternate Company Secretary Alda Maria dos Santos Pato 9
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Corporate Governance
ANNUAL REPORT | 2009
MEETINGS OF THE BOARD OF DIRECTORS During 2009, 13 meetings were held by the Board of Directors of TAP, SGPS, S.A. and 20 meetings were held by the Board of Directors of TAP, S.A.. Main Deliberations of the Boards of Directors in 2009 TAP, SGPS, S.A.
Approval of the 2009-2012 Strategic Plan
Contingency Plan of the H1A Flu Pandemic for the Grupo TAP
TAP, S.A.
Acquisition of 50.1% of the share capital of SPdH and agreement with Europartners for an interim management solution
Programme for the Reduction of CO2 Emissions (Carbon Offset)
Opening of New Routes – Moscow, Helsinki, Warsaw and Valencia
Supervision of the Company Official Accountant By Decision in General Meeting Committee on June 2, 2009, for the 2009-2011 period. Permanent Oliveira, Reis & Associados represented by José Vieira dos Reis Alternate Fernando Marques Oliveira
External Auditors PricewaterhouseCoopers & Associados
Remuneration Status of the Governing Bodies > The remunerations of the Governing Bodies of TAP are set by General Meeting (see Article 11 of the Statutes of TAP, SGPS). > The members of the Executive Board of Directors and the General and Supervisory Board are remunerated, exclusively, for the functions exercised at TAP, S.A., not earning any remuneration for functions exercised at TAP, SGPS or any other company of Grupo TAP.
Remunerations set for the 2006-2008 period (in Minute no. 1/2007 of the Remunerations Commission of TAP, S.A.) Cf. By Unanimous Board Decision in Writing on 29 July, 2009, “(…) for the three-year period 2009-2011 there will be no alteration of the remuneration status (…)”. EXECUTIVE BOARD OF DIRECTORS Chairman Fixed Compensation Fixed remuneration: Gross monthly remuneration of EUR 30,000, paid 14 months a year. Meal Subsidy: Application of the Labour Agreement for active permanent staff. Variable Compensation Variable Short Term Compensation: Attribution of the variable remuneration component in accordance with the fulfilment of annually measurable objectives, with a maximum annual limit of 75% of the total Annual Fixed Compensation. Variable Long Term Compensation: Attribution of the variable remuneration component in accordance with the fulfilment of pluriannual (mandate) measurable objectives, with a maximum limit of 75% of the total accumulated Fixed Compensation of the mandate. Benefits Life insurance, health insurance and personal accident insurance: In force at the Company, according to the model applicable to all employees. Vehicle policy: Attribution of a service vehicle up to a maximum rental of EUR 1,260, which includes motor insurance and maintenance costs, for a three-year period, and covers the use of via verde, parking and fuel (in compliance with the provisions of articles 32 and 33 of DL no. 71/2007 of 27 March, the annual maximum limit for fuel expenses was set at EUR 4,000). Telephone expenses: Use of the service mobile phone (in compliance with the provisions of articles 32 and 33 of DL no. 71/2007 of 27 March, the annual maximum limit for expenses related with mobile phone use was set at EUR 9,000). Company credit card: Exclusively to cover documented expenses associated with the exercise of functions at the Company’s service.
ANNUAL REPORT | 2009
Corporate Governance
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Members Fixed Compensation Fixed remuneration: Gross monthly remuneration of EUR 20,000, paid 14 months a year. Meal Subsidy: Application of the Labour Agreement for active permanent staff. Variable Compensation Variable Short Term Compensation: Attribution of the variable remuneration component in accordance with the fulfilment of annually measurable objectives, with a maximum limit of 75% of the total Annual Fixed Compensation. Variable Long Term Compensation: Attribution of the variable remuneration component in accordance with the fulfilment of pluriannual (mandate) measurable objectives, with a maximum limit of 75% of the total accumulated Fixed Compensation of the mandate. Benefits Life insurance, health insurance and personal accident insurance: In force at the Company, according to the model applicable to all employees. Vehicle policy: Attribution of a service vehicle up to a maximum rental of EUR 865, which includes motor insurance and maintenance costs, for a three-year period, and covers the use of via verde, parking and fuel (in compliance with the provisions of articles 32 and 33 of DL no. 71/2007 of 27 March, the annual maximum limit for fuel expenses was set at EUR 4,000). Telephone expenses: Use of the service mobile phone (in compliance with the provisions of articles 32 and 33 of DL no. 71/2007 of 27 March, the annual maximum limit for expenses related with mobile phone use was set at EUR 9,000). Company credit card: Exclusively to cover documented expenses associated with the exercise of functions at the Company’s service. Through Unanimous Corporate Deliberations in Writing of 14th May 2009 and 29th July 2009, the directors whose residence was not originally in Portugal benefit from the right to receive accommodation allowances under the Status of Expatriate Staff conferred to workers of TAP, S.A.. GENERAL AND SUPERVISORY BOARD Chairman: Gross monthly remuneration of EUR 6,000, paid 14 months a year. Members: Gross monthly remuneration of EUR 4,000, paid 14 months a year. A supplementary monthly remuneration of EUR 3,000 is attributed to the members of the General and Supervisory Board that participate in the Specialised Auditing and Sustainability and Corporate Governance Commissions.
Remunerations set for the 2006-2008 period (in Minute no. 1/2007 of the Remunerations Commission of TAP, S.A.) Cf. By Unanimous Board Decision in Writing on 29 July, 2009, “(…) for the three-year period 2009-2011 there will be no alteration of the remuneration status (…)”. GENERAL MEETING COMMITTEE Chairman: Attendance money, in the gross amount of EUR 640. Vice-Chairman: Attendance money, in the gross amount of EUR 400. Secretary: Attendance money, in the gross amount of EUR 330. OFFICIAL ACCOUNTANT Remuneration is regulated by the values of the indicative benchmark recommended by the Portuguese Institute of Statutory Auditors (Article 60 of DL no. 487/99 of 16 November): Annual amount of EUR 13,800, VAT is added under the terms of the law.
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Corporate Governance
ANNUAL REPORT | 2009
Remunerations earned in 2009 General and Supervisory Board
Unit: €
Manuel Carlos Rui Azevedo Maria do Pinto Veiga João Borges Vítor Pereira Rosário Barbosa Anjos de Assunção Cabrita Neto Luís Patrão* da Silva Ribeiro Vítor (Chairman) (Member) (Member) (Member) (Member) (Member) (Member)
1. remuneration 1.1 Base remuneration 126,000.00 98,000.00 98,000.00 98,000.00 35,000.00 98,000.00 1.2 Accumulation of management functions - - - - - - 1.3 Supplementary remuneration - - - - - - 1.4 Management prizes (......months) - - - - - - 1.5 Others (identify in detail) - - - - - - 2. Other benefits and compensation 2.1 Telephone use expenses - - - - - - 2.2 Value of acquisition, by the company, of the service vehicle - - - - - - 2.3 Value of fuel spent on service vehicle - - - - - - 2.4 Travel allowance - - - - - - 2.5 Meal subsidy - - - - - - 2.6 Others (identify in detail) - - - - - - 3. Company Benefit Costs 3.1 Compulsory social security 14,966.14 14,966.14 14,966.14 14,966.14 5,345.06 14,966.14 3.2 Health insurance - - - - - - 3.3 Life insurance - - - - - - 3.4 Others (identify in detail) - - - - - - 4. Additional Information 4.1 Option of original salary (y/n) No No No No No No 4.2 Social Security Regime Social Sec. Social Sec. Social Sec. Social Sec. Social Sec. Social Sec. 4.3 Compliance with No. 7 of RCM 155/2005 Yes Yes Yes Yes Yes Yes 4.4 Year of acquisition of vehicle by company - - - - - - 4.5 Exercise option acquisition of service vehicle No No No No No No 4.6 Usufruct of company house No No No No No No 4.7 Exercise of remunerated functions outside the Group Yes Yes Yes Yes Yes Yes 4.8 Others (identify in detail) - - - - - -
Executive Board of Directors Fernando Michael Fernando Manoel Pinto Conolly Luíz Mór Jorge Sobral Torres Unit: € (Chairman) (Member) (Member) (Member) (Member) 1. Remuneration 1.1 Base remuneration 420,000.00 280,000.00 280,000.00 280,000.00 280,000.00 1.2 Accumulation of management functions - - - - - 1.3 Supplementary remuneration - - - - - 1.4 Management prizes - relative to 2007 (29% of annual remuneration) 121,800.00 81,200.00 81,200.00 81,200.00 81,200.00 1.5 Others (identify in detail) - - - - - 2. Other benefits and compensation 2.1 Telephone use expenses 7,301.99 1,577.69 2,798.76 2,497.88 2,787.50 2.2 Value of acquisition, by the company, of the service vehicle - - - - - 2.3 Value of fuel spent on service vehicle ** 3,942.33 1,751.66 1,086.46 1,539.10 3,927.00 2.4 Travel allowance - - - - - 2.5 Meal subsidy 1,123.20 1,048.32 1,099.80 1,062.36 1,085.76 2.6 Others (renting of service vehicle) 14,770.97 10,943.66 10,943.66 11,332.08 10,943.66 3. Company Benefit Costs 3.1 Compulsory social security 14,966.15 66,500.00 66,500.00 66,500.00 66,500.00 3.2 Health insurance 858.66 858.66 858.66 858.66 858.66 3.3 Life insurance 11,246.05 20,483.08 8,513.10 11,246.05 47,492.66 3.4 Others (Personal Accident Insurance) 976.45 976.45 976.45 976.45 976.45 4. Additional Information 4.1 Option of original salary (y/n) No No No No No 4.2 Social Security Regime Social Sec. Social Sec. Social Sec. Social Sec. Social Sec. 4.3 Compliance with No. 7 of RCM 155/2005 Yes Yes Yes Yes Yes 4.4 Year of acquisition of vehicle by company - - - - - 4.5 Exercise option acquisition of service vehicle No No No No No 4.6 Usufruct of company house No No No No No 4.7 Exercise of remunerated functions outside the Group No No No No No 4.8 Others-Payment of Accommodation Expenses in Portugal (net value) 55,383.72 55,383.72 55,383.72 - 55,383.72 (*) Only received remuneration until May/2009, out of choice (**) Shared utilization with Support Services to the Governing Bodies
98,000.00 -
-
-
No Yes No No Yes -
Luís Silva Rodrigues (Member) 161,773.79 -
661.95 1,833.24 641.16 676.00
9,621.10 500.89 569.60
No Social Sec. Yes No No No -
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Corporate Governance
ANNUAL REPORT | 2009
Remuneration 2009 General Meeting Committee Unit: € Attendance Money (2 meetings) TAP, SGPS, S.A. Attendance Money (2 meetings) TAP, S.A.
Chairman Vice - Chairman 1,280.00 1,280.00
Secretary
800.00 800.00
660.00 660.00
Official Accountant Unit: € Contractual Remuneration TAP, SGPS, S.A. (net of VAT) Contractual Remuneration TAP, S.A. (net of VAT)
13,800.00 32,100.00
Company Internal Regulations Risk management, as a pillar of the corporate culture of Grupo TAP, is inherent to all management processes and is assumed as a constant concern of all managers and employees of the Group, through the identification, management and control of the uncertainties and threats which might affect the different businesses, in a perspective of continuity of the operations and the making the most of business opportunities. At the same time, the Company has developed and implemented a series of Internal Regulations composed of Codes of Conduct and Good Practices, of which the following are of particular importance: > The Code of Ethics – As a statement of the principles, ideals and charter of intentions, the Code of Ethics is a document where the Company establishes objectives of an ethical and behavioural character for business with its stakeholders, that is, with its suppliers, workers and/ or customers, financial institutions, the local community and national economy, amongst others. This Code contains a statement of objectives – the mission of the Company – the fundamental ethical principles and the implementation of this mission and these objectives in specific areas of particular interest, seeking to safeguard the principles of transparency and independence in the businesses on the part of the different participants in these businesses; > The Procurement and Sales Directives and Duties – The procurement areas, as the services responsible for the provisioning process, must endeavour to ensure compliance with the applicable legislation and directives in force at TAP, in their respective areas of intervention. The regulation establishes the delegation of duties, so as to ensure the implementation of the different responsibilities in the procurement areas within the Company; > The Financial Directives (Head Office and Representations) – The Company has produced internal regulations for the purpose of guaranteeing effective internal control in the context of the action of the financial function, as well as regarding the action and delegation of duties in this area; > The Contractualisation Regulation – Through the establishment of Exchange Agreements, the Company has constituted a Regulation for the establishment of contracts by which the parties undertake to exchange services between one another. All services which are tradable may be exchanged, with situations of goods of different utility and/or value being assessed through criteria. Internal Auditing, as an activity subject to international rules which manage the profession, complies with the standards of the IIA (Institute of Internal Auditors), regarding compulsory Attribution Standards: > > > >
Standard 1000 – Purpose, Authority and Responsibility Standard 1100 – Independence and Objectivity Standard 1200 – Proficiency and Professional Dedication Standard 1300 – Quality Guarantee and Improvement Programmes
Likewise, in coordination with IPAI (Portuguese Institute of Internal Auditors), Internal Auditing promotes the benchmarking of the best practices of the profession, and stimulates the training of its professionals.
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Corporate Governance
ANNUAL REPORT | 2009
Risk Management The objectives which are considered to be of risk mitigation and management are being fulfilled in the following areas of action: Existence of plans and coordinated systems aimed at controlling uncertainties, preventing the occurrence of errors and irregularities, minimising their consequences and maximising the performance of the organisation and the reliability of its information, with the following main players: > > > >
Internal policies and procedures; Persons responsible for each Business Unit and operating managers; Risk management; Internal auditing.
The policies and procedures for internal control are monitored, in the area of the preventive activity of the Internal Audit Department, so as to ensure the following aspects: > > > > > > >
A correct segregation of functions; Definitions of authority and responsibility; The safeguarding of the Group’s assets; The control, legality and regularity of the operations; The implementation of the plans and policies defined from above; The integrity and precision of the accounting records; The effectiveness of the management and quality of the information produced.
In turn, the mission of the Internal Audit function, as the activity supporting the risk management process, is to facilitate the process of the creation of value, through a systematic and structured approach to the development and assessment of the effectiveness of the management and risk control of the business process and information system. In 2009, the Company continued the risk assessment process, supported by a standard and systematic methodology, based on the international standard of Enterprise Risk Management – Integrated Framework of COSO (The Committee of Sponsoring Organizations of the Treadway Commission), which includes, namely: > The identification and systematisation of the risks which affect the organisation (common language); > The definition and grouping of the risks (dictionary and matrix of risks); > The assessment and attribution of a degree of criticality and priority of the risks according to their impact on business objectives and probability of occurrence; > The identification of the most important (critical) causes of risk; > The assessment of the risk management strategies (options).
Code of Ethics In 2007, the Executive Board of Directors of TAP, SGPS approved the Code of Ethics of Grupo TAP, having been presented to the General and Supervisory Board and the Specialised Sustainability and Corporate Governance Commission, taking into account the responsibilities in accordance with Article 21, No.3 l) of the Company’s Statutes. As an important management instrument for all Grupo TAP companies, the Code of Ethics commits all Employees (Members of the Governing Bodies and remaining Employees), having been, from this point of view, subject to extensive promotion through the resources available at companies, having also been included in both the Welcome Manual and the adequate Professional Training Modules. These objectives are available on the intranet and on the Company’s official website and are shared with the suppliers, service providers and other stakeholders, creating a bidirectional process of involvement and mutual accountability.
Corporate Governance
ANNUAL REPORT | 2009
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Principles of Good Governance Evaluation of the degree of compliance with the principles of Good Governance, which TAP is committed to in accordance with the resolution of the Council of Ministers No. 49/2007.
Principles of Recommendations Good Governance Mission, Objectives and General Principles of Action
Degree of Compliance
Mention in the Report
> Obligation of compliance, respect and dissemination, of the mission, objectives and policies, for TAP and the associated companies it controls, set in an economic, financial, social and environmentally efficient manner;
Fulfilled.
Corporate Governance and Sustainability Report
> Elaboration of budgets in accordance with the resources and sources of funding available, taking into account their mission and the objectives set;
Fulfilled.
Annual Report
> Adoption of equality plans, so as to attain a definitive equality of treatment and opportunities between men and women, eliminating discrimination based on gender and enabling a balance between professional, family and personal life;
Fulfilled.
Corporate Governance and Sustainability Report Code of Ethics
> Annual information report issued to regulatory bodies and the general public on how the mission was conducted, degree of compliance with objectives, means of fulfilment of social responsibility and sustainable development policy and means of ensuring its competitiveness;
Fulfilled.
Corporate Governance and Sustainability Report
> Compliance with legislation and regulations, applicable to the three axes of economic, environmental and social sustainability;
Fulfilled.
Corporate Governance and Sustainability Report
> Obligation of treating all employees with respect and integrity and contribute towards their personal development;
Fulfilled.
Corporate Governance and Sustainability Report Code of Ethics
> Obligation of treating customers, suppliers and others with legitimate rights with equity.
Fulfilled.
Code of Ethics Corporate Governance and Sustainability Report
Management and Supervision Structures
Remuneration and Other Rights
> The governance model must ensure the effective segregation of management and supervisory functions;
Fulfilled.
Annual Report Corporate Governance and Sustainability Report (existence of a Dualist Management Model)
> Companies of a large-scale and complexity must have their accounts audited by independent entities with identical standards to those practiced by companies with shares quoted on regulated markets; the members of the supervisory body are responsible for selecting, confirming and hiring auditors, for the approval of any other services outside the scope of the auditing function and to act as interlocutors between the company and auditors.
Fulfilled.
According to the report on activities of the General and Supervisory Board
> Annual divulgation of the total remunerations (fixed and variable) earned by each member of the management body;
Fulfilled.
TAP website
> Annual divulgation of the remunerations earned by each member of the supervisory body;
Fulfilled.
> Annual divulgation of any other benefits (health insurance, use of a vehicle and other benefits granted by the company).
Fulfilled.
Annual Report TAP website Annual Report TAP website Annual Report
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ANNUAL REPORT | 2009
Principles of Recommendations Good Governance Prevention of conflicts of interest
Degree of Compliance
Mention in the Report
> Obligation of members of corporate bodies to abstain from intervening in decisions involving their own interests;
Fulfilled.
Ethics Code
> Obligation of members of corporate bodies to declare any important shareholdings they hold in the company;
Fulfilled.
Communication to the Court of Auditors, the Constitutional Court and others, in compliance with legal obligations
> Obligation of members of governing bodies to declare any relevant relationships maintained with suppliers, customers, ICs or others, which may generate conflicts of interest.
Fulfilled.
Ethics Code
Statutes
Statutes
Divulgation of > Communicate immediately all information that they have knowledge of, which Fulfilled. relevant information may have a significant effect on the economic, financial and asset situation of the company;
Code of Ethics
> Make available for divulgation on the site of State-owned companies, in a clear, relevant and updated manner, all the abovementioned information, the historical and updated financial information of the company and the identity and curricular elements of all the members of its governing bodies;
Fulfilled.
Connection of the TAP website to the Parpública website
> Include in the Management Report a point on corporate governance (internal and external regulations which TAP is subject to, information on relevant transactions with related entities, remuneration of members of governing bodies, sustainability analysis and evaluation of the degree of compliance with the principles of good governance).
Fulfilled.
Annual Report
Note – The Code of Ethics and Statutes are available on the TAP website
List of the suppliers of TAP, S.A. which represent more than 5% of the total supplies and services provided by third parties to the Company Account Supplier A0387 5400 1047 P040
PETROGAL–PETRÓLEOS DE PORTUGAL EUROCONTROL – UE ANA SPdH
EUR
%
151,852,501.25 95,097,462.57 82,926,022.02 76,695,517.59
11.0 6.9 6.0 5.6
ANNUAL REPORT | 2009
Corporate Governance
Annex Functions exercised by the Members of the Management Body in other Companies >
Fernando Abs da Cruz Souza Pinto Chairman of the Board of Directors of TAP, S.A. Chairman of the Board of Directors of Portugália–Companhia Portuguesa de Transportes Aéreos, S.A. (PGA) Chairman of the Board of Directors of TAPGER–Sociedade de Gestão e Serviços, S.A. Chairman of the Board of Directors of Reaching Force, SGPS, S.A.
>
Fernando Jorge Alves Sobral Executive Director of TAP, S.A. Non-executive Director of Portugália–Companhia Portuguesa de Transportes Aéreos, S.A. (PGA) Chairman of the Board of Directors of TAP–Maintenance and Engineering Brazil, S.A. (ex-VEM)
> Luís Manuel da Silva Rodrigues Executive Director of TAP, S.A. Non-executive Director of SPdH–Serviços Portugueses de Handling, S.A. >
Luiz da Gama Mór Executive Director of TAP, S.A. Chairman of the Board of Directors of CATERINGPOR–Catering de Portugal, S.A. Chairman of the Board of Directors of L.F.P.–Lojas Francas de Portugal, S.A.
> Manoel José Fontes Torres Executive Director of TAP, S.A. Non-executive Director of Portugália–Companhia Portuguesa de Transportes Aéreos, S.A. (PGA) >
Michael Anthony Conolly Executive Director of TAP, S.A. Non-executive Director of SPdH–Serviços Portugueses de Handling, S.A. Non-executive Director of Portugália–Companhia Portuguesa de Transportes Aéreos, S.A. (PGA) Non-executive Director of TAPGER–Sociedade de Gestão e Serviços, S.A. Chairman of the Board of Directors of U.C.S.–Cuidados Integrados de Saúde, S.A. Chairman of the Board of Directors of MEGASIS–Sociedade de Serviços e Engenharia Informática, S.A.
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ANNUAL REPORT | 2009
Main curricular elements and professional activities undertaken by the Members of the General and Supervisory Board Manuel Pinto Barbosa Nationality: Portuguese | Date of birth: May 1944 Appointed Chairman of the Board of Directors of TAP, S.A. and TAP, SGPS, S.A. (between September 2004 and December 2006) and Chairman of the General and Supervisory Board of TAP, S.A. and TAP, SGPS, S.A., Chairman of the Specialised Auditing and Sustainability and Corporate Governance Commissions (since December 2006). Professional Activity: Chairman of the Board of Directors, Nova Forum (2005) | Non-executive Director, PTII (2002-06) | Member of the Advisors Committee, Barclays Bank (1996-99) | Non-executive Director, Portucel Industrial (1995-98) | Member, Executive Council of the Luso-American Foundation (1994-2006) | Vice-Chairman, Economic and Social Board (1992-93) | Member, Expert Commission of the ACE programme (ECE) (1990) | Member, Expert Commission of the Tinker Foundation (1989) | Member, Expert Commission of the SPES programme (ECE) (1989) | Member, Commission in charge of the negotiation of the Portugal-USA Defence Agreement (1981-84) | Founding shareholder, Association for the Study of International Relations (1978-83) | Consultant, Portuguese Industrial Association (1970-72) | Officer of the Naval Reserve, Portuguese Armada (1967-69). University Positions: Member of the Installing Commission, Faculdade de Economia of the Universidade Nova de Lisboa (FEUNL) | Acting-Director, FEUNL | Full Professor, FEUNL | Deputy Head, Universidade Nova de Lisboa (UNL) | Vice-Chancellor, UNL | Vice-Chairman, UNICA, network of universities from European capitals | Member, Installing Commission of the Faculty of Law of the UNL | Provost of International Issues, Universidade Gama Filho (Brazil). Other Activities: Teaching and scientific research – Director of graduation and post-graduation courses and seminars (in the areas of Macroeconomics, Monetary Theory and Policy, Commerce and International Finance) at UNL and other universities | Coordinator of applied research projects, in the areas of External Relations of Portugal, Asset Market and Financial Systems, Macroeconomic Stabilisation.. | Holds a degree from the Instituto Superior de Ciências Económicas e Financeiras (ISCEF), Universidade Técnica de Lisboa | Masters, Yale University | PhD, Yale University | Recognition, UNL. Carlos Alberto Veiga Anjos Nationality: Portuguese | Date of birth: September 1942 Appointed Member of the General and Supervisory Board of TAP, S.A. and TAP, SGPS, S.A., Member of the Specialised Sustainability and Corporate Governance Commissions (since December 2006), Member of the Specialised Auditing Commission (December 2006-June 09). Professional Activity: Chairman of the Board of Directors, Hidroeléctrica de Cahora Bassa, S.A. (1999-2003) | Chairman of the Board of Directors and Director, Siderurgia Nacional, SGPS and Group Companies (1994-99) | Due to being inherent to the functions, representative of Portugal in the Consulting Committee of the ECSC–European Coal and Steel Community and at the IISI–International Iron and Steel Institute | Chief Executive Officer, SOPONATA–Sociedade Portuguesa de Navios Tanques, S.A.; Director, CIVE–Companhia Industrial de Vidros de Embalagem, S.A., in representation of IPE (1992-93) | Chief Executive Officer, Companhia de Celulose do Caima, S.A.; Chairman, ACEL– Associação Portuguesa dos Produtores de Celulose; representative of Portugal on the board of CEPI–Confederation of European Paper Industry (1988-91) | Director, EDM–Empresa de Desenvolvimento Mineiro, S.A., which played a significant part in the process of creation of SOMINCOR (1985-88) | Director, Ferrominas, E.P. (1977-85) | Director, Financial Director and Head of Services, Lusalite–Sociedade Produtora de Fibrocimento, S.A. (1968-77). | Holds a degree in Finance from ISCEF, Universidade Técnica de Lisboa. João Borges de Assunção Nationality: Portuguese | Date of birth: June 1962 Appointed Member of the Board of Directors of TAP, S.A. and TAP, SGPS, S.A. (between September 2004 and December 2006) and Member of the General and Supervisory Board of TAP, S.A. and TAP, SGPS, S.A., Member of the Specialised Auditing and Sustainability and Corporate Governance Commissions (since December 2006). Professional Activity: Economic Consultant to the President of the Republic, Civil Affairs Ministry of the President of the Republic (since 2006) | Member, Economic and Social Board (2003-04) | Economic Advisor to the Prime-Minister of Portugal, Office of the Prime-Minister of Portugal (2002-04) | CEO, Telecel Vodafone Foundation (2001-02) | Chairman, Supervisory Board of Eurocash Sp. z.o.o., Poland | Coordinator, Centre of Studies of the Economic Climate of the Portuguese Economy, CEA of FCEE of UCP | Advisor, Group on Societal Policy Analysis (GSPA), BEPA, Presidency of the European Commission.
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Corporate Governance
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Other Activities: Academic experience – Member, Strategic Orientation Board of the Faculdade de Ciências Económicas e Empresariais (FCEE) of the Universidade Católica Portuguesa (since 2005) | Associate Professor, Universidade Católica Portuguesa (since 1998) | Member, Scientific Board of the Instituto de Formação Bancária (1993-2004) | Director, FCEE (1996-2001) | Auxiliary Professor, Columbia University (1990-94) | Research Assistant and post-graduate student, UCLA (1986-90) | Research activity, teaching and professional interests – Marketing Management Models, Brand Strategy, Pricing, Promotions, Strategy, International Business, Service Industries, Dynamic Optimisation Models, Individual Decision Making, Game Theory, Economic Policy, Regulation, Economic Development and Growth. | Holds a degree in Business Administration and Management from the Universidade Católica Portuguesa of Lisbon | MBA in Management from UNL | Ph.D. in Management from the Anderson Graduate School of Management, UCLA. Vítor José Cabrita Neto Nationality: Portuguese | Date of birth: July 1943 Appointed Member of the General and Supervisory Board of TAP, S.A. and TAP, SGPS, S.A., Member of the Specialised Sustainability and Corporate Governance Commission (since December 2006). Professional Activity: Chairman, Board of Directors of the Group TEÓFILO FONTAINHAS NETO (Algarve) - agro-industrial, distribution, real estate and tourism sectors | Director, Globalgarve, Development Agency of the Algarve | Member, Directive Commission of the Operational Programme of the Algarve | Chairman, Corporate Association of the Algarve (NERA) | Vice-Chairman, Portuguese Industrial Association – Business Confederation | Member, Department of the European Union of Handicrafts and Small and Medium-sized Enterprises | State Secretary for Tourism in the XIII and XIV constitutional governments (1997 and 2002) | Deputy to the Assembly of the Republic. Other Activities: Honorary Consul of Italy in the Algarve | Chairman, Organising Commission of the International Fair of Tourism of Lisbon (BTL) | Columnist, Diário Económico | Speaker on the Tourism area. | Holds academic background in Management. Luís Manuel dos Santos Silva Patrão Nationality: Portuguese | Date of birth: December 1954 Appointed Member of the General and Supervisory Board of TAP, S.A. and TAP, SGPS, S.A., Member of the Specialised Sustainability and Corporate Governance Commission (since December 2006). Professional Activity: Chairman, Executive Council of Turismo Portugal, I.P. (since 2006) | Member, Board of Directors of ENATUR–Empresa Nacional de Turismo, S.A. (since 2006) | Chief of the Office of the Prime-Minister of the XVII Government (2005-06) | Main Advisor, Head of Division, Director of Services, Coordinator of the POSI/IC Project Team and Manager of the Telematic Network of Information to the Consumer and Consumers’ Portal Projects, Institute of the Consumer (1986/89 – 2001/04) | Chairman and Non-executive Director, Board of Directors of SÍTIOS, Serviços de Informação Turística (2001-04) | State Secretary for the Interior of the XIV Government (1999-2000) | Chief of the Office of the Prime-Minister of the XIII Government (1995-99) | Vice-Chairman and Chairman of the Executive Commission of DECO–Portuguese Consumer Rights Association (1989-95) | Chairman of the Executive Commission of Youth Hostels (1984-87) | Director of Services of the Support Fund for Youth Organisations (1978/1980 – 1983/1986). Other Activities: Arbitration Judge, Arbitration Centre of the Automotive Sector (2004) | Chief of the Office and Advisor, Parliamentary Group of the Socialist Party (1989/95 – 2004/05) | Deputy to the Assembly of the Republic by the Voting District of Faro (1999-2001) and Lisbon (1981-83) | Member, Parliamentary Commissions of National Defence, of Education and Science, of Youth and Labour. | Holds a degree in Law from the University of Coimbra. Rui Manuel Azevedo Pereira da Silva Nationality: Portuguese | Date of birth: June 1956 Appointed Member of the General and Supervisory Board of TAP, S.A. and TAP, SGPS, S.A., Member of the Specialised Sustainability and Corporate Governance Commission (since December 2006), Member of the Specialised Auditing Commission (since June 2009). Professional Activity: Consultant, Conference on the Maritime Peripheral Regions of Europe; Consultant, Coordination Commission of the North Region (since 2007) | Coordinator, State Secretariat and of Local Administration (2001-08) | Director, Prospective Cell of the Conference on the Maritime Peripheral Regions of Europe (1999-2007) | Founding shareholder (1990), General Director (1991-93); Chief Executive Officer (1994-95); Chairman of the Board of Directors (1996-99), Quaternaire Portugal, S.A. | Vice-Chairman, Commission of Coordination and Development of the North Region (1989-91) | Advance Technician, Commission of Coordination and Development of the North Region (1981-89). Other Activities: Academic experience – Invited Auxiliary Professor at the Faculty of Engineering of the University of Porto (since 1996). | Holds a degree in Economics from the Faculty of Economics of the University of Porto | Course of Technician in Cooperative Development of the United Nations Programme for the Development of the Instituto António Sérgio do Sector Cooperativo | General Management Course from the Instituto Superior de Estudos Empresariais of the University of Porto | Languages: English, French and Spanish.
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ANNUAL REPORT | 2009
Maria do Rosário Mattos Nationality: Portuguese | Date of birth: October 1960 Appointed Member of the General and Supervisory Board of TAP, S.A. and TAP, SGPS, S.A., Member of the Specialised Sustainability and Corporate Governance Commissions (since December 2006), Member of the Specialised Auditing Commission (December 2006-June 09). Professional Activity: Law practice (1985-2009) | Member, Boards of Directors of several Companies, namely from the tourism sector (2002-09) | Directress, RTP–Radiotelevisão Portuguesa, S.A.; Chairman, Board of Directors, EBS 2004; Member, Executive Council of the Emmy Awards; Member, Executive Council of OTI–Organización de las Televisiones Ibero-Americanas, RTP–Radiotelevisão Portuguesa, S.A. (19982002) | Vice-Chairman, General Meeting Committee of Auto-Leasing (1994-99) | Directress, SMP–Semicondutores de Portugal, S.A.; Directress, Tronitec–Componentes Eléctricos, S.A., Companhia Portuguesa Rádio Marconi (1992-95) | Chief Executive Officer and, subsequently, Chairman of the Board of Directors, IRENA, Investimentos e Participações em Recursos Naturais, SGPS, S.A.; Directress, Argitécnica, S.A.; Manageress, Empresa Águas de S. Lourenço, Lda.; Manageress, Empresa Fonte das Avencas, Lda.; Manageress, Ortes–Ornamental Resources, Lda., Amorim Group (1991-97) | Legal Consultant of a large company in the civil construction and public works sector, in the areas of Commercial and Corporate Law (1991-94) | Legal Advisor to the Governor of Macau; Member, Audit Board, CAM–Companhia do Aeroporto Internacional de Macau, S.A.R.L.; Legal Consultant, TDM–Televisão de Macau, E.P., Macau (1987-91) | Member, Board of Directors of several companies, namely, Expandindústria, S.A., Comismar Norte, Lda. and Ecassos, Lda. (1985-87) | Law internship, focusing essentially on Commercial Law, Labour Law, Civil Law and Administrative Law. | Holds a degree in Law (Legal Sciences area) from the Universidade Católica Portuguesa (UCP) | Post-Graduation in Management from the UCP | Post-Graduation in Turnaround Management and Bankruptcy, from the UCP | Post-Graduation in Commercial Law from the UCP | Course on Law Making | Course on Competencies Delegation | Languages: English, French and Spanish.
Main curricular elements and professional activities undertaken by the Members of the Management Body Fernando Abs da Cruz Souza Pinto Nationality: Portuguese | Date of birth: June 1949 Appointed Executive Chairman/CEO, at TAP (October 2000-December 2006); President of the Executive Board of Directors of TAP, S.A. and TAP, SGPS, S.A. (December 2006). Professional Activity: Chairman of the Council of IATA (June 2007-June 2008) | Chairman of AEA–Association of European Airlines (2005) | President of VARIG, S.A. (Viação Aérea Rio-Grandense) (1996-2000) | President (1992-96) and Technical Manager (1988-92) of RIO-SUL, Serviços Aéreos Regionais | Head of the Workshops and Maintenance Sub-department (1982-88); In-house engineer at Airbus Industries (Toulouse-France) (1981-82); Head of Motors Division (1976-81); Coordinating engineer of the Motors Test-Bench, responsible for coordinating the various phases of the project and the construction of a turbine test system in the industrial area of the International Airport of Rio de Janeiro (1973-76); Engineering trainee (Wheels and Brakes Workshop) (1972-73) at VARIG S.A. (Viação Aérea Rio-Grandense). Other Activities: Private Pilot | Glider Pilot | Sports Pilot of Ultra-light Aircraft. | Holds a degree in Mechanical Engineering from the Universidade Federal do Rio de Janeiro. As his final year graduation project he presented a prototype of the first hovercraft manufactured in Brazil, with technology introduced from England, following several internships in British manufacturing plants (Isle of Wight) | Machines and Motors Technical Course (Escola Técnica Federal do Rio de Janeiro) | Post-graduation Course in Management (Fundação Getúlio Vargas - Rio de Janeiro) | Several Technical Courses in the Aeronautics area | Languages: English and French. Fernando Jorge Alves Sobral Nationality: Portuguese | Date of birth: April 1949 Appointed Member of the Executive Board of Directors of TAP, S.A. and TAP, SGPS, S.A. (December 2006) Management Duties in the following areas: TAP Maintenance and Engineering Business Unit; PGA; TAP–Maintenance and Engineering Brazil, S.A. (ex-VEM). Professional Activity: Chairman of the Board of Directors of VEM (VARIG Engenharia e Manutenção) (2006) | Member of the Board of Directors, together with the functions of Vice-Executive Chairman of Maintenance and Engineering at TAP-Air Portugal at TAP, S.A. (2003) | Vice-Executive Chairman of Maintenance and Engineering at TAP-Air Portugal (2001) | General Director of Maintenance and Engineering (1996-2001); Assistant General Director of Maintenance and Engineering (1996); Head of the Maintenance-Processes team, having taken part in a project involving the global restructuring of the Company – TAP 2000 (1995-96); Head of the Components Service of the General Maintenance and Engineering Department (1990-96); Head of the Production Engineering Division of the Instruments, Electricity and Radio Service, of the General Maintenance and Engineering Department (1987-90); Electrical Engineer holding functions at the Engineering Service of the General Maintenance and Engineering Department (1979-87) at TAP | Electrical Engineer in the General Civil Aeronautics Department (Direcção Geral de Aeronáutica Civil) (1973-79).
ANNUAL REPORT | 2009
Corporate Governance
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Other Activities: Chairman of the European Aircraft Engineering & Maintenance Conference (2005) | Chairman of the 4th Managing Aircraft Maintenance Costs Conference (2003) | Vice-Chairman of the Airlines International Electronics Meeting (1995) | Technical representative of TAP for Airbus, in Toulouse, for the reception of TAP’s A340 fleet (1995) | TAP representative at the Airline International Electronics Meetings and at the Avionics Maintenance Conferences (1987-95) | Academic experience: Auxiliary Professor at the Instituto Superior de Engenharia de Lisboa (1989-97) | Assistant Professor at the Instituto Superior de Engenharia de Lisboa (1976-89) | Assistant Professor at the Instituto Superior Técnico (1972-75) | Monitor at the Instituto Superior Técnico (1970-72). | Holds a degree in Electrical Engineering, Electronics and Telecommunications Branch from the Instituto Superior Técnico). Luís Manuel da Silva Rodrigues Nationality: Portuguese | Date of birth: January 1965 Appointed Member of the Executive Board of Directors of TAP, S.A. and TAP, SGPS, S.A. (June 2009). Management Duties in the following areas: Air Transport Business Unit: Customer Service, Talk to Us; SPdH. Professional Activity: Chairman, Fischer Portugal (July 2008-May 2009) | Consultant, Confronto d’Ideias, Sociedade Unipessoal (January 2008-May 2009) | Fixed Network Marketing Director (2006-07); Director of Marketing, Corporate Business (2003-07), PT Comunicações | Executive Director of Marketing, Sales and Contents, Media Capital Multimédia; Executive Director, Unidivisa, Sociedade Gestora de Cartões de Crédito, Grupo Media Capital (2000-03) | Coordinating Director of Marketing, Public Relations, New Technologies, TVI, Televisão Independente, Grupo Media Capital (1999-00) | European Marketing Manager New Initiatives, Procter & Gamble Europe (1996-97) | Marketing Manager (1994-96); Brand Manager (1993-94); Assistant Brand Manager (1990-93), Procter & Gamble Portugal. Other Activities: Permanent member of the Committee for the Analysis and Research of Means of the Portuguese Advertisers Association (1999-00) | Elected member of the Board of the Portuguese Association of Advertising Agencies | Elected Marketing Personality of the Year for 2007 by the Portuguese Association of Marketing Professionals | Secretary-General of Harvard Business School (AMP 164 2003) | Total Quality Trainer (1995-96) Procter & Gamble Portugal. | Holds a licentiate degree in Economics from UNL | MBA from UNL | Advanced Management Program (AMP 164, 2003) from Harvard Business School, USA. Luiz da Gama Mór Nationality: Portuguese | Date of birth: April1952 Appointed Vice-Executive Chairman of Air Transport of TAP Portugal, of TAP, S.A. (October 2000-December 2006); Member of the Executive Board of Directors of TAP, S.A and TAP, SGPS, S.A. (December 2006). Management Duties in the following areas: TAP Air Transport Business Unit: Marketing, Communications and Public Relations, Sales, Cargo and Mail; Cateringpor; Lojas Francas de Portugal. Professional Activity: Chairman of the Board of Directors of Cateringpor (aviation catering company) | Chairman of the Board of Directors of LFP (airport and onboard duty free company) | Member of the Board of Directors of Groundforce (passenger and cargo ground handling company) | Vice-Chairman of Sales and Marketing; Commercial Director; Operational Logistics Director; Commercial Manager of RGS; Manager of EVAER–Escola VARIG de Aeronáutica of VARIG, S.A. (March 1990-June 2000) | Marketing Director; Administrative and Commercial Manager; Maintenance Manager of AEROMOT, S.A. (September 1977-February 1990). Other Activities: Professor of O Piloto e o Mercado at the Faculty of Aeronautical Sciences of PUC/RS (1995) | Professor of Estudo dos Problemas do Turismo no Brasil at the Faculty of Tourism of PUC/RS (1994) | Marketing Professor at the Management School of ULBRA/RS (1989) | Organization and Methods Professor at the Management School of ULBRA/RS (1984) | Member of the Commission that developed the Aeronautical Sciences Course of PUC/RS | Director (Adviser) of Pluna Linhas Aéreas Uruguaias S.A. | Member of the Executive Council of the Amadeus Brasil Company. | Holds a degree in Mechanical Engineering from the UFRGS | Post-graduation in Management (PPGA/UFGRS) | Airline Business, (London Business School) | Advanced Management Programme (INSEAD–France). Qualifications: Executive with 30 years of experience in Operations, Sales, Marketing and Top Management of medium-sized and large aviation and associated companies | Market diagnostic capability, construction of a vision of the future and elaboration of competition strategies in highly competitive environments | Experience in turnaround of companies operating in high pressure environments, including state-owned | Experience in managing large teams in international operations. Skilled in coordinating cultural changes, in motivational and recognition programmes seeking strategy alignment | Experience in rebranding, product development and building client loyalty | Coordination of corporate projects with consultancy companies with the aim of increasing efficiency, reducing costs and increasing revenues.
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ANNUAL REPORT | 2009
Manoel José Fontes Torres Nationality: Portuguese | Date of birth: June 1947 Appointed Vice-Executive Chairman of Air Transport of TAP Portugal, of TAP, S.A. (October 2000-December 2006); Member of the Executive Board of Directors of TAP, S.A. and TAP, SGPS, S.A. (December 2006). Management Duties in the following areas: TAP Air Transport Business Unit: Flight Operations, Fleet Planning, Network and Planning, Operational Control, International Relations and Alliances, Information Technologies, Emergency Planning; PGA. Professional Activity: Chairman of the Board of Directors of White Airways, S.A. | Vice-Executive Chairman–Corporate Planning and Route Network of VARIG, S.A. (Viação Aérea Rio-Grandense) | Member of the Board of Directors of PLUNA, S.A. (Uruguay) | General Director of ITAP–Indústria Técnica de Artefactos Plásticos (solid packages) | Manager of the Manufacturing Division of TOGA – Indústria de Papéis | Consultant for PLANASA (in the Planning and Systems areas). Other Activities: Member of the Management Board of STAR Alliance | Member of the Industry Affairs Committee of IATA. | Holds a degree in Mechanical Engineering from the University of Sao Paulo | Post-graduation in Management (Escola de Administração de Empresas de Sao Paulo of the Fundação Getúlio Vargas) | Completion of the following specialisation courses, among others: Management (INSEAD–France); Aircraft Fleet Planning–Cranfield College of Aeronautics (England); Aircraft System and Performance (The Boeing Commercial Airplane Company – USA). Michael Anthony Conolly Nationality: Portuguese | Date of birth: December 1949 Appointed Vice-Executive Chairman of TAP, S.A. (October 2000-December 2006); Member of the Executive Board of Directors of TAP, S.A. and TAP, SGPS, S.A. (December 2006). Management Duties in the following areas: TAP Serviços Business Unit; Responsibilities in the Grupo TAP: Finance, Human Resources, Logistics, Legal, Administration and Physical Resources Management, Planning/Business Portfolio and Performance; Information Technologies, Audit; Megasis; UCS; TAPGER; SPdH; PGA. Professional Activity: Chief Financial Officer of VARIG, S.A. (Viação Aérea Rio-Grandense) | Worldwide Controller of Bunge Internacional (agro-industrial group with activities in South, Central and North America, Europe, Oceania and Asia) | President of MCS Trading (Brazilian import and export company that also has retail operations in the following main markets: Brazil, United States of America, Europe and Asia | Controller for Latin America of Alcoa (Aluminium Co. of America, largest manufacturer of aluminium in the world). | Holds a degree in Management from the Escola de Administração de Empresas de Sao Paulo of the Fundação Getúlio Vargas | Accountancy (Escola Técnica de Comércio of the Fundação Getúlio Vargas) | Several specialisation courses in Brazil and overseas | Languages: Portuguese, English, Spanish and French. Qualifications: 30 years of professional activity in the Finance, Strategic Planning and Production areas and Chairmanship in the Service, Industrial, Agro-Industrial, Trading and Commercial Aviation sectors.
Corporate Governance
ANNUAL REPORT | 2009
TAP continues to invest in a management model that ensures the adoption of Social Responsibility policies reflected in the internal area, external area and corporate governance.
Sustainable Development of Grupo TAP Social Responsibility With respect for the commitments assumed, TAP has pursued a management policy that preserves the social responsibility values of the Company. The need to rationalise costs and improve the quality of the service provided has also led the Company to reorganise the Human Resources area. As main functional change, mention should be made of the creation of two areas: Human Resource Managers and functional Human Resource specialists. The management team of Human Resources, reporting directly to the director of Human Resources of Grupo TAP, works directly and in partnership with the heads of the
business units, with the mission of ensuring the satisfaction of the needs of the Human Resources area and building leadership, organisation and culture capacity, in order to add value to the business. In addition to focusing internally, the Company also directs its social responsibility investment towards the development of external projects. During the course of 2009, several actions in this context are worthy of mention.
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ANNUAL REPORT | 2009
International Youth Day – Every year, TAP participates in the commemoration of the International Youth Day, in partnership with the Portuguese Youth Institute, offering a 20% discount over the air fare.
SOCIAL RESPONSIBILITY TOWARDS EMPLOYEES
INTERNAL AREA Nursery – TAP maintains in its installations, open 24 hours a day, 365 days a year, a nursery for children aged 4 months - 5 years. Reeducation subsidy – Supplement to the monthly subsidy given by Social Security, or by another official organism, for the children of Employees with special education needs. Subsidy for school supplies – Subsidy given to school-age children of Employees, who are entitled to family allowance subsidy. Canteen – Located in the Company’s installations, the canteen serves approximately 3,200 meals per day, which includes lunches, dinners and suppers.
EXTERNAL AREA SOCIAL RESPONSIBILITY TOWARDS SOCIETY IN GENERAL
Support to the development of Community Institutions - In 2009, TAP supported various social solidarity institutions, by donating pushchairs and wheelchairs (resulting from the sale of lost and unclaimed luggage). Benefited institutions: > Banco de bens doados > Associação Jerónimo Usera > Centro Social de S. João do Estoril > Irmãs Missionárias da Caridade > Parish Council of S. Brás Donation of Miles to support humanitarian causes – TAP continues to support the donation of miles from members of the Victoria Programme to institutions of humanitarian support, namely: AMI; Cruz Vermelha Portuguesa; Terra dos Sonhos; Helpin; SCWC. Portugal no Coração Programme – Provides a visit to Portugal to Portuguese emigrants residing outside of Europe, aged over 60, who have not visited the Country in the last 10 years.
School/Company interchanges – Integration and supervision of young trainees, providing corporate experience. In 2009, TAP received 83 trainees, of which 41 came from Higher Education and 42 from Technical-Profession Education. TAP offers special conditions to university students of the Erasmus Programme – TAP has launched a campaign for university and/ or Erasmus students, who travel between Mainland Portugal and the Autonomous Regions of Madeira and the Azores. During the promotional period, TAP allows the transport of an additional 10 kg for free, which comes to a total of 30 kg in economic class (tap | plus, tap | classic, tap | basic, tap | discount) or 40 kg in executive class (tap | executive), irrespective of the air fare paid by the student. Care Team – Group of volunteers, made up of working employees, retirees and former employees, with a vocation for providing support to victims and their family members, in the event of an airplane accident or incident. Gain Wings Programme – Developed in partnership with the Grupo TAP company, UCS, which provides health care to its employees, the objective of the programme is to provide help to those that are afraid of flying by plane. Blood Donation – Encouraging participation in this citizenship action, and making available TAP installations for this purpose. National Social Responsibility Network of Organisations – Partnership, within the scope of the EQUAL initiative, with the aim of fostering and implementing Social Responsibility in Portugal, at public and private institutions. Agreement with the High Commissioner of the United Nations for Refugees – By associating itself, as a founding member, TAP intends to support and promote the mission of this Organisation, by cooperating in Projects and Campaigns.
Corporate Governance
ANNUAL REPORT | 2009
Promotion of Road Safety – In association with the European Commission, the Company committed itself to the development of a series of awareness raising actions among its Employees.
Summer Flight Programme – Initiative with the aim of providing the children of Employees with a close contact with the Organisation and the opportunity to become acquainted with the Company.
Actions to encourage healthy living habits – Development of several initiatives, with the Donations to Social Solidarity Institutions aim of promoting healthy living habits: Healthy and Projects – Through the donation of items Nutrition Week; International Nutrition Weeks; resulting from lost and unclaimed baggage, Health Index Screenings (BMI, blood pressure, the Company has also supported several diabetes, among others). Institutions in addition to those already Smoke free buildings – Creation of specific mentioned at the beginning of this chapter. spaces, outside buildings; Anti-tobacco TAP Museum integrates new Aviation consultations and awareness raising actions, Museum – TAP, the Portuguese Air Force promoted by UCS. and ANA signed a partnership protocol that Health Club – Located in the TAP complex will permit the opening of the new Aviation area, the gymnasium offers special conditions Museum. The new museum, built from scratch to all Employees, pre-retired and retired at Sintra Air Base, has its own exposition Employees, as well as their families. space, as well as joint expositions in hangar. By maintaining ownership of the collection, TAP now benefits from a larger exposition area, contributing to the birth of a new museum, which is likely to be quite appealing to the public, and in particular, for education institutions, which have always shown an interest in the TAP Museum.
Health – TAP has a Healthcare Unit in its facilities, which is open until 20h00 on working days, with the objective of providing healthcare services, with the added benefit of proximity to the workplace. Outside that period, home medical assistance is provided, as well as medical advice by telephone, available 24 hours a day.
CORPORATE GOVERNANCE
TAP develops Health Education and Promotion Plan for Employees – TAP, through UCS, continues to encourage the promotion of healthy life styles and habits, thus proceeding with its Health Education and Promotion Plan. The promotion of balanced dietary habits and regular physical exercise are elected as the key intervention areas for 2010.
Retirement pension supplement – Attribution of a Retirement Pension supplement granted by Social Security to Employees – recruited until May 31, 1993, to the permanent workforce – when they retire due to age or incapacity. Protocols established with various entities, to provide its Employees and their family members with several benefits, namely: personal loans, home loans, Investment Funds and Insurance; agreements with hotel units, rent-a-car and airline companies, among others; discounts on several goods and services. Ticket benefits – Offering flight seats, for free or at special discounts, conditioned by the availability of unsold seats.
Health Plan – Based on a collective health insurance policy, allowing access to medical services, at reduced rates, at the health clinics of the contracted network to all active, retired and pre-retired Employees under 65 years of age.
25
Solidarity Fund – Granting of repayable monetary loans to Employees and retired Employees, who find themselves in situations of exceptional economic need. Recognise Programme – Public recognition, for exceptional acts that contribute towards the achievement of remarkable results by the Company, highlighting, in this way, the commitment and dedication of Employees. Sympathy Programme – TAP launched again the Sympathy programme, offering customers the possibility of attributing praise to front-line employees. Professional Integration of People with Disabilities – Integration of several people with a disability in its permanent, temporary and trainee staff, performing various functions. New Opportunities: Learning Pays Off – Cooperation protocol between the National Agency for Qualification and the Employment and Professional Training Institute. Within the scope of this initiative, the Company aims to recognise, validate and certify skills that employees acquired throughout life, fomenting the personal and professional development of its employees. ASAS TAP – Association of Solidarity and Social Support of TAP Staff: supported by the Company, which as a honorific member, contributes with financial and logistic support, has already resulted in, among other supports, a social complex which can house up to 84 residents. TAP Club – Founded with the aim of promoting socio-cultural, sports and recreational activities for associates and family members, the Club is financially supported by TAP.
Avian Flu and H1N1 Management and Response Group – Group created with the objective of preparing a contingency plan Life Insurance – Coverage of the risks of for the Company in a pandemic scenario. death and permanent full disability. Has been monitoring events since the start Company social support – Support and of the new H1N1 flu virus, having adopted all counselling provided to Employees, in various the contingency procedures in line with the situations of their daily life. evolving situation.
26
Corporate Governance
ANNUAL REPORT | 2009
Environmental Responsibility STRONG COMMITMENT TO ENVIRONMENTAL RESPONSIBILITY ISSUES
CO2 EMISSIONS COMPENSATION PROGRAMME – CARBON OFFSET The programme launched by TAP in 2009 registered an excellent reception and participation on the part of passengers, having actually surpassed initial expectations and largely exceeded the objectives established by TAP.
The recognition of TAP’s commitment arrived in December 2009, when UNESCO and the International Union of Geological Sciences distinguished the Company with the 2010 Planet Earth Award, in the Most Innovative Sustainable Product category, for the launch of the Carbon Dioxide (CO2) Emissions Compensation Programme in partnership with IATA (International Air Transport Association).
CO2 EMISSIONS COMPENSATION PROGRAMME – CARBON OFFSET
direct.gov.uk/offsetting
TAP was the first airline in the world to launch the Carbon Dioxide (CO2) Emissions Compensation Programme on 5 June 2009 (World Environment Day), in partnership with IATA, providing passengers with the opportunity to voluntarily compensate the CO2 emissions resulting from their flights, contributing to emission reduction programmes in developing countries. This programme is available on the TAP webpage (www.flytap.com), and was designed in an attractive and user-friendly manner, with the emissions compensation option included with the purchase of each ticket. At the moment of purchase, passengers decide if they want to compensate for the inevitable CO2 emissions associated with their travel, thus reducing their carbon footprint. In this regard, information is available on the webpage relative to the CO2 value emitted by each passenger, on each flight, as well as the cost corresponding to the compensation for that emission and information on the project supported by TAP, on which the amount resulting from each contribution shall be invested.
Compensation for Carbon Dioxide Emissions June to December 2009 Objective Compensation Result Variation (Tons) (Tons compensated)
1,500
2,508
+ 67% ≥
The global programme applicable to the Air Transport industry was conceived by IATA and customized in-house by TAP. The programme implemented by TAP offers CO2 compensation projects of high credibility and transparency, and served as an experience for IATA to be able to apply it to its 230 associated companies. The TAP programme was accredited by an external independent entity, the UK Governments Carbon Offset Quality Assurance Scheme, which attributed to the Company the Offset Quality Assurance Label, certifying the environmental integrity of the programme, the CO2 emissions calculation methodology, the clear and transparent pricing, and the rigour of the information provided to passengers.
Corporate Governance
ANNUAL REPORT | 2009
27
ENVIRONMENTAL CONCERN IN MAINTENANCE ACTIVITY
A NEW WAY OF COMMUNICATING ENVIRONMENTAL ISSUES
FLIGHT OPERATIONS – CO2 EMISSIONS AND CLIMATE CHANGE
AGIR ECO – THE NEW ENVIRONMENT IMAGE AT TAP Raising the awareness of Company employees to environmental issues constitutes another priority of the Environment area of TAP. In this regard, TAP decided to launch on World Environment Day (5 June) a new way of communicating environmental issues, raising the awareness of employees and encouraging them to act in the life of the Company, in their private life and in society. AGIR ECO is the motto of this new campaign. The campaign Agir Eco uses various means of communication to raise the awareness of the greatest number of Employees. To cover all of the TAP population, it is disseminated via e-mail, the TAP Newspaper (internal publication directed at Employees and former Employees), intranet and placards placed in strategic locations.
In 2009, TAP continued its medium-haul fleet renewal programme, with the entry into operation of six new Airbus A320 aircraft, which are 8% more efficient from an energy and environmental perspective. From 2014 onwards, the renewal of the long-haul fleet is also planned, in which the new Airbus A350 aircraft will progressively replace the A340 and A330, with energy and environmental efficiency gains of approximately 20%. In 2009, TAP achieved a 3.3% improvement in the energy efficiency and environmental performance of air transport indicators – fuel consumption per passenger, and CO2 emissions per passenger –, relative to 2008. The improvement in these indicators resulted from TAP’s commitment to making its operations more eco-efficient, through the entry into operation of new aircraft, of greater energy and environmental efficiency, and of a more rigorous adjustment of the offer of flights (supplied capacity) to demand (passengers effectively transported). Note – For more information on the Environment initiatives in 2009, please read the chapter Environmental Perspective of the Sustainability Report of TAP.
Within the scope of the maintenance of the Environmental License of the polluting areas, it is worth highlighting, with respect to TAP’s activity of engine maintenance, and similarly to other economic activities in Portugal, the requirement of an environmental license, regarding the Integrated Prevention and Control of Pollution (PCIP Diploma). The license obtainment process ran over the course of three years, and was concluded in February. The Environmental Licence now obtained brings together all of the Company’s environmental obligations and highlights the initiatives that TAP has been undertaking in this area; the obligation of systematically delivering to the licensing entity the specific documentation and additional information necessary to guarantee the maintenance of the licence is sustained. Effluents from the activity of Electrolytic Treatments of the Motor Workshop were also sent to the WWTP (Waste Water Treatment Plant) to be treated, in compliance with the legal requisites imposed by Edital no. 156/91 of the Lisbon City Council. Following the installation of liquid waste pathways, carried out 2 years ago, the procedure regarding the separation of effluents generated in the Cleaning area of the Motor Workshop, which originated in the Non Destructive test line and in the cleaning waters of the Chemical Cleaning line, was maintained. By applying procedures for the separation and management of hazardous waste, in operation at TAP–Maintenance and Engineering since 1998, the gathering, separation and handing over of the waste to the internal manager continued. In terms of the hazardous waste (e.g. ballast) of the installation, its management, inventory and appropriate disposal were undertaken in accordance with internationally defined guidelines.
28
Index
ANNUAL REPORT | 2009
Index
ANNUAL REPORT | 2009
Index 3 4 7 8 8 23
Message from the Chairman of the General and Supervisory Board Interview with the Chairman of the Executive Board of Directors Shareholder Structure of Grupo TAP Corporate Governance Corporate Governance Model Sustainable Development of Grupo TAP
30 32 34 38 41 42 46 49 49 52 70 75 81 84 86 98 103 105
Profile Key Figures Analysis of the Economic Climate Summary of Performance Grupo TAP’s Key Figures Key Events Corporate Strategy Performance of Grupo TAP Companies TAP, S.A.
109 110 111 112 112 113 114 164 168
Consolidated Financial Statements
TAP Air Transport Business Unit TAP Servços Business Unit TAP Maintenance and Engineering Business Unit Information Systems and Technological Development Human Resources
Other Activities of Grupo TAP Grupo TAP Economic and Financial Performance Outlook for 2010 History of TAP Consolidated Balance Sheet Consolidated Profit and Loss Statement by Nature Consolidated Profit and Loss Statement by Functions Statement of Consolidated Alterations of Equity Consolidated Cash Flow Statement Annex to the Consolidated Financial Statements
Audit Report Annex
188 General and Supervisory Board Report 2009, TAP SGPS 192 Glossary
29
30
Profile
ANNUAL REPORT | 2009
SALES AND SERVICES RENDERED EUR MILLION
Annual compound average growth rate – Foreign Market
Atlanta Boston Charlotte Chicago Dallas Denver Detroit Philadelphia Houston Los Angeles Miami Orlando Pittsburgh San Francisco Washington DC
10.4%
2,363.2 2,400 2,200 2,086.9 2,075.0 2,000 1,715.7 1,800 1,600 1,429.3 1,400 1,262.31,360.4 1,200 1,000 800 600 400 200 0 2003 2004 2005 2006 2007 2008 2009
TAP, SGPS, S.A.
Internal Market
External Market
Aracaju Belem Boa Vista Campo Grande Cuiaba Curitiba Florianopolis Goiania Iguassu Ilheus Imperatriz Joao Pessoa Londrina
Profile TAP will focus on the Air Transport service and its complementary activities, consistently aiming at investor return and leadership of the niche market in which it operates. TAP will offer its Customers a quality product and will always be the best choice for those who want to use its services and one of the best companies to work for. The Company will act in accordance with its commitment to society and the environment. TAP, SGPS, S.A. is a Company whose aim is the management of shareholdings in other companies. The following contribute to the Group’s results: > TAP–Transportes Aéreos Portugueses, S.A. (TAP Portugal), whose main activity is air passenger and cargo transport, also provides services to third parties through its Maintenance business, in Portugal and Brazil; > A group of companies which carry out their activities in areas linked to the Group’s core businesses – Air Transport and Maintenance and Engineering –, with a view to controlling the service chain.
Following its strategic direction, TAP’s priority is to fulfil its Customers’ expectations, promoting their loyalty and maintaining strong ties with Portugal, a focus that corresponds to the market niche in which its competitive position is most established. TAP Portugal is an international airline company which operates from its base in Lisbon, a city which, due to its geographic location, is a privileged access platform to markets located in other Continents, and also operates from Porto airport, its second operational hub. The Company currently provides links from Europe to Africa and North, Central and South America. In the development of its network, the Company pursues a niche strategy, connecting Europe to a growing number of destinations located in Africa and in the South Atlantic, and in the latter is the leading European air carrier flying to Brazil. TURNOVER EUR million
STRENGTHENING OF SALES ABROAD In 2009, the Grupo TAP became the largest national exporter, with a total contribution of 1.4 billion euros, of sales and services rendered in markets abroad.
Macapa Maceio Manaus Maraba Palmas Porto Alegre Porto Seguro Porto Velho Rio Branco Santarem Sao Luiz Teresina Vitoria
Air Transport (TAP, S.A.) Maintenance-Third Parties Assistance - Portugal Maintenance-Third Parties Assistance - Brazil Duty Free Catering Other Activities of TAP, SGPS, S.A. TOTAL
SALES AND SERVICES RENDERED EUR billion Internal market External market
2009 2008 Restated* 1,760.3 98.6 53.8 119.2 33.7 11.0 2,076.6
var. (%)
1,952.7 145.3 106.5 132.1 35.1 -1.3 2,370.3
(9.8) (32.1) (49.5) (9.8) (4.0) (917.7) (12.4)
2009 2008 Restated*
var. (%)
0.7 1.4
0.8 1.5
* Restatement and reclassification of comparative amounts, based on the adoption of IFRIC 13 - Customer Loyalty Programme
(13.9) (11.2)
Profile
ANNUAL REPORT | 2009
Calgary Montreal Ottawa Toronto
Faro Funchal Porto Santo Horta Terceira Ponta Delgada Pico Santa Maria
Amsterdam Barcelona Bilbao Bologna Brussels Budapest Copenhagen Frankfurt Geneva
Porto
New York
Lisbon Casablanca Marrakech Algiers Cairo
Caracas
Belo Horizonte Brasilia Fortaleza Natal Recife Rio de Janeiro Salvador Sao Paulo Sao Paulo (Campinas)
Bissau Dakar Johannesburg Luanda Maputo Sal Sao Tome Praia
Hamburg Helsinki La Corunna London Luxembourg Lyon Madrid Malaga Marseilles Milan Moscow Munich Nice Oslo Pamplona Paris Prague Rome Seville Stockholm Toulouse Valencia Venice Warsaw Zagreb Zurich
Cape Town Durban East London Port Elizabeth
Aberdeen Alghero Alicante Almeria Asturias Athens Bari Belfast Berlin Bilund Birmingham Bremen Brindisi Bucharest Cagliari Catania Cologne Dresden Dublin Dubrovnik Dusseldorf Edinburgh Stuttgart Strasburg Fuerteventura Genoa Glasgow Gothenburg Granada Hanover Heraklion Ibiza
Istanbul Jerez de la Frontera Kiev Krakow Lanzarote Las Palmas Leeds Leipzig Lviv Manchester Menorca Munster Naples Nuremburg Palermo Palma de Majorca Pisa Santiago de Compostela Simferopol Sofia Split Transport Tenerife Lamezia Terme Thessaloniki Trieste Turin Vienna Vigo
31
Bangkok Hong Kong Singapore
ROUTE NETWORK Strengthening of TAP operations at the Lisbon hub and also at the second operating hub in Porto, to existing destinations and the opening of new routes.
Buenos Aires
New stopovers operating in 2010.
TAP Operation Operation by Partner Company
66 weekly flights between Europe and Brazil, strengthening the position of leadership in passenger air transport in this market.
The effects of a profound financial crisis, with strong repercussions in traffic evolution The Grupo TAP ended 2009 with a net income around break-even point, of the value of -3.5 million euros, that is 284.9 million euros more than the -288.4 million euros (restated value) registered in the previous year. At the operating level, profit before financing costs and taxes improved by 248.7 million euros, with the Company having achieved a positive profit of 47.7 million euros, against the -201 million euros in 2008 (restated value). These values reflect the impact of a series of measures implemented for the purpose of ensuring the adequacy of the products and services offered to the new levels of demand, arising from the deterioration in economic circumstances and which, combined with the sum of the initiatives which have been developed over several years, in addition to
the reduction in the cost of fuel, have more than compensated for the loss of income. Particular note should be made of the fact that by the end of 2009, TAP had more than doubled its size in relation to 2000, with its offer having grown by approximately 126% over this period. In the development of its activity, TAP Portugal, together with its partners, has offered its passengers and cargo Customers access to 179 cities, 62 with its own aircraft, of which 106 are located in Europe and 73 in other continents. By the end of 2009, the Company had transported 8.4 million passengers and 76.2 thousand tons of cargo and mail. The operations used a recent fleet, which by the end of the year was composed of 56 Airbus aircraft only, of which 16 are prepared for long-haul flights.
The acquisition of the company Portugália, which took place during 2007, has enabled TAP to attract regional traffic to its operation network, creating synergies and strengthening its competitive position at an international level, due to the addition of 16 aircraft prepared for regional route operations. Complementing the above, the TAP–Maintenance and Engineering Business Unit provided services to approximately 50 Third Party Customers, of which 29 were airline companies. During the year, the Grupo TAP (TAP, S.A. and other participated companies) employed an average of 13,582 persons, ending the year with 13,397 workers.
Key Figures
ANNUAL REPORT | 2009
Key Figures
FREQUENCY EVOLUTION
Supply - ASK Demand - RPK
Europe
million
Flight Hours
71,898 66,591
Own aircraft
125.6% -5.9% 27,359
21,908 21,076 124,073 13,643 9,909
2009
30,785 2008
32,709
2000
233,729 221,472
-7.4% 143.4%
USA 4,573
2009
2008
2000
2009
2008
2000
Africa
1,333 1,058
3,682
869
-5.2%
-3.8%
Venezuela
6,620 5,879
606 512 346
Cargo Revenues
2009
-11.2% 250.8%
Passenger Revenues 1,806 1,648
127,621 98,365
96,642
85,531
2008
1,676
-15.5%
139,364
2009
Brazil
48.0%
Maintenance Revenues
2008
2000
2008
2009
-34.8%
2000
Following an effort to rationally adapt the offer to demand levels, in terms of operation capacity and traffic, a decrease of 5.9% and 3.8%, respectively, was registered.
-17.9%
24.2% 222.3%
2009
30,785 million ASK 21,076 million RPK
2000
The number of flight hours by the TAP fleet totalled about 221 thousand, a 5.2% decrease relative to 2008.
2008
221,472 hours
2000
1,419
112.7%
78.5%
78,471
-30.7% 13.0%
-22.9% 25.4%
2009
2008
2000
2009
2008
2009
2008
2000
840
2000
32
-8.7% 96.2%
96,642 EUR thousand
98,365EUR thousand
1,648 EUR million
The revenue of the Third Party Customers segment resulting from Maintenance and Engineering Portugal services declined 30.7%, essentially as a result of the loss of some customers due to their insolvency.
The declining trend in the volume of transported air cargo at a worldwide level reflected itself in TAP's air cargo business revenue which declined 22.9%.
Passenger revenues registered a reduction of 8.7%, following the intensification of the international economic and financial crisis and the consequent reduction in demand that took place in 2009.
Key Figures
ANNUAL REPORT | 2009
TICKET SALES
Operating Revenues
2009
2,400 2,131
Rest of the world 0.4%
7,059
3,969
3,924
358,641 567 USD p/ton
156,007
Portugal 31.7%
-11.2% Europe 39.5%
-49.0%
0.1% 10.6%
72.6%
2009
2009
2008
2000
2009
Africa 6.5%
2008
295 USD p/ton
2000
North Atlantic 3.1%
703,194 1,007 USD p/ton
4,374
1,235
Other 0.4%
7,051
6,384
2008
Mid Atlantic 2.7%
Ground Staff
2000
South Atlantic 15.7%
Fuel
Human Resources Total
33
129.9%
2008 Rest of the world 0.5%
South Atlantic 15.8% Mid Atlantic 2.3%
Other 0.5% Portugal 32.7%
North Atlantic 3.4%
2,131 EUR million
7,059 Employees
358,641 EUR thousand
The operating revenues of the Group companies reflected the contraction effect on demand levels.
Given the observed business growth since 2000, the evolution in TAP, S.A. Staff reflects the general increase in Company productivity levels.
In spite of the ascending trend of the price of oil, at the end of the year, fuel costs at TAP, S.A. registered a significant reduction, resulting from lower price and consumption levels.
Note - Values of 2008 restated and 2009 according to the IFRS (International Financial Reporting Standards).
Africa 5.4% Europe 39.4%
EBITDAR
Operating Net Income
Net Income
Debt 1,413 1,303
272,353
948
1,231
1,171
902 78,856
-122,082
436.8% 245.4%
Net Debt
2009
2008
-288,394
2000
2009
2008
2000
123.7%
2009
Total Debt
-200,994
181.0%
2008
-3,542 -58,865
2000
47,684
2009
2008
2000
50,738
98.8% 97.1%
272,353 EUR thousand
47,684 EUR thousand
-3,542 EUR thousand
1,303 EUR million
Net operating cash flow to deal with financial charges and investments for Group companies increased by 221,615 thousand euros.
The operating net income of the Group reached 47.7 million euros, reflecting a recovery of 248.7 million euros.
The total debt reflects the continuous effort placed on the reduction of the Company's indebtedness.
Note - Values of 2008 restated and 2009 according to the IFRS (International Financial Reporting Standards).
Note - Values of 2008 restated and 2009 according to the IFRS (International Financial Reporting Standards).
The Company resumed its trend towards recovery, in this way highlighting, in the midst of the difficult international scenario, the importance of the increased efficiency that it has obtained over the last few years. Note - Values of 2008 restated and 2009 according to the IFRS (International Financial Reporting Standards).
34
Analysis of the Economic Climate
ANNUAL REPORT | 2009
Conditioned by the slow recovery of yields, in view of the sharp decline in the first half of the year, the Industry is estimated to have accumulated losses of approximately USD 9.4 billion in 2009.
Analysis of the Economic Climate Economic Climate – International In 2009, world economic activity continued to be strongly conditioned by the international financial crisis. In particular, in the wake of the intensification of the financial crisis, with the collapse of the Lehman Brothers investment bank, the last quarter of 2008 and the first quarter of 2009 were characterised by a strong contraction in economic activity and international trade, which reached unprecedented levels in recent historic terms. From the second quarter of the year onwards, global economic activity recovered somewhat, reflecting in particular a stronger impulse from the Asian economies and a stabilisation or modest recovery in other economic areas. The recovery of world economic activity was essentially characterised by the revival of industrial production and world trade, regarding which the need to replenish inventories was a contributing factor, following the sharp fall in production at the end of 2008 and start of 2009. For 2009 as a whole, under the effects of the sharp contraction in economic activity and of international trade, it is estimated that world GDP fell 0.8 per cent, following a growth rate of 3.0 per cent in 2008.
In the advanced economies, it is estimated that economic activity also contracted significantly, in comparison with the previous year (-3.2 per cent, against the 0.5 per cent increase in 2008), and in emerging market and developing economies, it is estimated that the GDP growth rate fell to 2.1 %, against the growth rate of 6.1 per cent in 2008. The slowdown was generalised to the various regions, but with different magnitudes, with the economies of Central and Eastern Europe, the Community of Independent States (particularly affected by the reduction in international capital flows and by domestic financial crises), and of Latin America registering significant GDP contractions, in comparison with 2008. However, the slowdown was less pronounced in the Middle East and Africa, which continued to register increases in GDP, in comparison with the previous year. Finally, in the developing Asian countries, the deceleration is likely to have been less significant, with GDP growth declining from 7.9 to 6.5 per cent.
The contraction in global economic activity in 2009 was accompanied by a significant slowdown in world trade, resulting from the generalised decline in confidence and the high level of uncertainty that resulted in the reduction or postponement of consumption and investment expenses. Mention should also be made of the difficulties in accessing commercial credit, within the context of the intensification of the financial crisis, as well as the phenomenon of vertical specialisation in production, at a worldwide level, observed over the last few years, which has increased the responsiveness of trade flows to changes in global demand. Overall, the improvement in economic conditions as from the second quarter of 2009 onwards benefited strongly from monetary and budgetary policies and from the stabilisation of the financial sector, which helped to stimulate demand and contributed towards improving the confidence of economic agents and conditions in financial markets. It is important to mention the acceleration of Asian economies, in particular China, benefiting from economic stimulus policies and the revival of intra-regional trade, as well as of financial markets and international capital flows. Economic activity in other emerging and developing market economies also benefited from the revival of world trade and the increase in demand for raw materials.
35
Analysis of the Economic Climate
ANNUAL REPORT | 2009
ECONOMY
GDP GROWTH
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5%
World United States European Union
On the other hand, economic activity in advanced economies continued to be strongly conditioned by the rise in unemployment, the decline in real estate asset prices and the existence of relatively restrictive financing conditions, especially in the access to bank credit, in spite of some improvement over the course of 2009 and, in particular, of a strong reduction in interest rates. Worldwide inflation rates fell significantly over the course of the year, essentially reflecting the levels of raw material prices, considerably less than those of 2008, and decreased utilisation of productive capacity, within a context of a sharp fall in global demand. In particular, the price of oil resumed its ascending trend in 2009, having settled at a level close to 80 dollars per barrel, by the end of the year. In the United States, following the significant contraction in the second half of 2008 and in the first half of 2009, it is estimated that economic activity grew moderately in the second half, although labour market conditions continued to deteriorate, with GDP having registered a rate of -2.4 per cent (0.4 per cent
In the Eurozone, GDP growth, after having risen 0.6 per cent in 2008 and having continued to expand at the end of the year, contracted between -3.9 and -4.1 per cent in 2009. This progressively more favourable performance reflected a number of interconnected factors, among which the inversion of the inventory cycle and the recovery of exports is worthy of mention, as well as the significant macroeconomic stimulus in progress, alongside the measures adopted to reestablish the functioning of the financial system. in 2008). The performance of the American economy was influenced, at the start of the year, by the intensification of disturbances in financial markets and a strong deceleration of the world economy, with sharp reductions in corporate and residential investment, as well as in the value of exports. Subsequently, financial conditions became less unfavourable and the declining trend of economic activity slowed reflecting, to a large extent, the monetary and budgetary policy measures and the stabilisation measures previously adopted for the financial sector. Private consumption levels were sustained, benefiting from the increase in available income in the second quarter, supported by tax reductions and other benefits, in the form of transfers, within the scope of budget stimulation plans, resulting in a considerable improvement in the confidence of consumers and entrepreneurs, following the minimum levels reached at the start of the year.
Declines in the indicators of three of the main Eurozone economies – Germany, France and Spain – were also observed. In Germany, GDP registered a contraction of about 6% in 2009, against a variation of 1.3% in 2008, representing the largest decline since the end of the Second World War. In France, economic activity is also expected to turn in a negative performance, although the last quarters of the year maintained a growth trend fostered by domestic demand, positively influenced by the performance of private consumption. In Spain, a negative variation in GDP of 3.6 per cent was registered, in comparison with the 0.88 per cent achieved in 2008. Furthermore, in addition to the effects of the global economic crisis, Spain also registered the highest unemployment rate in the Eurozone, severely affected by the collapse of the housing market.
36
Analysis of the Economic Climate
ANNUAL REPORT | 2009
NET INCOME AIR TRANSPORT INDUSTRY BIL. CURRENT USD Source: IATA
12.9
High exposure to factors outside its control
8.6
7.9 4.5
4.5
3.5
8.2
8.5
5.3
3.7
2.5 -0.1
-0.2 -4.4 -7.5 -13.0
-5.6
-4.1 -9.4
-11.3
American recession
Asian crisis Financial crisis in the emerging markets
Gulf War
Increased offer on the N. Atl. routes with impact on yields
Effort to streamline capacity
Recovery Sharp of the reduction yield in of traffic Europe volumes Recovery of due to relative to the impact of 1999 levels economic the USD situation, impact on growth of Terrorist traffic attack in the USA
1988-1997 Impact of globalisation Start of deregulation in Europe
Economic Climate – National The successive shocks on a worldwide level were transmitted to the Portuguese economy via several interconnected channels, resulting in a significant deterioration of the economic and financial environment, alongside a structural situation characterised by the persistence of some weaknesses that limit its potential growth, within a context of increased competition in international markets and of growing integration of emerging market economies with a similar export pattern. In this context, estimates point towards a decline in GDP of about 2.7% in 2009, following the stagnation verified in 2008.
Underlying this contraction of economic activity in 2009, in addition to the maintenance of a considerable negative performance of investment and exports, a significant decrease of private consumption, with particular incidence on the durable goods component, should also be noted. The negative performance of these factors reflected the significant tightening of financing conditions and the tightened tension in financial markets, which greatly contributed towards the collapse of international trade, as well as a sudden deterioration of the confidence of economic agents. In 2009 the Portuguese economy continued to be characterised by an increase in the unemployment rate, which at the end of the year reached an average value of 9.6%, a new historical record, continuing the trend observed since the start of the decade.
2nd Iraq War SARS Economic fragility
Start of strong instability in the financial sector
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
-16.8
1990
Cyclical nature of the business
14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 -16 -18
1991
ECONOMIC GROWTH – main driver for the Industry
Crisis in the financial sector World economic recession Contraction in traffic volumes at the end of the year
2003-2008 Impact of the persistent rise in the price of fuel
Regarding inflation, it is estimated that the Harmonised Consumer Price Index declined 0.9 per cent, following an increase of 2.7 per cent in 2008, strongly influenced by the accentuated decrease of the import deflator, reflecting in particular the reduction of the price of oil and non-energy raw materials, within a framework of a worldwide contraction in demand. In terms of corrections of imbalances, it is important to mention that the financing needs of the Portuguese economy, measured by the combined deficit of the current and capital balances, as a percentage of GDP, declined from 10.5 per cent in 2008 to 8.2 per cent in 2009, reflecting in particular a positive evolution in the terms of trade, more significant than that which results exclusively from a considerable reduction in the price of oil.
Analysis of the Economic Climate
ANNUAL REPORT | 2009
Air Transport The year of 2009 will stand out for having registered the largest fall in demand for international passenger and cargo transport, in the post-war period, considering the exceptional expression of the reduction in terms of ton-kilometre, with a contraction of 6.1%, in comparison with the 4.4% decline registered in 2001. In particular, European airlines flew about 326 million passengers, 5.8% less than in 2008, representing a reduction of about 20 million transported passengers, a decline that exceeds the previous traffic loss record of 14 million, following the attacks on 11 September 2001. In terms of the Industry’s conventional unit of measure (passenger-kilometre), according to the AEA (Association of European Airlines), a decrease of 4.5% was registered. All the main regions in general stood out as a result of their negative performance, with reductions in the number of passenger-kilometres that reached -5.3% in Europe, -5.6% in the North Atlantic and -5.9% in the Far East. On the other hand, the traffic flows between Europe and the regions of the Middle East and Africa were the exception, with increases of 6.1% and 1.2%, respectively.
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An efficient management of capacity, carried out mainly from the summer period onwards, allowed the effects of the fall in traffic volumes to be mitigated, although it was still insufficient to prevent a slight degradation of the overall passenger occupancy, of -0.3 p.p., which came to 76.0%. In the various regions there was an almost generalised decrease in the load factor, although reflecting different expressions. The only increase was in the connections between Europe and the North Atlantic. On a worldwide level, international passenger traffic, following the strong contraction at the start of the year, which reached values of approximately 10%, showed some signs of recovery towards the end, finishing the year with a total value of 3.5% less than that recorded in 2008, with cargo traffic having registered an even sharper decline of approximately -10.1%. It is thus estimated that air transport, with an historic growth trend of approximately 5-6%, has declined since the start of 2008, estimated as comparable to two and a half and three and a half years, in the passenger market and the cargo market, respectively. Underlying this trend, it is important to note the three main regions – Asia-Pacific, Europe and North America – with similar declines in passenger traffic (5-6%), although the Latin America and Asia-Pacific regions stood out due to a strong recovery at the end of the year. The region of the Middle East, which is the exception to the recession in the Industry, continued to generate significant growth rates in 2009, in both passenger and cargo markets.
Regarding the financial performance of the Industry, there were some signs of improvement at the end of the year, in particular for the Asia and Latin America regions, boosted by strong economic growth, as well as in the North America region, following significant cuts in capacity. In Europe, however, under the effect of a slow economic recovery, and facing limitations in adapting the capacity offered, resulting from the regulation of slots, results deteriorated once again. Economic growth was promoted, stimulated by government programmes and by central bank interventions with a view to stimulating domestic consumption. However, the revitalisation of world trade and of international transactions was characterised by being slower than in previous recessions, with a strong impact on the development of business traffic. Thus, conditioned by a slow recovery of yields, the sharp decline in the first half of the year, and the prices of oil, which continue their ascending trend, it is estimated that the accumulated losses of the Industry in 2009 have reached USD 9.4 billion, which brings the accumulated total over the last decade, in the range of USD 50 billion.
38
Summary of Performance
ANNUAL REPORT | 2009
PRICE OF FUEL USD/TON.
1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 109.9 100 0
1,356.7
1998-Dec 1999-Mar 1999-Jun 1999-Sep 1999-Dec 2000-Mar 2000-Jun 2000-Sep 2000-Dec 2001-Mar 2001-Jun 2001-Sep 2001-Dec 2002-Mar 2002-Jun 2002-Sep 2002-Dec 2003-Mar 2003-Jun 2003-Sep 2003-Dec 2004-Mar 2004-Jun 2004-Sep 2004-Dec 2005-Mar 2005-Jun 2005-Sep 2005-Dec 2006-Mar 2006-Jun 2006-Sep 2006-Dec 2007-Mar 2007-Jun 2007-Sep 2007-Dec 2008-Mar 2008-Jun 2008-Sep 2008-Dec 2009-Mar 2009-Jun 2009-Sep 2009-Dec
667.2
Summary of Performance
In 2009, world economic activity continued to be strongly conditioned by the international financial crisis, in the first months of the year characterised by a profound economic recession, unprecedented in recent history. However, the application of a series of monetary and budgetary policies and policies of stabilisation of the financial sector helped to stimulate demand and contributed towards the recovery of the confidence of economic agents and conditions in financial markets, allowing for an improvement in economic conditions as of the second quarter of the year. The Asian economies and, in particular, the Chinese benefited from this intervention, and likewise the economic activity of other emerging markets and developing economies. In the advanced economies, activity remained strongly constrained by the increased unemployment, by the reduction in the prices of real estate assets and by the existence of relatively restrictive financial conditions. Regarding prices, inflation rates fell significantly over the course of the year, reflecting the levels of the prices of raw material which were considerably less than those of 2008, and the decreased use of productive capacity. In contrast, the price of oil resumed its ascending trend in 2009, having practically doubled over the year, although by the end of the year it still only represented approximately half of the value reached in the third quarter of 2008.
Commercial Aviation, significantly exposed to factors beyond its control, and strongly dependent on the economic circumstances in which it develops its activity, registered a contraction of 3.5%, the worst evolution since the Second World War. With a historical growth rate trend of 5-6%, it is estimated that since the beginning of 2008, air transport has suffered losses in the growth of passenger and cargo transport of a magnitude equivalent to two and a half years, and three and a half years, respectively. The revitalisation of world trade and international transactions as a result of the specific stimulation measures has taken place at a slower rate than in previous recessions, which is strongly reflected in the evolution of business traffic. In this context, conditioned by the slow recovery of the level of yields, as well as by the price of fuel, in a downward trend, it is estimated the losses in the Industry in 2009 have reached 9.4 billion USD. For the companies of Grupo TAP, notwithstanding the economic circumstances described above and albeit under a scenario of lower fuel prices than in 2008, the results for 2009 reflect a very considerable recovery, and which were only possible due to the combined effect of greater rigour in cost management, the permanent increase in productivity, the adoption of best practices and process simplification, in addition to the intensification of aggressive sales policies. Also of particular note were the measures taken under the Contingency Plan, implemented for the purpose of ensuring the rational adequacy of the services offered to the new levels of demand, and which
materialised in a selective reduction of the supplied capacity, of a total of 6%, on average, by the end of the year and which, combined with the fuel consumption reduction programme, amongst other cost-cutting measures, have led to effective cost control. In addition, the Company has continued to develop its strategy supported by a business simplification policy and efficiency gains, pursuing the adoption of the best market practices and the systematic reduction of non-essential costs. On the other hand, the development of an innovation policy was continued, with a view to meeting Customer needs and making the services provided more convenient. Within this context, note should be made of the Company’s investment in technological innovation, which was reflected in different areas, namely: in online check-in, in the launch of the tap mobile portal and, furthermore, the creation of Power Choice, which seeks to reinvent the entire process of the online purchase of airline tickets. Likewise, regarding quality, TAP has maintained, in its orientation, an attitude aimed at achieving permanent improvement in performance, associated to the different aspects of the service provided. This was reflected in the launch of the operation to new destinations, with regular flights to Moscow, Warsaw and Helsinki. In Spain, the operation to Malaga has been intensified and Valencia now represents the eighth destination operated by TAP in this country. There has also been an increase in the connection to Africa, in particular to Dakar. Similarly, the implementation of a series of actions and continuous control over the main factors influencing Customer
Summary of Performance
ANNUAL REPORT | 2009
The following factors contributed towards the attainment of this Result: satisfaction have confirmed the trend towards the improvement of departure punctuality, baggage control and quality of the attendance at the Airports of the TAP network.
Overall performance of Grupo TAP The most important aspects of the overall performance of Grupo TAP in 2009, and of each of the companies that make up its core business, are highlighted below: > The Companies of Grupo TAP, under the described economic circumstances, registered a consolidated net income, with the minority interests, for the year which stood around the break-even point, of the value of -3.5 million euros, that is, 284.9 million euros more than in 2008. > Net operating income (before financing costs and taxes) reached 47.7 million euros, reflecting an improvement of 248.7 million euros, in relation to 2008.
TAP, S.A. and a group of companies which develop their activity in areas linked to the Group’s core businesses and in which TAP, SGPS, S.A, has shareholdings. In relation to TAP, S.A., the company registered profit of 57.4 million euros. This result, which was 266.4 million euros higher than the -209.0 million euros registered in 2008, resulted from a significant improvement in net operating income, to the order of 221.5 million euros, influenced by a sharp reduction of costs and the lower level of the price of fuel. With respect to SPdH-Serviços Portugueses de Handling, S.A. (Groundforce Portugal), set up in 2003 as a result of the demerger of the Ground Handling Business Unit of TAP, S.A., TAP, SGPS, S.A. owns a number of shares representing 49.9% of the company’s share capital, which includes a 6% holding owned by Portugália. Groundforce Portugal, which adopted, as of 1st November 2005, a special taxation period from 1st November to 31st October, registered a negative net income of -28.2 million euros. In March 2009, a consortium of three banks (BIG, Banif and Banco Invest) transferred to TAP S.A. the holding in SPdH (50.1%) for 31.6 million
39
euros. On the same date, TAP, S.A. transferred the exercise of its voting and supervisory rights, as majority shareholder of SPdH, to an independent entity of Grupo TAP, with this operation having been submitted to the National Competition Authority (AdC). In November 2009, AdC issued a decision, prohibiting the operation of concentration of TAP with SPdH, due to considering that it could create or reinforce a dominant position of the handling company in ground handling operations at airports, with TAP being required to carry out the disposal of the majority of the share capital of the handling operator, in addition to appointing a management mandatary to act in the interest of the Competition Authority, and manage the company SPdH in a manner independent from TAP. In compliance with these provisions, TAP is pursuing an effort to dispose of the position which it was forced to reacquire, that is, the majority of the share capital of SPdH, since the corresponding shares had been handed over to an independent entity, EUROPARTNERS, which plays an active role in the undertaking of AdC’s decisions. In relation to Reaching Force, SGPS, S.A., a company of Grupo TAP which owns 98.64% of the share capital of the company TAP–Maintenance and Engineering Brazil, a positive net income of 3.5 million euros was reported at the end of the year.
40
Summary of Performance
ANNUAL REPORT | 2009
TRANSFER TRAFFIC THROUGH THE LISBON HUB GROWTH SINCE 2000
300% 250% 200% 150% 100% 50% 0% -50% Europe Africa
Europe South Atl.
Europe Mid Atl.
Europe North Atl.
Europe
-100%
From an operating point of view DEVELOPMENT OF THE OPERATING HUBS OF TAP’S ROUTE NETWORK In 2009, the development of the intercontinental hub of Lisbon, supporting the operating network of TAP routes, was maintained, with there having been a significant increase, since 2000, in the number of transit passengers, especially passengers travelling to the South Atlantic and to Africa. By the end of the year, the total number of passengers transiting through Lisbon was close to double the figure recorded in 2000. On the other hand, there was continued activity in Porto, the Company’s 2nd operational hub, whose operation began during 2006.
> TAP, S.A. registered an operating income of 65.3 million euros, that is, 221.5 million euros more than in 2008. It is important to note the persistent increase in its efficiency levels, unequivocally reflecting the application of a policy of rigorous cost control and simplification of processes and a continued rise in productivity levels. It should also be noted that underlying this performance was the effect of a profound international financial crisis, which was reflected in the rate of revitalisation of world trade and in international transactions, as a consequence conditioning the evolution of traffic, in particular business traffic. In this way, operating income reached a total of 1,923.4 million euros, representing 237.7 million euros less, or 11.0% less than in 2008. Operating costs, excluding fuel, reached 1,499.4 million euros, that is, 114.7 million euros less or 7.1% less than in 2008, for a level of supplied capacity 5.9% lower than the previous year, showing a positive evolution of performance.
> Regarding the performance of the business of TAP, S.A., the turnover of Third Party Customers of Maintenance and Engineering also contributed to the improved performance, reaching a value of 96.6 million euros, although 30.7% less than the value achieved in 2008. This decrease was the result, not only of the loss of some customers, due to their bankruptcy, but also the difficulty in accommodating more Third Party aircraft at the current premises in Lisbon, which are already too small for the current size of the Company’s fleet. > Air Transport activity created an operating turnover of the order of 1,803.6 million euros, 9.3% less than in the previous year. This result was significantly influenced by the behaviour of ticket revenues, which reached a total of 1,648.4 million euros, 8.7% less than the value registered in 2008. This fact was also due to a contraction in passenger traffic demand, which reached
Summary of Performance
ANNUAL REPORT | 2009
Grupo TAP Key Figures
GRUPO TAP TURNOVER
TAP, SGPS, S.A. 2009 (Consolidation) EUR million Operating Net Income (before financing costs and taxes) Pre-tax Net Income Net Income of TAP shareholders Net Income of TAP, S.A. Net Income of SPdH-Serviços Portugueses de Handling, S.A. Net Income of Reaching Force, SGPS, S.A. Total Assets Shareholders’ Equity (including Minority Interests) Active Staff of the Group (31 December) TAP, S.A. (excluding subsidiaries)* Air Transport Maintenance and Engineering TAP Serviços Other SPdH–Serviços Portugueses de Handling, S.A.** Remaining Companies
2008 Restated EUR million
var.
47.7 7.3 (3.5) 57.4 (28.2) 3.5
(201.0) (280.6) (288.4) (209.0) (38.2) (39.9)
123.7% 102.6% 98.8% 127.4% 26.1% 108.8%
2,024.4 (204.6)
2,240.8 (188.1)
-9.7% -8.8%
13,397 6,986 4,489 1,961 498 38 2,439 3,972
13,827 6,973 4,504 1,936 494 39 2,715 4,139
-430 13 -15 25 4 -1 -276 -167
> Regarding operating performance, and due to the adoption of strategy of adjusted flexibility to market change and which led the Company to re-consider its entire operation – with a view to promoting a rational adequacy of its offer of flights and the effective control of costs –, the level of supplied capacity of the regular operation contracted by -5,9%, with demand having fallen by a lower proportion, in the order of -3.8%. However, TAP continued to pursue its chosen path of consolidating Lisbon as the Company’s hub, and affirming its status as the European airline with greatest penetration in the Brazilian market. The overall occupancy coefficient thus stood at 68.5%, 1.5 p.p. more than in 2008.
84.8% Air Transport (TAP, S.A.) 4.8% Maintenance-Third Parties Assistance - Portugal 2.6% Maintenance-Third Parties Assistance - Brazil 5.7% Duty Free (LFP, S.A.)
(*) Not including staff who are not placed and not active (**) Associate Company
3.8%, expressed in RPK (revenue passenger kilometres), as well as a sharp deterioration in yields. Also contributing to this result was the Air Cargo business, where TAP registered a reduction of 26.7% in relation to the previous year.
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Consolidation Methodology According to legal requirements, the Companies in which TAP holds, directly or indirectly, a majority of voting rights, which is the case with most, were included in the consolidation by the method of full integration, with the transactions, income and costs between them having been eliminated in the consolidation process. The minority interests in net assets of the consolidated subsidiaries are identified separately from equity. Shareholdings in associated companies (more than or equal to 20% and less than 50% ownership) are recorded using the equity method. A company in this situation is SPdH-Serviços Portugueses de Handling, S.A.. The enclosed financial statements were prepared in accordance with the IFRS (International Financial Reporting Standards).
1.6% Catering (CATERINGPOR, S.A.) 0.5% Other TAP, SGPS, S.A. Activities
42
Key Events
ANNUAL REPORT | 2009
NEW DESTINATIONS
Warsaw
Moscow
Helsinki
Key Events Structuring Events During 2009, the Company continued its efforts to maintain a competitive positioning in the global market, with several events of a structuring nature having taken place.
Chronology of the main events In April, Grupo TAP launched a tender for the selection of an investment banking institution with the mission of promoting the sale, in national and international markets, of the majority (50.1%) of the share capital of the company SPdH. The acquisition of the said shareholding occurred in March 2008, by a consortium of three financial institutions (Banco de Investimento Global (BIG), Banco de Investimento, S.A. (BANIF) and Banco Invest, S.A.). The objective of this operation, fostered by TAP, was to create the conditions for the managers of SPdH to promote the necessary changes for solving its operating difficulties and, in this way, achieve a significant improvement in the standards of service offered, not only for TAP but also for the other customers of that ground handling company. The market conditions inherent to the present economic crisis did not permit, during the previous twelve months, the sale of SPdH to potentially interested parties to be undertaken. Thus, in March 2009, and according to pre-arranged conditions with the said banks, the shareholding in SPdH was transferred to TAP, having the operation been celebrated for the same amount as the acquisition value. Simultaneously, TAP transferred on a provisional basis its stake control in SPdH (relative to the 50.1%) to an independent company, EUROPARTNERS. TAP submitted this
operation to the authorisation of the National Competition Authority (AdC – Autoridade da Concorrência). In November 2009, the AdC issued a statement prohibiting the concentration operation between TAP and SPdH, for considering that it may create or reinforce a dominant position of the handling company in ground handling services at airports, and that TAP must sell the majority of the share capital of the handling operator, as well as nominate a trustee that shall act in the interests of the Competition Authority, managing the company SPdH independently from TAP. In compliance with these provisions, TAP continues its efforts to sell the position that it was forced to reacquire, the majority of the share capital of SPdH, having the corresponding shares been delivered to an independent entity, EUROPARTNERS, which holds an active role concerning the application of AdC decisions.
Main Events JANUARY A meeting was held with several tourism regions, with the objective of contributing and monitoring the tourism promotion strategies in Portugal.
FEBRUARY The first of six new Airbus A320-214 aircraft is received, a model that provides an average increase in energy and environmental efficiency of approximately 8%.
TAP’s activity of engine maintenance receives the environmental license regarding the Integrated Prevention and Control of Pollution (PCIP Diploma), issued by the Ministry of the Environment (Portuguese Environmental Agency). The environmental licence obtained represents the culmination of a three-year long process, brings together all of the Company’s environmental obligations and highlights the many initiatives that TAP has undertaken in the environmental area.
MARCH The online check-in service is provided on flights from Bissau, Johannesburg, Maputo and Sao Tome.
APRIL The regular offer of cargo flights is extended, with the launch of a new regular flight to Dakar. TAP participates in the 15th edition of Intermodal, the most important meeting dedicated to the logistics, transport and international trade sectors of Latin America. A commercial partnership for the cargo area is established with TAM, permitting the expansion of the cargo transport network and contributing to the consolidation of Portugal as the preferential entry door for Brazilian exports into Europe.
An Online Reservation service is launched by the Just For Travellers Stores, allowing passengers to carry out their shopping from home and An innovative service, the Pick Up On Return, is then pick it up at the store. launched by the Just For Travellers Stores.
Key Events
ANNUAL REPORT | 2009
MENTIONS AND AWARDS
company in the worldwide CO2 emissions control project;
> Cargo Growth Award – Award attributed for the highest cargo growth at Lisbon Airport, within the scope of the ANA Awards;
> 2nd Best Catering Supplier – Distinction made by Air France to the company Cateringpor of Grupo TAP;
> Best In-flight Magazine – Distinction awarded to UP Magazine, for the North American UCityGuides.com, at the UWARDS 2009 – Recognizing the Best of the New Urban Experiences;
> Best Airline Company – Classification awarded for the 6th consecutive year by the readers of the Publituris newspaper, which recognises the best companies in the tourism sector;
> Best Airline Company – TAP among the 5 best airline companies in the world, mention made by Condé Nast Traveller, within the scope of the Prémios Traveller 2008;
> Best Reading at the Moment – Distinction awarded to UP Magazine, for the most important travel publication of Scandinavia – RES Travel Magazine;
> A320 Family Operational Excellence Award – Recognition by Airbus of the exceptional use of the A320 fleet; > Trustworthy Brand – TAP distinguished as the brand with the best reputation in environmental issues, by the readers of the Reader’s Digest; > 1st Airline Company in the world to subscribe to the CO2 Emissions Compensation Programme – TAP is recognised by IATA as the pioneer
> Best Airline Company in the World for South America – Mention made within the scope of the 16th edition of the World Travel Awards; > Users SAPO Grand Award and Bronze Award of the Tourism and Leisure category – Awards given to Embark on Freedom of Choice campaign and to the airline Company TAP; > Best Retail Company in Portugal – Distinction given to the company Lojas Francas of Grupo TAP, according to the
JUNE TAP is the first airline company in the world to launch the CO2 Emissions Compensation Programme, a project initiated in 2008, in partnership with IATA, during the presidency of the executive chairman of the Company, Fernando Pinto. The expansion of the Network in Europe proceeds, with the regular five weekly connections to Moscow, Warsaw and Helsinki.
JULY MAY TAP commemorates 60 years of regular commercial flights to the United Kingdom, an operation that reaches 72 flights per week at present, connecting this country to several cities in Portugal.
The tap mobile portal is launched, accessible via the mobile phone, providing useful information to passengers on their journeys
43
500 Largest and Best Companies study of the Exame Magazine; > TAP Cargo, Best Airline Company in three categories (Best Airline Company for Europe, for the Americas and for Africa) – Mentions made by periodical publication Transportes & Negócios; > 2010 PLANET EARTH, Most Innovative Sustainable Product category – Distinction made by UNESCO and the International Union of Geological Sciences, in recognition of the CO2 Emissions Compensation Programme, launched by TAP; > CEO Awards 2009 – Distinction made by STAR Alliance, within the scope of the CEO Awards 2009, in recognition of the innovative character of the development of the Common IT Mobile Platform conducted in partnership with STAR Alliance; > Tourism Award of Portugal 2009 –Distinction attributed to TAP’s on-board magazine UP, for its contribution to the promotion of Portugal abroad.
SEPTEMBER The Carbon Dioxide Emissions Compensation Programme exceeded expectations by reaching, in September, the objective defined for 2009, i.e., a compensation of 1,500 tons of CO2.
OCTOBER Start of the bi-daily operation to Valencia, the eighth destination to Spain, which brings the total number of connections with Portugal to 27 flights per day.
NOVEMBER The 2nd anniversary of UP – TAP’s On-board Magazine is commemorated with an exposition at the Fashion and Design Museum (MUDE – Museu da Moda e do Design), in Lisbon. The UP Magazine is the only Portuguese magazine with a bilingual edition in rapid expansion, and has been affirming itself as a significant promotional vehicle of the Country.
AUGUST
DECEMBER
Premium Boarding is launched, providing tap | executive passengers and holders of the Victoria Gold, TAP Corporate or STAR Gold cards with a more personalised reception and a new exclusive service.
A new product is made available – TAP Personalised Assistance – a service that aims to satisfy Customers that value a more personalised service or with less experience in an airport environment.
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Key Events
ANNUAL REPORT | 2009
Adjusted flexibility ….adapting business to market alterations
What are the main characteristics of the plan?
With margins of minor importance, the Commercial Aviation sector requires volume and the greatest possible profitability per aircraft, for each flight made. The substantial fall in revenue, during a particularly difficult year, causing an abrupt decrease in the profitability of the airline companies, has led to the identification of a diversified range of measures with a view to coping with the crisis, in relation to which, however, a number of questions were posed.
We began with an analysis of the flights for which the forecasts on demand were considered the lowest. For example, a sharp fall was identified in the traffic of many of the so-called night-stop flights, leaving early in the morning from Europe to Lisbon, to make the connection with long-haul flights. Since these flights represent a high night stopover cost of the aircraft and of the crew away from their base, the network was re-designed, altering the hub waves so that some of the long-haul flights could leave in the afternoon and evening, thus dispensing with those connections.
TAP, as a result of the maintenance of the negative forecasts for Commercial Aviation, reacted swiftly and amongst other measures taken, led off a Contingency Plan in September 2009. Throughout the present report, TAP responds clearly to some of these questions posed.
This was, precisely, a Contingency Plan, which can, in this way, be modified in modules according to the behaviour of the market at any given time. Therefore, if there is a recovery the necessary capacity can easily be added.
What motives have led TAP to prepare the Contingency Plan? This plan resulted from the prospects of decreased traffic at an international level, which had been registered since the beginning of the economic crisis and had been aggravated by the H1A Flu Pandemic. The fundamental objective of this plan consisted in cutting costs and adjusting supply to demand, but without reducing the quality of the service provided to the Customer. As is widely known, IATA announced a 7.6% reduction in air transport activity in the first semester of 2009, with revenue falling between 25% and 30% in the month of June. The adoption of this Contingency Plan was essential to permit the recovery of the Company during the following months.
The plan will be in force between 10th September 2009 and 10th June 2010, and had implied a 6% reduction on average over the year, covering approximately ten percent of the number of flights, thus ensuring the adequacy of the offer of flights to the forecast reduction in market demand. However, this series of actions will be suspended over peak activity periods at Christmas, New Year, Carnival and Easter.
Will the abovementioned reduction in the offer of flights result in excess fleet?
Will the alterations laid down in the Contingency Plan interfere with the logic of the Lisbon hub?
No. In spite of these modifications, we continue to need the entire fleet. What there will be, is a reduction in the average daily utilization of the aircraft. TAP continues to be one of the companies presenting the highest rate of utilization of its fleet, and now it will be positioned around the average for the Industry.
It was precisely in order to maintain this logic that these alterations were made. We will keep the three waves in Lisbon, only with different schedules.
Do you foresee any cuts in TAP’s network of destinations? In spite of the reduction in the number of frequencies, the totality of the destinations currently served by the Company will remain intact. It is even our intention to open new destinations.
When the economy was already in a crisis, TAP decided to add destinations to the network. Is the impact being positive? The response has been very good and we expect it to continue so. By the end of the first months of operation, the three new destinations of TAP are showing signs that they were a good investment for TAP and for national tourism. At that time, the average occupation rates were high, with Helsinki, Moscow and Warsaw with figures over 70 percent. Of the total passengers, more than 60 percent of the Moscow route was sold in Russia, while the Finnish market has contributed with more than 70 percent of the Helsinki sales. The Warsaw route has also been more successful in markets abroad, with Poland selling more than 50 percent, with this value being increased by the contributions from other European markets and from Brazil. It is also important to note that the traffic is distributed over various national airports, providing an important contribution to tourism in different regions of the Country.
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Key Events
ANNUAL REPORT | 2009
In addition to the impact of the adjustments to the operating plan, which other factors counted towards the record recovery of TAP S.A.’s result, in a year in which the Air Transport Industry registered heavy losses? According to IATA, traffic in 2009 declined 7.2%, whereas TAP only registered a decrease of 3.4%, having transported 8.4 million passengers in its Network operation, with the year under analysis representing the second best year ever in its activity. However, due to the dimension of revenues losses, the impact of the reduction in the price of fuel would have, by itself, been insufficient to reverse the losses of the previous year. Amounts in €M 2008 RESULT
-209
REDUCTION OF REVENUES PRICE OF FUEL IMPACT
-238 296
LOSS WITHOUT COST REDUCTION IMPACT
-151
COST REDUCTION OTHER VARIATIONS
201 7
2009 RESULT
57
The recovery was guaranteed, in addition to the adjustment to the operating plan, by another component, based on an implemented cost contention plan to deal with the impact suffered by the Aviation Industry as a result of the financial and economic crisis. As a whole, the initiatives undertaken allowed cost reductions in excess of 200 million euros to be obtained, enabling the achievement of a net income higher than the previous year’s by 266 million euros.
What will happen after June 2010? The network is always in movement, depending on market dynamics, almost like a living being. As a rule, the distribution systems have the timeframe of one year, so we will be within a full operation scheme, as of June 2010, a date which may also be anticipated according to market behaviour. The contemporary world has shown that flexibility and the capacity to adapt have become part of organisational life. Organisational life has become increasingly less a cyclical, occasional and sporadic process aimed at reforming and transforming existing conditions, but is increasingly more an ongoing adaptation capable of anticipating market alterations, at all times. In order to continue competitive in the current market, companies must focus on aspects related to time and flexibility, as essential factors for their survival.
Are there conditions for further increasing the route network? Strictly speaking, there is traffic between any two points, all over the world. The great question is how to operate this in a profitable manner, with this process implying constant analysis. TAP’s size also constitutes an important factor, since it still ensures that there is some margin for further growth in the operation.
46
Strategy
ANNUAL REPORT | 2009
Strategy The Strategic Plan 2007-2009 was, for the most part, implemented according to plan.
TAP’s Performance Between 2000 and 2006, TAP successfully implemented an internal restructuring process, in order to invert a negative financial performance, having committed itself in 2006 to becoming a benchmark company in the sector, creating the bases for the organisation to face new challenges. In this sense, the Strategic Plan 2007-2009 was, for the most part, implemented according to plan, with the Company having, until 2008, managed to sustain an improvement in operating performance and achieved results in line with the largest
European airline companies and above that registered for its medium-sized counterparts. In 2008, the results recorded by the Company resulted, to a large extent, from exogenous factors – the economic recession in the second semester and, primarily, the swift rise in airplane fuel prices. Within the scope of the Strategic Plan 2007-2009, also noteworthy was the development of several actions with a decisive impact on the Air Transport business which involved, in particular, taking advantage of growth opportunities, drawing up a new commercial strategy and improving the service provided to the Customer.
Most significant alterations within the scope of the Strategic Plan 2007-2009 Acquisition and integration of PGA
Expansion of the TAP Network
Commercial refoundation process
Customer service improvement
Operational integration was achieved successfully > Transfer of bookings to TAP and connections to TAP flights achieved within 24 H > Forwarding of the sales/ customer service channels of PGA (call center, web site, counters) achieved on the 1st day Total overhaul of TAP’s route network in the 2 months following integration, resulting in the launch of four additional routes with capacity readjustment
Strong expansion of the network to Brazil > New frequencies to Rio de Janeiro and Sao Paulo > New destinations: Brasilia and Belo Horizonte
Launch of five new products for different passenger segments (Branded Products)
Significant improvement in punctuality (increasing from 59% in 2007 to 80% in 2009), reaching the average levels of European companies
Launch of new destinations in the medium-haul operation: from Lisbon to Seville, Hamburg, Casablanca, Helsinki, Moscow and Warsaw; from Porto to Rome and Brussels
Implementation of a reinforced service strategy for the Corporate segment > New contractualisation models with large companies > Reinforcement of the loyalty programme for SMEs Implementation of an aggressive promotional strategy, by offering competitive air fares
Reduction of the number of luggage left behind
Development of new destinations, from Porto: Rio de Janeiro, Sao Paulo, New York, Rome, Brussels
Creation of new services for passengers > New Lounge > Premium Customer Centre > Fast-track
Strategy
ANNUAL REPORT | 2009
47
Main axes of the Strategic Plan 2009-2012 In the current context, in which the future of the Industry depends on the behaviour of demand in the post-crisis phase, and in which a high risk of variation of fuel prices subsists, TAP’s Plan for the three-year period 2009-2012, aimed at reestablishing the Company’s sustainability and profitability conditions, is based on the consolidation of its strategy in a context of limited growth, as well as on the optimisation and increased flexibility of its organisational structure and costs, creating the bases for the Company’s future sustainability. In this sense, the main commitments of the Company, within its Plan’s horizon, are the following: (i) Maintain the Network logic and strategy, strategically reducing capacity and seeking new niches in Africa; (ii) Launch an aggressive effort to stimulate demand, promoting connection traffic from foreign markets, reinforcing Internet sales and promoting the loyalty of its customers in the home market;
(iii) Act incisively on all actionable costs, promoting efficiency gains while at the same time maintaining the current working environment; (iv) Implement the shareholding structure redefinition process, by concluding the total divestiture of Groundforce and maintaining the sales/partnership effort with TAP–Maintenance and Engineering Brazil; (v) Relaunch the organisational transformation programme, developing the organisation and its resources, in order to ensure the future sustainability of the Company; (vi) Prepare the company to face the uncertainties of the business, increasing its cash position and intensifying a hedging programme for the main risks; (vii) Maintain the debt reduction strategy, particularly during the low growth period of operation.
Strategy consolidation and optimisation and increased flexibility of the organisational structure and costs
Main developments in 2009 According to the fleet development programme included in the Strategic Plan 2007-2009, the medium-haul fleet renovation and modernisation process was concluded in 2009, with the integration of 6 new A320-214 aircraft, of greater energy and environmental efficiency, and the exit of 4 A320-211 older aircraft, with the total number (16) of aircraft that integrate Portugália’s fleet remaining the same. In 2010, no structural change is foreseen, for either TAP’s fleets or Portugália´s fleet, with exception of the exit from operation of the last A320-211 aircraft of TAP’s medium-haul fleet. In December 2010, according to plan, TAP’s fleet should reach a total of 71 aircraft, being included in this number 14 and 2 units of Portugália and of OMI, respectively, providing service to TAP, exclusively. In order to respond more and better to Customers’ expectations, and seeking to optimise all business opportunities, the launch of the operation to new destinations took place in 2009, extending the network
in Europe with regular flights to Moscow, Warsaw and Helsinki. In Spain, the operation to Malaga was intensified and Valencia now represents the eighth destination operated by TAP in this country. In addition, with a view to reinforcing its presence on the African continent, there was an increase in connections, among which Dakar is worth mentioning. Being the improvement of the quality of Customer service a priority and permanent objective, it is important to mention, among other developments, the offer of the Branded Products concept, within the scope of the differentiation of the Ground service, in all of the Company’s Network airports. In addition, for arrivals to and departures from Lisbon Airport, the TAP Personalised Assistance was implemented, a service that, through an efficient attendance, provides TAP passengers with greater comfort and speed during the boarding and disembarking phases.
A MODERN FLEET > Energy and maintenance costs efficiency; > High in-flight comfort; > Respect for sustainable development commitments concerning the reduction of CO2 emissions. STRONG FOCUS ON CUSTOMER SERVICE > Expansion of the Network of destinations; > Branded Products – Differentiation of the Ground service; > TAP Personalised Assistance; > Investment in Technological innovation – Online check-in and tap mobile Portal.
48
Strategy
ANNUAL REPORT | 2009
having envisaged an alteration of waves, which involved changing the departures of long-haul flights to the afternoon and evening waves. The integrity of the Network and efficiency of the Lisbon hub were preserved, including the quality of the service provided to the Customer. Modelled according to the behaviour of the market at a particular moment, this Plan was implemented, preserving the possibility of adding capacity in the event of a recovery.
Furthermore, Company investment in innovation and in line with technological development continued, which was reflected in different areas. As such, with a view to streamlining processes and promoting adjustment in line with customers’ conveniences, TAP passengers now have available several options to carry out their flight check-in: at the airport, at counters or at self-service kiosks; at home or at the office, with the online check-in, a feature that has been made available at an increasing number of destinations. In addition, as part of a product differentiation strategy, the tap mobile portal was launched, a portal for mobile media aimed at consolidating the mobile channel as a new way of communicating and interacting with TAP customers. It is also important to mention the creation of Power Choice, a new form of research that is seeking to reinvent the entire online air travel ticket purchase process, allowing an affinity search to be performed, in accordance with several criteria. The objective of this innovative form of research is to provide an offer directed at different market segments, with a view to satisfying customers’ different tastes.
The decline in traffic connections between Europe and the South Atlantic region, where TAP continues to hold the greatest number of operated flights, to Brazil in particular, did not affect the leadership position of the Company as the foreign airline company with the greatest number Leadership in the of transported South Atlantic passengers. Providing daily connections between Europe and Rio de Janeiro, Sao Paulo, Brasilia, Belo Horizonte, Salvador, Recife, Natal and Fortaleza, the positioning of the Company was recognised with the award of the Best Airline Company in the World for South America title, made within the scope of the 16th edition of the World Travel Awards (WTA), an award launched with the objective of recognising excellence in all activity sectors of the world travel and tourism industry.
The deterioration of the economic climate, exacerbated by the H1N1 flu virus pandemic, which induced a perspective of traffic reduction, accompanied by the maintenance of a scenario of slow recovery, led the Company to rethink its entire operation, Exceptional with the aim of flexibility to promoting a rational market changes adaptation of its offer and an effective control of costs. Thus, in addition to one-off cancellations throughout 2009, a Contingency Plan was launched in 2009, which is to be in force from September 2009 to June 2010. The principal measure of this Plan involved the drastic reduction of night-stop flights from Europe in which significant declines in traffic were observed, with the Network design
Resulting from continued efforts with a view to taking advantage of opportunities, in combination with an increased efficacy of sales, approximately 69% of revenues were obtained from outside the Country. As a result of the adverse economic climate, revenues from the Superior domestic market execution declined 10.2%, capacity even though the Company’s market share remained steady at 54.3%. In relation to operating efficiency, the impact of the initiatives undertaken led to a significant improvement in the Punctuality index, registering an average value of close to 80% in 2009, and trending towards the average of the Association of European Airlines (AEA).
Management of other businesses In a scenario of uncertainty, economic contraction and financial crisis that affected all activity sectors in the world, TAP–Maintenance and Engineering continued its activity, pursuing a strategy of contention and consolidation of the expansion of its infrastructures in Brazil. In this sense, it is important to mention the in-depth restructuring of the Business Unit, which involved the implementation of a new management model integrating the two maintenance units, TAP–Maintenance and Engineering Portugal, and TAP–Maintenance and Engineering Brazil, in the format of a global entity and single organisation, with two units and a common brand: TAP–Maintenance and Engineering.
Performance of Grupo TAP companies
ANNUAL REPORT | 2009
€ 1,859.0
million Air Transport and Maintenance and Engineering Portugal Revenues
89.5%
of the Group’s Turnover
Performance of Grupo TAP companies TAP, S.A. Exposed to a series of external factors beyond its sphere of control, 2009 was a year which will be recalled by the Commercial Aviation companies as the year with the worst result ever, with the Industry having been faced with the effects of a profound international financial crisis, and which carried in its wake a heavy reduction in air traffic levels. According to IATA estimation, industry losses reached USD 9.4 billion. Similarly affected by the economic scenario described above, TAP, S.A. ended the financial year of 2009 with a net income of 57.4 million euros, representing 266.4 million euros greater than the -209.0 million
euros registered for 2008. There was also a significant improvement in the operating sphere, to the order of 221.5 million euros, compared with 2008, with net operating income having reached 65.3 million euros. Fuel costs fell by 344.6 million euros, with 296.5 millions being attributable to the price effect. The Air Transport activity generated operating revenues reaching a total of 1,803.6 million euros, representing 184.2 million euros less than in 2008, significantly influenced by the behaviour of revenue derived from passenger travel, which reached 1,648.4 million euros, corresponding to 8.7% less than the value registered in the previous year, as a consequence of a contraction in demand and lower yield levels.
€ 57.4
million Net Income of TAP, S.A.
49
50
Performance of Grupo TAP companies
ANNUAL REPORT | 2009
TAP, S.A. Main Indicators Operating Revenues and Gains Operating Costs and Losses EBITDAR Operating Net Income Current Net Income Net Income Total Assets Total Equity Active Staff excluding subsidiaries companies (31 December)* Air Transport Maintenance and Engineering TAP Serviços Other TAP fleet composition (average) Flight Hours (Sched. oper. using own aircraft) Departure punctuality up to 15’ (%) Regularity (%) (*) Not including non-placed and non-active staff
In the context of the Portuguese economy, the importance of TAP continued its consolidation, which was reflected in different areas > Positioning as one of the largest employment creators in the Country; > Its significant contribution to the volume of national exports, with Grupo TAP having become the largest national exporter in 2009; > Its contribution to national tourism, with a significant increase in traffic to Portugal, throughout its entire operation network.
In turn, the aeronautical maintenance activity, MRO (Maintenance Repair and Overhaul), followed the trend of the airline operators, with a time lag of some 6 months to 1 year. In the area of Maintenance and Engineering the results did not show the growing and positive trend which had occurred over the last years, with the income derived from the provision of Maintenance services for Third Party Customers having reached 96.6 million euros, corresponding to 42.7 million euros less than in 2008. This reduction was the result, not only of the loss of some Customers due to their bankruptcy, but also of the difficulty in accommodating more aircraft of Third Party Customers at the current premises in Lisbon, already too small for the current size of TAP’s fleet, which has grown at an annual average rate of 7.3% over the past 5 years. It should be noted in particular that, notwithstanding the economic context described above for 2009, and albeit under a scenario of lower fuel prices, these results were possible only due to the combined effect of greater rigour in cost management, the permanent increase in productivity levels, the adoption of best practices and process simplification, and the intensification of aggressive sales policies. Also noteworthy was the impact of the measures taken under the Contingency Plan, implemented for the purpose of promoting a rational adequacy of the supplied capacity, in view of the new
2009 EUR million
2008 EUR million
var.
1,923.4 1,858.1 262.0 65.3 49.7 57.4
2,161.2 2,317.3 48.1 (156.1) (222.2) (209.0)
-11.0% -19.8% 445.1% 141.9% 122.4% 127.4%
1,745.6 (64.1)
1,874.8 (104.4)
-6.9% 38.6%
6,986 4,489 1,961 498 38
6,973 4,504 1,936 494 39
13 -15 25 4 -1
54.4 221,472 79.9 98.7
53.2 233,729 75.4 99.5
2.1% -5.2% 4.5 p.p. -0.8 p.p.
levels of demand. The implementation of this Plan was reflected in the selective reduction of the services offered, to a total of 6% on average by the end of the year, which, combined with the reduction in fuel consumption, led to effective cost control. It should be noted that the integrity of the Network and the efficiency of the Lisbon hub were preserved, as well as the quality of the service provided to the Customer, with the Company having consolidated its profile by pursuing a niche strategy, connecting Europe to a growing number of destinations situated in Africa and in the South Atlantic, where it is distinguished as the leading European carrier to Brazil. By the end of the year, the Company had transported a total of 8,439 thousand passengers, 0.3 million less than in 2008, with the company having registered contraction in almost all the sectors of the Network, with the exception of Mainland Portugal, the Autonomous Regions and the Africa sector. By the end of 2009, the Company’s fleet comprised 71 aircraft, making it possible for the Company to fulfil its strategy to respond more fully and better to the expectations of its Customers, while seeking to optimise all business opportunities.
Performance of Grupo TAP companies
ANNUAL REPORT | 2009
This was reflected in the launch of the operation to new destinations, expanding the Network in Europe, with regular operations to Moscow, Warsaw and Helsinki. In Spain, the operation to Malaga has been intensified and Valencia now represents the eighth destination operated by TAP in this country. With a view to strengthening TAP’s presence on the African continent, there has been an increase in the connections, in particular to Dakar. At the end of the year an announcement was made of the expansion of operations in 2010, with the opening of the routes to Marrakech and Algiers as of June, and to Campinas in Brazil as of July. In the first case, as an initiative arising from the strengthening of the growth strategy for Africa, with the second situation representing a diversification into the interior of the region of Sao Paulo. Likewise, since the improvement of the quality of the service offered to the Customer is a priority and permanent objective, note should be made, amongst other developments, of the provision of the Branded Products concept, aimed at the differentiation of the Ground service in all airports of the Company’s Network. TAP Personalised Assistance has also been implemented at Lisbon Airport, with this service providing the TAP passengers with greater comfort and speed during the boarding and landing phases.
On the other hand, the Company pursued its investment in technological innovation, which was reflected in different areas, namely: in online check-in, a facility which has been continuously made available in an increasingly greater number of destinations; in the launch of the tap mobile Portal for mobile devices, which seeks to consolidate the mobile channel as a new form of communication and interaction with TAP Customers; and in the creation of Power Choice, a new search engine, seeking to reinvent the entire process of online purchase of airline tickets, permitting search through affinity, according to various criteria. With a view to improving the service provided on the Ground, efforts have been pursued aimed at strengthening the relationship of confidence entrusted to the Company by its Customers. In this way, the implementation of a series of actions and continuous control over the main factors influencing Customer satisfaction have enabled confirming the trend towards the improvement of departure punctuality, baggage control and the quality of the attendance at the Airports of the TAP Network. On the other hand, the Company has strengthened the position of its contribution to the volume of national exports, with it being especially noteworthy that, in 2009, TAP became the largest national exporter, with its sales and services rendered on markets abroad having reached a total of 1.4 billion, albeit 11.2% less than the 1.5 billion euros registered in 2008 (restated). Also noteworthy, is the contribution to national tourism, with the significant importance of traffic to Portugal, from its entire operation network.
WEIGHT OF CIVIL AVIATION IN THE PORTUGUESE ECONOMY Impact, in 2008, of Grupo TAP Grupo TAP, in the development of its activities, was responsible, in 2008, for 59.3% of the total weight of civil aviation in the Portuguese economy.
51
52
Air Transport
€ 1,803.6
million Air Transport Operating Revenues
ANNUAL REPORT | 2009
84.8%
of the Group’s Turnover
4,489
Air Transport Staff (31st December)
Air Transport
ANNUAL REPORT | 2009
53
COMMERCIAL POLICY MAIN ASPECTS > Route Network: Response through a policy of diversification of markets and the optimisation of the services offered; > Change to a new price and space management paradigm – Readjustments to the Project’s operations; > Lower marketing costs; > Innovation and business simplification; > Service improvement, on the Ground and on Board;
Air Transport The mission of TAP Air Transport is to develop business as an international airline, ensuring that it is the best option for those using passenger and cargo air transport services, one of the best companies to work for and one providing its investors with appropriate levels of return.
> Proactiveness in solving irregularities in TAP Network Airports; > Modernisation and diversification of the product range offered for Cargo transport; > Collaboration with partner companies; > Promotion of National Tourism; > Strategic commercial partnerships.
Main aspects of Commercial Policy During 2009, the Company continued to strive towards the strengthening of product quality and the search for the
In a context of profound economic crisis at a worldwide level, with strong repercussions on traffic volumes, the Company’s response, regarding the Route Network, has been based on the adoption of a policy of diversification of markets, with the opening of new routes, in addition to the strengthening of the offer in specific markets. At the same time, with a view to cost control, a Contingency Plan has been implemented, involving the adjustment of the levels of the services offered, affecting flights with traditionally lower occupancy levels. The development of the operation of the Route Network has remained based on a policy of the strengthening of the role of Lisbon Airport as the main operating centre, in a hub logic, complemented by an operation at Porto Airport as the 2nd operating hub, aimed at corresponding to the volume of traffic leaving from the north of the Country.
EUR MILLION
1,988 1,750
1,804
13.6% -9.3%
Variation %
2009
ROUTE NETWORK: Reaction to crises THROUGH A POLICY OF DIVERSIFICATION OF MARKETS AND THE OPTIMISATION OF Supplied capacity
AIR TRANSPORT OPERATING REVENUES
2008
In 2009, the growth of passenger traffic on airline companies of the AEA (Association of European Airlines) fell by -4.5% in passenger-kilometres, with the greatest fall (-5.8%) having been relative to the number of passengers transported. At TAP, the behaviour of traffic was similar, with the Company having registered a decrease of -3.8% in the number of passenger-kilometres. However, the adoption of measures with a view to overcoming the contraction in demand, in particular the readjustment made to the levels of the supplied capacity, enabled the achievement of an improvement in the occupation coefficient to the order of 1.5 p.p., at the same time as a slight reduction in unitary revenue, measured per seat-kilometre offered. The strict compliance with an aggressive commercial policy, aimed at attenuating the negative impact of the circumstances, enabled TAP to achieve, by the end of 2009, total operating revenues of 1,803.6 million euros in Air Transport activity, which represents a decrease of 9.3% relative to the previous year.
most appropriate solutions for Passenger travel, with a view to increasing Customer satisfaction and constant differentiation in relation to the competition. In the development of this policy, special attention was given to the following aspects:
2007
Growth in Air Transport activity
54
Air Transport
Own line of services, on the ground, especially created for Premium Customers | Exclusive check-in counter | Premium Customer Centre Store for personalised assistance at Lisbon airport | Green Way Security control and priority X-ray treatment
ANNUAL REPORT | 2009
READJUSTMENTS TO THE PROJECT’S OPERATIONS CHANGE TO A NEW PRICE AND SPACE MANAGEMENT PARADIGM For the purpose of increasing the Company’s revenues, through more a dynamic management of prices, reacting in a manner consistent with that shown by no-frills companies, the project has so far achieved excellent results, having been subject to adjustments in its functioning model in 2009.
| Premium Boarding | tap premium lounge at Lisbon airport
REDUCTION OF MARKETING COSTS Following the general trend of the Air Transport Industry, TAP has pursued a policy of reduction of marketing costs.
BUSINESS INNOVATION AND SIMPLIFICATION
Luanda, Madrid, Maputo, Milan, Munich, Natal, Oslo, Paris, Rio de Janeiro, Recife, Rome, Salvador, Sao Paulo, Sao Tome and Venice, for the entire TAP network (except USA, in view of the specificity of the boarding procedures for this destination), with this facility also being provided through the site www.flytap.com, with the immediate printing of the boarding pass, which may be carried out from 24 hours up to 90 minutes before the flight departure time. tap mobile portal – Representing a new form of communicating and interacting with passengers, the launch of the tap mobile platform, accessible via the mobile phone, offering a diversity of useful information to passengers, namely: flight schedules, arrivals and departures, luggage location, lounge finder, and information on destination (weather forecast, currency converter, news, among other).
IMPROVED GROUND SERVICES
In the development of a business innovation and simplification strategy, for the purpose of reducing complexity along the service chain and creating more convenient conditions for Customers, continuity was given to the implementation of several initiatives:
In the development of a strategy towards the progressive improvement of the service offered to passengers, various initiatives should be highlighted within the context of the Ground Services:
Online Check-in – Expansion in the availability of the check-in function through the Internet, with it now being available from the following points of origin: Mainland Portugal, Azores and Madeira, excluding passengers with resident or student fares, Amsterdam, Barcelona, Belo Horizonte, Bissau, Bologna, Brasilia, Brussels, Budapest, Casablanca, Dakar, Stockholm, Fortaleza, Frankfurt, Hamburg, Johannesburg, London,
Reinforcement of own line of services, especially created for Premium Customers – In a service differentiation strategy consolidation effort, involving the continued improvement of the product offered to Customers that value more convenient conditions on their journeys and the best service which includes, namely, exclusive check-in counters, a personalised assistance store at Lisbon airport (Premium Customer
Air Transport
ANNUAL REPORT | 2009
Centre) and access to the Green Way, the following developments in 2009 are worthy of mention: > Expansion of the provision of Green Way – This function, already in operation at Lisbon Airport, also became available at Porto, Faro and Madeira airports. This new Fast Track service of TAP, facilitating the fulfilment of the security control formalities and involving priority X-ray treatment, allows faster access to the departure lounge; > Premium Boarding – Access to the dedicated area at the boarding gate, offering the possibility of embarking at the desired time and, for long-haul flights, transport on exclusive buses to the plane (when the boarding is not carried out by jetway), being this function provided with the objective of achieving a differentiated service in all phases of customer service at Lisbon Airport; > Two lounges at Lisbon Airport – From the beginning of 2009 onwards, two lounges were made available , the tap premium lounge for the target Victoria Gold, tap | executive, tap | corporate, TAP AMEX Platinum and STAR Gold, and the blue lounge for the target Victoria Silver, TAP Visa Gold and HSBC Victoria Card.
TAP Personalised Assistance – Attendance with a guarantee of excellence and personalisation, aimed at responding to the different needs of Customers, at Lisbon Airport, with the objective of optimising the ground services before and after boarding. The booking process is carried out exclusively on the web at www.flytap.com, through an intuitive form; In-Flight Reading Counter, in Porto – New reading counter for economic class passengers boarding at Porto; Operation at Terminal 1 of Heathrow – Alteration included within the scope of the Move under one Roof project, from STAR Alliance, an initiative aimed at offering alliance passengers more convenient and comfortable conditions through the use of common spaces at main airports.
IMPROVED IN-FLIGHT SERVICE Fleet A320 – Conclusion of the medium haul-fleet substitution programme, with the entry into operation of new generation Airbus A320 aircraft, of greater efficiency, in both economic and energy terms, and with a higher level of adaptation to routes and the service standards provided to Customers; In-flight Service – Holding of a workshop to analyse positioning within the scope of the In-flight Service, based on the last surveys directed at the preferences of medium-haul tourist class and long-haul executive class
55
Customers. The wine menu offered on board planes was also renewed, with the Company maintaining the commitment of offering quality Portuguese wine, thus providing Customers with superior quality products.
PROACTIVITY IN THE RESOLUTION OF IRREGULARITIES The development of a set of initiatives was continued in 2009, with the objective of promoting the continued improvement of the service provided to passengers on the ground, so as to reinforce the relationship of confidence entrusted to the Company by its Customers. The development of a set of cross-cutting initiatives and projects, along with various other external actions, where TAP has participated in an active manner and which have involved other entities outside the Company, such as ANA, the Aliens and Borders Service and the Handling Agents, have led to the continuous monitoring of the main factors influencing Customer satisfaction, namely, in matters of punctuality, baggage control and the quality of the attendance at TAP Network Airports.
56
Air Transport
ANNUAL REPORT | 2009
Traffic (RPK)
TAP AEA
Oct Nov Dec
Oct Nov Dec
Sep
Jul Aug
Jan Feb
0%
Mar Apr May Jun
50%
Sep
100%
Jul Aug
150%
450% 400% 350% 300% 250% 200% 150% 100% 50% 0%
Jan Feb
200%
Mar Apr May Jun
EVOLUTION SINCE 2000
South Atlantic - TAP South Atlantic - AEA Europe - TAP Europe - AEA Africa - TAP
CAPACITY, TRAFFIC AND LOAD FACTOR
Lastly, it is important to mention the significant intensification of the cooperation with the national partner, SATA
INTERNATIONAL (S4), via its expansion of routes between the Autonomous Regions and Europe and North America.
PROMOTION OF NATIONAL TOURISM By establishing partnerships with bodies in Portugal, various tourist-related entities and companies were supported and promoted by TAP in 2009 which, through advantageous offers to its Customers, acted as a national tourism promoting entity. It is important to mention the partnerships with Tourism of Portugal, ANA Aeroportos de Portugal, the Associação de Turismo de Lisboa–Visitors and Convention Bureau, the company Aeroportos da Madeira, the Secretaria Regional de Turismo e Transportes of Madeira and, in addition, the National Agency of Italian Tourism (ENIT), within the scope of the co-branded campaigns directed at several markets, namely Portugal, Brazil, the United Kingdom, France, Germany, Spain, Italy, Holland and Finland, Poland and Russia. It is also worth mentioning the recognition of the role of TAP’s in-flight magazine, UP,
35
75%
30 25
70%
20 15 65%
10
ASK
RPK
2009
2008
2007
0
2006
5 2005
Thus, in addition to the reinforcement of the number of operations in the remaining code-share points (Lisbon-Porto Santo, for example), TAP began placing its code on SATA INTERNATIONAL aircraft in the following new routes operated by the Portuguese counterpart: Ponta Delgada-Copenhagen, Ponta Delgada-Stockholm, Ponta Delgada-Frankfurt, Ponta Delgada-Amsterdam, Funchal-Zurich, Funchal-Dublin, Funchal-Stockholm and Funchal-Copenhagen. With respect to North America, TAP now offers Boston as a code-share destination on SATA INTERNATIONAL aircraft.
2004
The intensification of the relationship with STAR Alliance member companies continued, with the signing of the code-share agreements with AIR CANADA (AC) and BRUSSELS AIRLINES (SN) being worthy of mention. Through the agreement with the Canadian partner, TAP now offers, with its own code, Ottawa, Montreal, Calgary and Toronto in AIR CANADA aircraft. With the Belgian partner, BRUSSELS AIRLINES, TAP began commercialising, with its own code, all of the flights between Portugal and Belgium operated by its counterpart, thus reinforcing its own offer where it already operates and has also begun to place the code TP to Birmingham, Gothenburg, Vienna, Strasburg, Berlin and Manchester, on SN aircraft. In addition to this fact, also worthy of mention is the extension of the code-share with TAM, through the reinforcement of the number of flights on code-share destinations in Portugal and in Brazil, as well as the increase in the number of code-share flights to Buenos Aires, Argentina, operated in the Brazilian partner’s aircraft, via TAP points in Brazil. Also noteworthy is the increase of the connections with the Greek counterpart AEGEAN AIRLINES (A3), between Portugal and Greece, via points in Europe and, in addition, the extension of access to domestic destinations in Croatia, via Zagreb, within the scope of the code-share with the counterpart CROATIA AIRLINES (OU). With regards to LOT (LO), the code-share was reinforced with the new Lisbon-Warsaw route, which TAP began operating in June 2009.
PASSENGER-Km and %
Thousand million
COLLABORATION WITH PARTNER COMPANIES
60%
Load Factor
being the only Portuguese magazine with a bilingual edition in rapid expansion, having been attributed the Tourism Award of Portugal 2009.
STRATEGIC COMMERCIAL PARTNERSHIPS In addition to the formation of several strategic commercial partnerships, the creation in 2009 of another communication channel directed at customers/advertisers, in www.flytap.com is worthy of mention. The Company’s Internet page, anuncie@TAP, now provides complete information on the new advertising media offered by the Company, in-flight, on the ground and on the Web channel, regarding the segmentation of its universe of passengers, thus revealing itself to be an effective channel for reaching specific target audiences.
Air Transport
ANNUAL REPORT | 2009
Route Network In 2009, TAP continued its strategy in order to respond more and better to Customers’ expectations, with an offer of services of quality, in line with Customers’ needs, and conducting a rigorous and effective management of its aircraft and resources used in the Company’s Route Network operation. To follow through on this strategy, the maintenance of the operation centred on the main Lisbon hub and on the operational Porto hub was of the utmost importance, corresponding to the demand for local traffic and connection traffic. In this sense, focusing the operation on the intensification of the connections with the main European capitals, on the consolidation of the connections with the South Atlantic and on expanding the operation to Africa, the Company sought to optimise all present business opportunities, namely, the promotion of the launch of operations to new destinations.
It is important to mention the extension of the Network in Europe, with the regular operations to Moscow, currently one of the most important markets in Eastern Europe, to Warsaw, with Poland asserting itself as one of the countries with the most significant economic growth in Eastern Europe, and to Helsinki, regarding which Portugal represents an important tourist destination for Scandinavia. The operation to Malaga was also intensified, and the route to Valencia was also started, now representing the eighth destination served in Spain. In addition, with a view to intensifying its presence on the African continent, there was an increase in connections, among which Dakar is worth mentioning. It is also worth pointing out the consolidation of the shared code agreements with partners within the scope of the STAR Alliance and non-partners, with the existing good collaboration between TAP and its code-share commercial strategic partners being worthy of mention. The record number of passengers per day was achieved on 2 August, with a total of 35.215 thousand.
57
However, the intensification of the international economic and financial crisis and the consequent reduction in demand, led the Company to rethink its entire operation, aimed at promoting a rational adaptation of its offer of flights and the effective control of costs. Thus, in addition to one-off cancellations throughout 2009, an Operational Contingency Plan was launched in 2009, which is to be in force from 10th September 2009 to 10th June 2010, involving the cancellation of the majority of night-stop flights in Europe, and the transfer of departures to Brazil in the morning period to the afternoon and evening waves.
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ANNUAL REPORT | 2009
The following are recorded as the main developments reflecting the changes made:
EUROPE REINFORCEMENT OF THE LEADERSHIP POSITION IN BRAZIL The most representative long-haul sector in the total Route Network is the South Atlantic, now accounting for 38.1%. Consequently, long-haul traffic accounted for 56.9% of the total Route Network in 2009, when expressed in passenger-kilometres used (RPK), i.e. 0.8 percentage points less than the previous year.
TRAFFIC (RPK)
BY ROUTE NETWORK SECTOR SCHEDULED FLIGHTS
0.7% Mainland Portugal 5.6% Madeira and the Azores 36.8% Europe 12.0% Africa
> > > >
Russia, opening of the Lisbon-Moscow route, with 5 weekly flights; Poland, opening of the Lisbon-Warsaw route, with 5 weekly flights; Finland, opening of the Lisbon-Helsinki route, with 5 weekly flights; Spain, opening of the Lisbon-Valencia route, with 13 weekly flights.
Alterations to the weekly operation scheme, resulting from the implementation of the Operational Contingency Plan
Until 10 Sep 09 Route
EUROPE Lisbon - Madrid Porto - Madrid Lisbon - Barcelona Porto - Barcelona Lisbon - Seville Lisbon - Bilbao Lisbon - Malaga Lisbon - Amsterdam Porto - Amsterdam Lisbon - Copenhagen Lisbon - Frankfurt Lisbon - Munich Lisbon - Hamburg Lisbon - London Porto - London Lisbon - Milan Porto - Milan Lisbon - Rome Lisbon - Paris Lisbon - Marseilles Lisbon - Lyon Lisbon - Nice Lisbon - Brussels Lisbon - Luxembourg Lisbon - Geneva Porto - Geneva Lisbon - Zurich
49 28 42 28 13 20 6 21 14 13 21 14 14 43 21 21 14 28 42 11 21 16 28 3 21 14 21
From 11 Sep to 31 Dec 09 41 21 34 21 10 14 13 14 7 10 17 10 9 41 14 18 7 21 35 14 14 14 21 0 14 7 14
Until 10 Sep 09 Route
From 11 Sep to 31 Dec 09
AFRICA Lisbon - Praia Lisbon - Sal Lisbon - Casablanca
4 7 6
5 6 12
NORTH ATLANTIC Lisbon - Newark Porto - Newark
7 3
5 2
SOUTH ATLANTIC Lisbon - Rio de Janeiro Porto - Rio de Janeiro Lisbon - Sao Paulo Porto - Sao Paulo Lisbon - Brasilia Lisbon - Salvador Lisbon - Recife Lisbon - Natal Lisbon - Fortaleza
12 3 11 3 7 7 7 5 7
10 2 10 2 6 6 6 4 6
MID ATLANTIC Lisbon - Caracas
4
3
DOMESTIC SECTOR Lisbon - Oporto Lisbon - Funchal
77 56
70 49
4.1% North Atlantic 2.8% Mid Atlantic 38.1% South Atlantic
Passenger Activity During 2009, following an effort to rationally adapt the supplied capacity to demand, the level of capacity offered, in available seat-kilometres (ASK) on TAP scheduled flights decreased by 5.9% relative to the previous year, with over 97 thousand services having been provided. Furthermore, it should be noted that the Company was present in over 70 thousand flights operated by other companies under code-sharing agreements, 11.4% less than in 2008. In operations, the Company flew approximately 221 thousand hours with its own aircraft and more than 49 thousand hours with Portugália aircraft, corresponding to 158.8 and 27.7 million kilometres covered, respectively, representing a total of 6.2% less than in 2008.
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Air Transport
ANNUAL REPORT | 2009
CARRIED PASSENGERS SCHEDULED FLIGHTS
Africa As a result of the intensification of operations to the region (+6.8%), demand for destinations on the African continent also increased 2.2%, accounting for 12% of the total Network, 0.7 percentage points more than in 2008.
Demand aimed at the North Atlantic sector registered a strong decline, in the order of -15.7%, which was higher than the decline in the offer of -14.0%. Thus, weighting of this sector’s traffic in the total Network dropped slightly against 2008, to 4.1%.
MID ATLANTIC Demand in this sector fell by 16.6%, with its overall representativeness in the total Network having declined by 0.4 percentage points, which stood at 2.8%.
SOUTH ATLANTIC The reduced offer placed in the South Atlantic region, in the order of -10.8%, exceeded the decline in demand, which reached only -5.0%. As a consequence, overall passenger load factor increased by 4.5 percentage points to 73.5%. The South Atlantic is the most representative sector in the Network, accounting for 38.1%.
MAINLAND PORTUGAL Following the increased offer attributed to this region, in the order of 56.8%, demand increased by 68.8%, with the representativeness of this Network sector having increased to 0.7%.
MADEIRA AND THE AZORES Accompanying the increased offer of 6.7%, traffic to the Autonomous Regions reflected an increase in demand of 6.3%, with the Madeira and the Azores now representing 5.6% of the total Network.
Mainland Portugal Madeira and the Azores Europe Africa North Atlantic Mid Atlantic South Atlantic Total
592 1,030 4,885 541 158 91 1,141 8,439
Change on previous year Capacity Traffic (ASKs) (RPKs)
56.8% 6.7% -5.9% 6.8% -14.0% -10.1% -10.8% -5.9%
68.8% 6.3% -4.0% 2.2% -15.7% -16.6% -5.0% -3.8%
Load Factor
2009
2008
2007
6.9
2006
2005
2004
6.2 6.4
8.7 8.4
THE YEAR 2009 REPRESENTED THE SECOND BEST YEAR EVER FOR THE COMPANY In 2009, TAP transported a total of 8.439 million passengers, which although it declined 3.4% relative to the previous year, still represents the second best year ever in terms of passenger transport. In relation to the number of passengers carried by the Company, in 2001, there was a increase of 57.1%.
NORTH ATLANTIC
Traffic Volume Region (Thousand Passengers)
2003
Europe, representing 36.8% of total demand, is the 2nd most important sector in the Company’s Network. However, also taking into account the demand of Mainland Portugal and the Autonomous Regions, the European region accounted for 43.1% of the Company’s total demand in 2009. The reduced offer placed in this sector of the Network, in the order of -5.9%, exceeded the decline in demand, which reached only -4.0%. As a consequence, overall passenger load factor increased by 1.3 percentage points to 64.6%.
2002
EUROPe
5.4 5.3 5.6
2001
Million passengers
7.8
53.2% 67.9% 64.6% 68.0% 68.7% 66.2% 73.5% 68.5%
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Air Transport
ANNUAL REPORT | 2009
Cooperation and Partnership Agreements * 2009 PORTUGAL Mainland Portugal Austrian Airlines (from June to September), Brussels Airlines (since October), Egyptair, Lufthansa, Sata International, Swiss, TACV, Turkish Airlines, Ukraine International, US Airways Madeira and the Azores Austrian Airlines, Sata International Europe Austria Austrian Airlines Belgium Austrian Airlines, Brussels Airlines (since October), LOT - Polish Airlines, Ukraine International, United Airlines Bulgaria Lufhtansa Croatia Croatia Airlines, Lufthansa Czech Republic Lufthansa Denmark Lufhtansa, SATA International (since March) Finland Lufthansa France Aegean Airlines (since March), Croatia Airlines (up to October), LOT - Polish Airlines, SATA International Germany Aegean Airlines, Austrian Airlines, Brussels Airlines (since October), Croatia Airlines, LOT- Polish Airlines, Lufthansa, SATA International, Thai Airways, United Airlines, US Airways Greece Aegean Airlines, Air One (up to October), Lufthansa, Swiss Hungary Lufthansa Ireland British Midland, SATA International (since March) Italy Aegean Airlines, Air One (up to October), Austrian Airlines, Croatia Airlines, LOT - Polish Airlines Netherlands LOT - Polish Airlines, SATA International (since March), United Airlines Norway Lufhtansa Poland LOT - Polish Airlines Romania Lufthansa Spain Aegean Airlines (since March), Air Canada (from March to October), Austrian Airlines, Croatia Airlines (from March to October), SATA International (since March), Spanair, Thai Airways Sweden Brussels Airlines (since October), Lufthansa, SATA International (since March) Switzerland Austrian Airlines, Croatia Airlines, LOT - Polish Airlines, SATA International (since March), Swiss, Thai Airways, Ukraine International, United Airlines Turkey Turkish Airlines United Kingdom Air Canada (since March), British Midland, Brussels Airlines (since October), Lufthansa, SATA International, United Airlines Ukraine Ukraine International
Africa Cape Verde TACV Egypt Egyptair South Africa South African Airways
North Atlantic Canada Air Canada (since March) USA
Air Canada (since March), SATA International (since July), United Airlines, US Airways
South Atlantic Brazil
TAM
East Hong Kong Lufthansa Singapore Lufthansa Thailand Thai Airways * Code-sharing operation
ANNUAL REPORT | 2009
Air Transport
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Air Transport
ANNUAL REPORT | 2009
The Mission of TAP Cargo is to provide a reliable service for the collection, transport and delivery of goods and parcels on TAP’s fleet and that of its partners, in a timely and appropriate manner for its Customers’ needs and at competitive prices.
Cargo Developing new strategies In 2009, TAP-Carga e Correio developed new projects and products for its business. Continually in quest of customer satisfaction and new business opportunities, TAP developed its constant-temperature controlled transport activity. In fact, the excellent geographic positioning of its cargo platform, in Lisbon, for Brazil and Africa, as well as the quality of its services guaranteed TAP the leadership in this type of transport, to those destinations, from Europe. Very sensitive vaccines and medicinal products, transported in so-called Cool Containers, were the products that used this specialised service line most frequently, in which the protection and maximum security is ensured, for the recipients of these essential goods, by a 100% quality control.
CARRIED TONNES
BY ROUTE NETWORK SECTOR
5% Mainland Portugal
This service, classified as Must Go Cool, extended the diversified range of other services already offered: Must Go Turbo, Must Go Petroleum, Must Go Wearing, Must Go Fish, Must Go Meat, Must Go News and Must Go Production Line.
7% Madeira and the Azores 29% Europe 16% Africa 8% North Atlantic 3% Mid Atlantic 32% South Atlantic
In spite of the decline in the volume of transported air cargo at a worldwide level, TAP sought to innovate, developing new destinations not yet explored. A new cargo aircraft destination to Senegal was thus created, giving rise to a large cargo platform in Africa, whose main export is fish. CARGO AND MAIL TRAFFIC
CARGO AND MAIL REVENUE
MILLION RTK
EUR MILLION
339
354 306
128 111
4.6%
98
14.5%
-13.6%
Variation %
Variation %
2009
2008
2007
2009
2008
2007
-22.9%
Within this line of services, TAP has also developed a service for transporting cargo of high weight and volume, through exclusive high capacity air freight operations. The destination Angola was the most significant within this project, with TAP having significantly increased the volume of cargo transported to that country during 2009. Exclusive regular cargo flights from Europe also continued to converge at TAP’s Lisbon hub, which have helped foster the Company’s long-haul flights. By continually investing in the quality of its modern fleet, with technically equipped holds, TAP continues to guarantee quality in the transport of perishable cargo and live animals, according to the requirements of customers and institutions dedicated to animal life. Several important projects were also initiated internally in 2009.
TAP began using the New Cargo Terminal at Lisbon Airport, resulting in a substantial improvement of the quality of the service provided to customers, in terms of both Export and Import cargo. Complementing these improvements, the Company reinforced its customer service internally, increasing the capacity of its Call Center and of the processing of cargo complaints. In the interim, TAP Cargo and Mail has maintained close contacts with IATA, whose recommendations it follows rigorously, being currently leader of the e-freight project in Portugal.
New projects > Specialisation in constant-temperature controlled transport > Reinforcement of cargo flight activity to Angola and Senegal > Cargo hub benefiting from a New Cargo terminal in Lisbon > E-freight, IATA’s paperless air cargo project
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Air Transport
ANNUAL REPORT | 2009
ONLINE BOOKINGS
116.9%
428,645 83.4%
78.1%
301,888 42.0% 25.0%
164,594 131,696
From the viewpoint of the expansion of the FLYTAP network, new online markets were opened for, namely, Poland, Russia, Czech Republic, Hungary, Canada, Argentina, Venezuela and Chile. The offer of travel insurance, included in the reservation process, was also extended to departure from Switzerland, Denmark and Luxembourg. In relation to the African Market, in particular, the possibility of making online Bank Transfers was created and, more specifically, in the case of Luanda, the option of making, on the Website, credit card payments was developed. These are measures aimed at simplifying and streamlining the entire Web bookings and sales process. One of the key measures for 2009, directed at the Affiliation Programmes and for the continuous development of TAP Portugal Partnerships, was the creation of interfaces and dedicated accesses for the FLYTAP booking engine to be integrated in partner sites. In its continuous quest to implement innovative services, the possibility of making Personalised Assistance bookings, through the site, for Lisbon Airport was made available, a service offered at four levels,
2009
2008
2007
2006
ONLINE REVENUE EUR THOUSAND
118.8%
155,186 56.5%
82.2%
111,539 39.1% 71,268 57,680
23.6%
31,665
2009
2008
14,474 2007
Also noteworthy was the online launch of the Carbon Offset Programme, enabling the passenger, during the reservation process, to compensate the carbon dioxide emissions of his/her journey. This project (launched on 5 June 2009) was distinguished with the Planet Earth award from UNESCO, in the Most Innovative Sustainable Product category. Lastly, a so-called Power Choice was created. This new form of search seeks to reinvent the entire air travel ticket purchase process, on the web, allowing an affinity search to be performed according to several criteria, such as theme, weekends and budget, among others. The objective of this innovative form of search is to provide a specific offer directed at different market segments, with a view to satisfying customers’ specific tastes.
2006
It should particularly be noted that the growth in flight revenue per market was also significant, especially in some markets, such as Brazil (220%), Switzerland (75%), Germany (57%), Portugal (42%) and Italy (84%). It should also be noted that the net income of online sales reached 8.6% of the total turnover of online market sales, with this expression being slightly higher in the specific case of the Portuguese Market, in the order of 10.3%.
with a view to providing a personalised and distinctive attendance to passengers.
2005
Online booking activity grew by 42.0%, having generated sales revenue in the order of 155.2 million euros, corresponding to approximately 644 thousand passengers.
Variation %
2004
Simplification and streamlining of the entire web bookings and sales process
2004
e_commerce
2005
73,955 34,102
Variation %
Victoria Programme Between 2003 and 2009, the TAP Frequent Flier Programme – Victoria – increased from 196 thousand to 977 thousand, in a strategy of internationalisation, which was intensified for the markets of Brazil and Europe.
NEW FEATURES AVAILABLE ON flytap.com - Opening of new markets on the Website - Bank Transfer, on the Website, for the African Market; - Integration of Interfaces and dedicated accesses on partner sites for the FLYTAP booking engine; - Reservation of Personalised Assistances at Lisbon Airport; - Launch of Carbon Offset Programme, through the Website; - Power Choice – new form of search, in the bookings engine.
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Air Transport
ANNUAL REPORT | 2009
The mission of the Customer Service Department is to guarantee the provision of a service of recognised quality to TAP passengers, anticipating any possible irregularities and ensuring proactivity in their resolution.
Customer Service Main Functions > Manage operations at Lisbon airport, with a view to improving their punctuality and regularity; > Manage passenger attendance in Lisbon, in all aspects (check-in, transfers and baggage, amongst others); > Guarantee the provision of a service of recognised quality to passengers, in TAP network airports, ensuring, in advance, the resolution of any possible irregularities; > Coordinate the implementation of the service levels, practices and guidelines, for the different ground services; > Promote the initiative, development and implementation of improvements in service quality, so that these may be recognised by Customers.
Main priorities in 2009 1. Organisational consolidation – In 2009, the consolidation of the organisational structure was undertaken, involving the development of several actions, such as the launch of the Behavioural Training initiative; the integration of the Passenger Irregularities area in the Customer Service Department; the Implementation of the Hub Control Centre-HCC (Version II), with a focus on the Transfers Office and involving the integration of the Operating Cargo Management function. There was also an improvement in ULD Management.
Overall, these actions enabled the defined objective to be fulfilled, in the sense of Enabling the Customer Service Department, in terms of processes and Human Resources, to provide a quality service. 2. Improvement of the control mechanisms – In order to provide the diagnosis of critical situations in passenger service and monitor the impact of the measures implemented, the following initiatives were undertaken: Implementation of the corrective action methodology, resulting from periodic Customer Service Surveys, with more supporting and ambitious global performance indicators having been established. The participation in the Pool Project of IATA Audits (ISAGO) also took place and the Conference Calls method for the monitoring of the performance of Foreign Stopovers was also finetuned, with the implementation of a new Stopover management monitoring method. 3. Re-design of Processes – With the objective of developing new processes that allow simplifying/optimising the Customer service, improvements were made to the coordination processes of the HUBs (New Transfer Baggage Terminal of Lisbon–TBT, new Lisbon Cargo Terminal). The optimisation of the e-Learning tool was also undertaken and the communication process with TAP Customers was improved.
4. New Projects 2009 > Transversal projects: With the objective of launching/participating in projects from other TAP areas and with external entities that enable service improvements, developing the use of internet check-in was established as main priority. > Differentiation of the Ground Services – Provides passengers with differentiated Boarding and Disembarking, in accordance with the travel product selected. This differentiation is included in the objective, defined for 2009, of improving the ground service offered by TAP, thus bridging an important gap and providing a better attendance of passengers through the implementation, in all TAP network airports, of Branded Products. > TAP Personalised Assistance – This project began in 2009, with the objective of offering to passengers TAP’s Personalised Assistance service, for arrivals and departures from Lisbon Airport, as well as for Transfers via Lisbon, thus providing greater comfort and speed – with the efficient attendance during check-in, and the transport of hold luggage, in connecting flight situations, among other benefits. This service was conceived to meet the needs of all types of travel – business, leisure, individual, group or family – being available in four versions.
Air Transport
ANNUAL REPORT | 2009
DEPARTURE PUNCTUALITY (15 min) 75% 60%
TAP Personalised assistance
LOST LUGGAGE PER 1,000 PASSENGERS
DEPARTURE 27.8
80%
1 21.0
59%
19.9 15.2
2
2009
2008
2007
2006
2009
2008
2007
3
2006
65
4
Escort from: ■ Aircraft to Arrivals Hall.
Advance check-in; Escort from: ■ Meeting point to the check-in counter, including help with luggage and assistance with check-in. ■ Check-in counter to the aircraft.
Escort: ■ From aircraft to Arrivals Hall, including assistance with baggage reclaim formalities. ■ Through luggage reclaim and transport and delivery of the same to outside the Arrivals Hall.
Advance check-in; Escort from: ■ Meeting point to the check-in counter. ■ Check-in counter to the aircraft, including transport by exclusive vehicle . Advance check-in; Escort from: Meeting point to the check-in counter, including help with luggage and assistance with check-in. ■ Check-in counter to the aircraft, including transport by exclusive vehicle. ■
> External projects – Co-leadership of the Lisbon airport performance improvement work group (AIMS), aimed at improving the service provided to passengers, transmitting motivation and effective teamwork; – Collaboration in baggage handling performance improvement projects (BIP-Baggage Improvement Programme / RFID-Radio Frequency Identification), in partnership with STAR Alliance and IATA; – Reactivation of SAAT (STAR Alliance Airport Team), with the objective of identifying improvement opportunities, which add value to customers, and with a concern for cost reduction.
Punctuality
Handling Agents
Baggage
In 2009, Groundforce at the Lisbon Stopover maintained an improvement trend in terms of the service provided to passengers, intending in this way to resolve the quality problems that occurred in the past.
> The year of 2009 was characterised by the significant improvement of TAP’s performance with respect to Network Luggage Irregularities, with a value of approximately +23.6% relative to 2008.
The active monitoring of compliance with the agreed service levels (SLA), represent priority measures to be used, so as to exert pressure on the Handling Agents, in order to improve the quality of the service provided.
> The improvement also had a very significant impact on the decrease in costs with luggage irregularities, in which, for 2008 and 2009, savings of 2.2 million euros were achieved.
ARRIVAL
Escort from: ■ Meeting point to the check-in counter. ■ Check-in counter to the aircraft.
Escort from: Aircraft to Arrivals Hall, with transport by exclusive vehicle, including assistance with luggage reclaim formalities.
■
Escort: ■ From aircraft to Arrivals Hall, with transport by exclusive vehicle, including assistance with luggage reclaim formalities. ■ Through luggage reclaim and transport and delivery of the same to outside the Arrivals Hall.
PUNCTUALITY An improvement of 5 percentage points relative to 2008
Having overcome the less successful results prior to 2008, TAP maintains, in 2009, an improvement trend in terms of departure punctuality (15 min), with an increase of 5 percentage points relative to 2008, and of 21 percentage points relative to 2007.
In 2009, the improvement trend in departure punctuality (flight departure up to 15 min) in the Company’s Network was maintained, demonstrative of the efforts which have been made by the TAP Customer Service area, jointly with Handling Agents and Airport Entities.
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Air Transport
ANNUAL REPORT | 2009
Size of Grupo TAP fleet By the end of 2009, there were a total of 72 aircraft in the operational fleet belonging to companies of Grupo TAP, with 56 being held by TAP (55 aircraft from January 2010), a value which reflects an increase of 2 medium-haul fleet aircraft relative to the previous year. The total of 16 aircraft which integrated Portugália’s fleet remained unaltered.
AVERAGE FLEET AGE
14 12
Fleet In 2009, according to the strategic development plan, TAP renovated and modernised its medium-haul fleet, with the entry into service of 6 new A320-214 aircraft, and the exit of 4 older A320-211 aircraft, with the exit of the last A320-211 planned for January 2010. In relation to the model undergoing substitution, the new enhanced A320-214 provides an average gain in energy and environmental efficiency of about 8 per cent, which permits savings of about 700 tons in annual fuel consumption, corresponding to an annual reduction of about 2,200 tons of carbon dioxide emissions. The energy efficiency gains are included in the Company’s Environmental Guiding Principles, namely in terms of the use of eco-sustainable practices
and technologies, which conciliate business growth with environmental protection. It is also important to mention that the entry into service of the new aircraft has provided considerable advantages in terms of on-board service and comfort to TAP Customers, as well as at the level of operating performance, reliability and maintenance. The overall average age of the aircraft in the TAP fleet, on 31 December 2009, was 8.9 years, less than the average age of 9.4 years registered at the end of 2008. The Portugália fleet, corresponding to a total of 16 aircraft, underwent no changes in 2009.
10 8
Composition Number of Aircraft on 31 December
6 4
Long-Haul fleet Medium-Haul fleet Total fleet
2009
2008
2007
2006
2005
0
2004
2
2010 Units Average DEc 08 DEc 09 Age Ownership Rental Additions Options
Medium-Haul A319 19 19 10.8 15 4 - A320 15 18 6.8 5 13 - A321 3 3 8.7 2 1 - Long-Haul A340 4 4 14.9 4 0 - A330 12 12 7.2 11 1 - Total 53 56 8.9 -
Average Daily Utilization Block Hours/Day 2004 2005 2006 2007 2008 Medium-Haul A319 10.11 10.45 10.62 10.39 10.90 A320 9.96 10.48 10.55 11.08 11.51 A321 11.70 12.18 11.79 12.38 12.04 Long-Haul A340 15.13 15.70 15.74 13.87 12.90 A330 - - 16.00 15.24 15.16 A310 13.99 14.44 13.90 13.48 6.78
-
-
2009 10.40 10.45 10.85 10.97 13.56 -
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Air Transport
ANNUAL REPORT | 2009
TAP FLEET FINANCING 31 DECEMBER 2009
34%
66%
Company Ownership Operational Leasing
Fuel conservation The TAP Portugal Fleet The Fuel Conservation project, initiated in 2005 at the Company, has produced very positive results, and has enabled significant savings to be made since its launch, corresponding to an accumulated value, as at 31 December 2009, that exceeds 40 million euros. In 2009, the price of fuel, in spite of significantly lower than the previous year, began showing signs of recovery at the end of the year, with the return of high prices in 2010 being a possibility that is not to be excluded. On the other hand, the growing environmental concern and the implementation, in the near term, of the EU Emissions Trading Scheme contribute to emphasise the fundamental importance of this project for the sound performance of the Company within the context of a progressively more competitive and demanding market, with 2009 being the year of project consolidation. The measures already implemented were thus maintained, with an increase in adherence to those same measures having been registered as a result of a permanent effort to promote and raise awareness of the project, in association with a growing awareness of environmental issues, and of the need to increase efficiency, which has come to characterise the Company. The working group of the project continued to develop methodologies and tools to monitor adherence to, and the evolution of, the fuel saving policies. The creation of databases, permitting the combination of operational data from several sources, allow more rigorous analyses of the evolution of the operation to be carried out, being the same also conducted more quickly. This work, which has been under development since 2008, and has involved several areas such as Operations Engineering, the Flight Data Reading Station and Megasis company, permits the production of detailed reports, directed at the needs of each area which, in the near future, through an online portal, will provide various information on the evolution of the operation and on the project itself.
The Portugália Fleet The Portugália company autonomously manages its own Fuel Conservation project, through coordinated efforts between the Maintenance and Engineering and Flight Operations Departments. In this context, a number of fuel consumption optimisation measures were defined. These measures have been improved, year after year, and were duly considered, due to their relevance and easy applicability. However, the effective reduction in fuel consumption is only possible through the sum of small gains and a global commitment and involvement. Taking into consideration this principle, the following measures have been implemented: a programme for the periodic washing of aircraft, weight reduction (with new painting, replacement of set carpets, windshield connection elements – titanium versus stainless steel); as well as concordance of panels and polishing of fan blades. Regarding the area of flight operations, landing with Flaps at 22º instead of 45º, low drag approaches, Delayed Flap and Single Engine Taxi-in were implemented in the Embraer fleet. With respect to the Fokker Fleet, the following measures were implemented: landing with Flaps at 25º, take off with Flaps at 0º, turn around in excess of 20 minutes results in GPU request and APU switch off, Low drag approaches and delayed Flap. The implementation of the combined abovementioned measures represented, in 2009, an efficiency of 1% in the total consumption of the fuel caption, corresponding to savings of 153 thousand euros and, consequently, a reduction of CO2 emissions in the order of 972 tons. In 2010, TAP intends to continue to promote continuous improvement and Employee awareness on environmental issues which, in combination with the improvement of the measures that were initiated in 2009, point to savings of approximately 1.5% of the budgeted value for the fuel caption, in 2010, in terms of efficiency (Kg/BH), i.e. 242 thousand euros and, consequently, a reduction of CO2 emissions in the order of 1,540 tons.
Of the total 56 aircraft comprising the TAP fleet on 31 December 2009, 37 were owned by the Company and 19 were under a regime of operational leasing. > Owned by the Company 15 A319; 5 A320; 2 A321; 11 A330 e 4 A340; > Operational leasing 4 A319; 13 A320; 1 A321 e 1 A330.
FUEL CONSERVATION PROJECT Savings achieved in terms of fuel and avoided emissions – 2009 A340 A330 A321 A320 A319 Total
Fuel (ton)
CO2 (ton)
2,893 5,336 1,177 4,382 6,277 20,065
9,113 16,807 3,708 13,802 19,773 63,204
Fuel savings achieved the record value of 20,065 tons, slightly higher than the approximately 19,500 tons registered in 2008.
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ANNUAL REPORT | 2009
STAR Alliance With the objective of being the leading global alliance for frequent fliers, STAR Alliance is currently the oldest and most awarded, as well as the largest alliance in the market, with its companies providing a broad global network: > Over 19.7 thousand daily departures; > To 1,077 destinations; > In 175 countries.
STAR Alliance Brief History of the Alliance 1997 - The STAR Alliance was established by Air Canada, Lufthansa, Scandinavian Airlines, Thai Airways and United Airlines. Varig joined the alliance. 1999 - Ansett Australia, All Nippon Airways and Air New Zealand joined the alliance. 2000 - Singapore Airlines, BMI, Mexicana and Austrian Airlines joined the alliance. 2001 - Ansett Australia becomes bankrupt. 2003 - Asiana, LOT Polish Airlines and Spanair join the STAR Alliance. 2004 - US Airways join the STAR Alliance. Mexicana leaves the alliance. Adria Airways, Blue1 and Croatia Airlines inaugurate the regional alliance of STAR Alliance. 2005 - TAP Portugal joined the alliance. After the merger with US Airways, America West Airlines joined the network through US Airways. 2006 - Swiss and South African Airways joined the alliance. 2007 - Varig is removed from STAR Alliance. Air China and Shanghai Airlines became members of the alliance. 2008 - Turkish Airlines joined as the 20th member, followed by EgyptAir. 2009 - Continental Airlines and Brussels Airlines joined the alliance. 2010 - TAM Linhas Aéreas and Aegean Airlines are expected to enter in April and May, respectively. Air India hopes to finish its admission in October.
In 1997, a group of five world renowned airline companies joined together, in an innovative manner, to create an alliance covering networks, access to lounges, services relative to check-in and the issuance of tickets and many other services in order to improve the travel experience of their customers. This alliance, called STAR Alliance Services GmbH, with head office in Frankfurt, in Germany, is composed of an international team of approximately 75 employees from some 25 countries, with the mission of exercising leadership in the management of a portfolio of products and services of the alliance, through an agreed procedure. The member airline companies of STAR Alliance fly to more destinations than the competition, thus representing faster connections and an easier way of travelling, which is beneficial to their Customers. Assumed as the main objective, offering the Customers a global dimension and a consistent travel experience, covering all the destinations, the member airline companies are located close to one another in the airports, building common premises, introducing new technologies, coordinating flight schedules and installing teams for faster stopover connections. In the creation of the Alliance, two concepts are evident: the concept of partnership and the concept of hub and spoke operation. In accordance with the first, the Customer of any member company of STAR Alliance is a Customer of all of the member companies of this Alliance, while the second represents a model which enables connection between destinations with lower traffic flows between them, through an airport aggregating the demand (hub), whenever a direct service is not feasible.
Technological innovation in the Alliance and service improvements In line with the growing use of mobile communication equipment, the STAR Alliance has developed a Common Mobile Technological Platform. With this initiative, each member company has designed its own mobile Portal, in accordance with its own specifications, but using the common technological standards supplied by the Alliance. TAP was one of the first member companies to launch its portal, under this project. Called tap mobile, this new mobile portal provides its passengers with practical and useful information for their travel, in an easy and fast way. This technological project of the Company, the most recent and innovative, received the recognition of STAR Alliance, through the attribution of an award to the team of the Portuguese Airline Company for its contribution to this common project of the Alliance, and which has confirmed the pioneering spirit and capacity of TAP’s professionals in the development of innovative technological solutions. The tap mobile channel represents a new form of communication and interaction with the passenger, pursuing the Company’s Customer driven philosophy, through the development and use of New Technologies, offering a product, as well as services of high quality, security and reliability. New interactive functionalities will be provided in the future through this channel, such as the verification of the status of the Frequent Flyer Programme, notifications in the case of irregularities, online check-in with the possibility of choosing one’s seat and mobile boarding cards with barcodes.
Air Transport
ANNUAL REPORT | 2009
STAR Alliance
In 2009, STAR Alliance continued its strategy of moving the Alliance companies into a single common area (Move Under One Roof). This programme, which has been implemented for various years and currently operates in over ten airports worldwide, allows airline companies to reduce their costs, providing their respective Customers with greater comfortableness and offers more facilities through the use of common areas in the main airports, After Corporate Plus and Conventions Plus, which currently cover cultural and sports events, the STAR Alliance created a global product in 2009 for the market of corporate events, Meetings Plus, focused on the needs of companies, entities promoting events and travel agents involved in the organisation of corporate events, conventions and congresses, with participants from various countries. With this product, the transport of passengers to an event from various countries served by the member companies of the STAR Alliance can be negotiated with a single member of the Alliance, such as TAP, in the case of Portugal. Following the recent launch of its booking engine Book and Fly, for the online booking and purchase of tickets, STAR Alliance has transformed its presence on the Internet, which has been converted from an informative site into a distribution channel. The recent remodelling of the site is part of the transformation which is currently taking place on the website of the Alliance. This site was launched in 1997, and since it is, above all, a statistical and informative site, has been updated over the years and currently has a variety of interactive functionalities and tools.
New future members In the near future, there will be a new expansion of the Alliance with the integration of TAM and Aegean Airlines. The integration of TAM will enable the opening of the Latin American market to STAR Alliance. Regarding Aegean Airlines, its domestic market, Greece, is of strategic importance, due to its geographical position in the eastern region of the Mediterranean, acting as the main point of access of Southeast Europe to the European Union.
REGIons
Main hub airports
Europe Adria Airways Aegean Airlines (*) Austrian Blue1 bmi Brussels Airlines Croatia Airlines LOT Polish Airlines Lufthansa Scandinavian Airlines Spanair Swiss TAP Portugal Turkish Airlines
Ljubljana Athens Vienna Helsinki London (Heathrow) Brussels Zagreb Warsaw Frankfurt, Munich Copenhagen, Oslo, Stockholm Madrid, Barcelona Zurich, Geneva, Basel Lisbon, Porto Istanbul, Ankara
Africa Egyptair South African Airways
Cairo Johannesburg
North Atlantic Air Canada Continental United Airlines US Airways
Toronto, Montreal, Vancouver, Calgary Newark, Houston, Cleveland, Guam Chicago, Denver, San Francisco, Los Angeles, Washington, D.C. Charlotte, Philadelphia, Washington, D.C., New York, Phoenix, Las Vegas, Boston, Pittsburgh
South Atlantic TAM (*)
Sao Paulo
Asia Air China Air India (*)
Beijing, Chengdu, Shangai Mumbay, Delhi, Kolkata, Chennai
All Nippon Airways Asiana Airlines Shanghai Airlines Singapore Airlines Thai Airways Intl
Tokyo, Osaka, Nagoya Seoul Incheon Shangai Singapore Changi Bangkok, Chiang Mai, Phuket, Hat Yai
Oceania Air New Zealand
Auckland, Los Angeles, Hong Kong
* to join soon
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TAP Serviços
ANNUAL REPORT | 2009
The mission of TAP Serviços is to develop its activity of providing support and management services, contributing to improved profitability for its Customers, through competitive positioning and high standards of quality and effectiveness, with the objective of continuous improvement and operating excellence.
TAP Serviços
ANNUAL REPORT | 2009
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TAP Serviços In 2009 TAP Serviços pursued its mission to provide supporting services to the rest of the Business Units of Grupo TAP, in a progressively more efficient manner, through standardised processes following the best practices and supported by suitable information technologies, in a process of ongoing innovation. Furthermore, in accordance with the defined relationship model, in the execution of each process, TAP continues to maintain protocols for the sharing of clearly defined responsibilities with its Customers, establishing agreements on service levels and performance indicators. In this way, in 2009 efforts were continued towards the improvement of the Company’s strategic management process, with the development of various initiatives, and the intensification of technological innovation, with the following results of this action: > Concentration of qualified resources; > Swifter and better founded decision-making processes; > Effective management of the available resources; > Sharing and exchange of knowledge; > Focus on the core business; > Better alignment of the resources with the mission. There was also an improvement in the operating efficiency of the management systems, as a result of a continuous effort to: > > > >
Standardise processes; Reduce the times of the operations; Better access to information; Swifter, more reliable and available reports; > Better service ratios and response times. Also noteworthy, in the development of this process, was the achievement of cost reductions, arising from gains derived from economies of scale, as well as decreased duplications and redundancies. In this way, it has been possible to improve the services provided and increase the satisfaction of TAP Serviços Customers, through:
> Greater focus on Customers and their value; > Better communication and response times; > Strengthening of the negotiation position in interaction with third parties; > Greater quality, reliability and consistency; > More opportunities. The awareness that the Customers of TAP Serviços operate in increasingly more competitive markets, both in terms of prices and solutions, was enhanced in 2009, with the intensification of the process for the continuous improvement of its performance relative to efficiency and quality, and in particular regarding the following developments:
Finance In 2009, various projects were implemented, transversal to the different areas of TAP Serviços/Finance: the Project for the migration of the financial systems of the Representations of Brazil and Venezuela to the central data processing system and to the revenue accounting system (this last one being concluded in 2010), as well as the project for the migration of the financial tasks of UCS to TAP Serviços/Finance, and the migration of the computer platform to the central data processing system and to the health-care management system. In the context of the activity of the Cost Area, note should be made of the transfer of the financial responsibility and functions of UCS to TAP Serviços, with the creation of the necessary infrastructure for the development of the Detailed Accounting Model of UCS, aimed at calculating results per Line of Services provided. Also of importance was the start of the transfer of the reporting of the Detailed Models of Air Transport, of Portugália and TAP Serviços to a BI tool, which has better consultation facilities, is more user-friendly and has greater analytical capacity.
The creation of TAP Serviços in 2004, corresponded to the implementation of an organisational model of shared services A structure involving the provision of financial, human resources, procurement and warehouses, administrative, audit and legal services as well as other support activities to the rest of the Business Units of Grupo TAP. In this way it was possible to provide a platform of sustained growth at the Company, promoting a broad range of benefits.
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TAP Serviços
ANNUAL REPORT | 2009
LABOUR DISPUTE RISK AND COST EUR THOUSAND
503,515
3,833
3,033
Total Risk Total Cost
Over recent years, the Legal Advice and Labour Dispute area has won an average of 99.48% of the value of its causes. In 2009, the good performance was repeated, with TAP having won 99.33%.
Knowing and accompanying the evolution of Customers (internal Customer) perceptions on the services offered by the Company has made an important contribution to the improvement of TAP Serviços procedures.
OVERALL SATISFACTION
4 3 2 1 2009
2008
2007
2006
2005
0
4 – Very Satisfied 3 – Satisfied 2 – Dissatisfied 1 – Very Dissatisfied
1,091
2009
157
2008
439
2007
641
2006
706
2005
2003
2004
868 95 52
285
2002
2001
2,352
1,905
1,285 119
163,915 8,589
In the area of Revenue Accounting, efforts were pursued towards greater rationalisation in most of its internal processes for continued adaptation to the challenges of the Air Transport business. In this way, and pursuing the policy of the integration of all the administrative tasks of the different Representations, a new module of the Revenue Accounting system – ARAMIS was developed at the Head Office, in partnership with Megasis, so as to enable the incorporation of the sales business of the Brazilian market, with direct integration in the central data processing system. It is expected to become operational in March 2010. Also, in order to obtain an improvement in the quality of information related to the tariff proration, with the corresponding improvement in management data relative to the business process, a proration tool was acquired, with its integration in the Ticket Revenue Accounting system being forecast for April 2010.
Human Resources During 2009, Human Resources were reorganised in Grupo TAP, with it now being consolidated at a corporate level. The main functional alteration consisted in the creation of two areas: Human Resource Managers allocated to the different Business Units of the Group; and Functional Specialists of Human Resources, with transversal responsibilities.
> Development of the new Clock-in System, integrated in the central data processing system /HR, with new functionalities and greater reliability and simplification of the processing of the attendance data; > Development of the Intranet modernisation project, specifically in terms of the computer platform, image and expansion of functionalities, to be provided at the beginning of 2010; > Continuing to insist on coordination with the Institutions, the Social Service has established procedures of improvement, taking into account the resolution and enhanced flexibility of the processes related to the Companies of the Group and its workers. In the context of the Legal Advice and Labour Dispute area, various legal cases were concluded with the cases having been won and/or agreements reached between the parties, some of which were especially complex (in particular, amongst these, the impugnation of the collective dismissal carried out in 1993 at Air Atlantis). On the other hand, actions continued aimed at fostering closer links between the Business Units and the other companies of Grupo TAP, thus solving and taking precautions against situations potentially able to result in regulatory offence procedures or legal suits.
Initiatives, of transversal character, in particular:
Logistics
> Development of Professional Training, by intensifying e-Learning, with the creation of a technical and educational centre to support its design; > Design and development of a Performance Management System which, in addition to incorporating Action/Performance Competences, permits the definition, monitoring and testing of agreed objectives. Furthermore, the Performance Management System has been computerised, so as to function online, thus eliminating paper formats; > Creation of the Staff Call Center (Travel Office), with the business hours of the On-call attendance having been extended to all areas of Grupo TAP;
Marked by the strong crisis which swept through the aviation sector, caused by the spiralling increase in the price of oil, starting in 2008, the Logistics area concentrated its efforts, in 2009, in an increasingly more persistent search for solutions leading to significant reductions in the cost of the goods and services required for the exercise of each of the activities of the different companies of the Group, in particular Air Transport. Regarding the purchase of goods, namely those destined for the in-flight service, lighter products have been sought which, while not undermining the quality of the service, could lead to fuel savings through the reduction of the weight transported. In the same way, the contracts were renegotiated for the provision of services to enable exploiting the buyer market trend experienced, above all, in Europe and North America. During 2009, and also on matters of negotiation, more intensive
TAP Serviços
ANNUAL REPORT | 2009
work was developed in the context of STAR Alliance, enabling the joint acquisition of some products used transversally by the companies of the Alliance, the result of which will be felt more strongly during 2010. In the Stock Management Area, continuity was given to the policy of stock reduction, always guided by the need to ensure continuous supplies without leading to stoppages in operation. In the Warehouse Area, 2009 was highlighted by the consolidation of the integration of the warehouse spare parts management of the company SPdH–Serviços Portugueses de Handling, S.A., a Grupo TAP company, through the analysis of all the stock items and identification of the materials considered obsolete. The Customs Office was efficient in its usual support provided to the different companies of Grupo TAP, in terms of relations with the Customs Administration, in particular for the support given to SPdH–Serviços Portugueses de Handling, S.A., during the transfer of its operation to the new cargo terminal of Lisbon Airport.
Administration and Management of Physical Resources Of particular note during 2009 was the signing of new contracts for the provision of services in the areas of Digitalisation, Microfilming, Documental Reproduction and Mobile Communications, permitting an overall cost reduction of approximately 45%. This has resulted in an improvement in environmental terms through the reduction of the documental archive in paper format (10%), with the consequent release of space allocated to sectorial archives, and an increase in the quality of the services provided to Customers of Grupo TAP. The new Documental Reproduction contract now includes Portugália, resulting in a 35% cost reduction for this subsidiary company. Paper documents (after destruction in accordance with confidentiality criteria) were sent for recycling to an operator licensed by the Ministry of the Environment.
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Legal Office
The Environment Area concluded the coordination of the implementation of TAP’s Carbon Dioxide Emissions Compensation Programme, which became operational on World Environment Day (5th June 2009). The pioneerism of this programme was recognised by the CEO of IATA and was distinguished by UNESCO with the Planet Earth Award 2010, attributed in the category of Most Innovative Sustainable Product. The “Act Eco” internal communication programme was also launched, aimed at raising awareness amongst TAP employees, so as to encourage the use of best environmental practises. The impact of this programme has already been reflected in an increase of the order of 38% in the quantity of residues which are separated and sent for recycling, and of 7.6% in the quantity of organic residues sent for valorisation, in comparison with the previous year. In the area of Risk Prevention, continuity was given to the implementation of the emergency plans of the TAP buildings and to the training of employees in the prevention of fire, explosions and the spillage of hazardous products, in evacuation exercises, in cases of emergency and to safety audits. In addition to training based on physical attendance, the e-Learning system has been adopted, which is more suitable for refresher courses for the staff outside of Lisbon. In 2009, 885 employees were trained, with this figure being five times higher than the previous year. The Department of Administration and Management of Physical Resources improved its results, in comparison with the previous year, reducing its annual budget by 14.5%, based on the increased productivity, reflected in the improvement in the functioning of the respective services. Within a range in which the maximum score is 4, an average of 3.3 was achieved for Customer Satisfaction, as a result of the effort towards closer contact, putting this Department in 2nd place in relation to the other Departments of TAP Serviços.
The restructuring of companies of Grupo TAP was pursued, in particular, the process of acquisition of shares of SPdH–Serviços Portugueses de Handling, S.A.. For this purpose, a long process at the Competition Authority led to the signing of a contract with EUROPARTNERS, a company which, transitorily, took shareholder control in SPdH. Also of note was the important work carried out in the study, analysis and search for solutions for competition aspects raised by the American Authorities, in the context of the STAR Alliance and which have affected the Trade Agreements involving TAP. Continuing TAP’s fleet renewal process, the Legal Office accompanied and analysed the leasing of six new A320 aircraft, and also accompanied and analysed the contracts for the renewal, alteration and extension of leases relative to six other aircraft (A320 and A321), in addition to the acquisition of two A319 aircraft, at the end of the respective leasing contracts. This accompaniment covers, apart from the analysis of the respective contracts and associated documentation, the receipt, legalisation and registration of the aircraft at INAC, as well as dealing with their tax procedures.
Internal Audit One of the main concerns of the Company continued to be the guaranteed implementation of principles of internal control and risk management adequate to the activities developed by the Group. In 2009, the Company continued the risk assessment process, supported by a standard and systematic methodology, based on the internal standard of Enterprise Risk Management – Integrated Framework of COSO (The Committee of Sponsoring Organizations of the Treadway Commission), which includes, namely: > Identification and systematisation of the risks which affect the organisation (common language);
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TAP Serviços
ANNUAL REPORT | 2009
EVOLUTION OF THE EFFICIENCY OF TAP SERVIÇOS WITH THE GROWTH OF ITS CUSTOMERS' ACTIVITY 2004-2009
Number of Aircraft
80.0%
Number of Stopovers
44.2%
Revenue Passenger-Km
57.5%
Human Resources of TAP Serviços
At TAP Serviços, along with the growth in efficiency, the development of a culture driven by the fulfilment of objectives and a front office attitude.
> Definition and grouping of the risks (dictionary and matrix of risks); > Assessment and attribution of a degree of criticality and priority of the risks according to their impact on business objectives and probability of occurrence; > Identification of the most important (critical) cause of risks; > Assessment of risk management strategies (options); > Development of a risk management action plan and its integration in the planning and management processes of the Business Units and its functions. > Monitoring and reporting of the progress of the implementation of the action plan. In the context of the survey developed by KPMG, in collaboration with IPAI, benchmarking is made of the methodologies and good practices of the audit function, with the Company considering the use of risk assessment practices to be of particular importance in the preparation of its Audit Plan and in the implementation of the audits. In view of the diversity of the businesses and risks, this approach was first applied to the Maintenance and Engineering business and to Handling operations, being followed, in the context of flight operations, by the development of an Integrated System for Risk Information, so as to permit a transversal analysis of risk in the Company. The Company stimulates continuous training and the adoption of the best international methodologies and practices in Internal Audit areas. In this way, the Group supports the attendance of programmes for training and the updating of knowledge, which includes participation in Training Forums of the Auditor Centre of the Transport, Infrastructure and Regulators sector, under the Portuguese Institute of Internal Auditors, adopting the professional practices recommended internationally by IIA (Institute of Internal Auditors).
+65.4% -16.5%
Strategic Planning and Performance In 2009, continuity was given to the different procedures of the Strategic Planning and Performance area, structured so as to provide support to the Group’s business strategy. Likewise, the support given to TAP Serviços was continued in relations with the Customers of the Business Unit, in the assessment of its performance, as well as in the development of the Costing, Pricing and Invoicing Model. There was also collaboration, in the context of functional analysis, in projects for the change of processes and systems. Under the priority objective of improving its performance, one of the factors which characterises the culture of the Business Unit, a systematic assessment was made of the performance of TAP Serviços in 2009. In this way, there has been an improvement of the respective process – a model which involves the preparation and distribution of reports on compliance with the operating performance of each area of TAP Serviços, focusing on efficiency, cost-effectiveness and the quality of the services provided. On the other hand, in recognition of the importance of feedback from the Customers in the formulation of strategies and in the improvement of business processes, regular meetings are held as well as indirect assessment, carried out through the analysis of comments and assessment questionnaires. Finally, the Company has continued to carry out Service Level Agreement (SLA) with different Customers, namely, through the preparation of the SLA with UCS, the implementation of the SLA with TAPGER, and the adjustment of the contract with Portugália.
ANNUAL REPORT | 2009
Maintenance and Engineering
€ 96.6
million Revenue from Maintenance Services to Third Parties
4.8%
of the Group’s Turnover
1,961
Maintenance and Engineering Staff (31st December)
The mission of TAP Maintenance and Engineering is to provide maintenance and engineering services for aircraft, engines and components, for the Company and external Customers, guaranteeing a high level of quality and actively contributing to uphold the high safety standards required by the Aeronautical Industry, to ensure safe conditions for people and goods and protection of the environment.
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Maintenance and Engineering
ANNUAL REPORT | 2009
MAINTENANCE WORKFORCE (000) MAN-HOURS
2009
2008
2007
2006
2005
2004
1,437 1,418 1,399 1,407 1,459 1,528
TAP Third Parties Other Works
REVENUE FROM MAINTENANCE SERVICES TO THIRD PARTY COSTUMERS EUR MILLION
8.8%
139
8.9%
Variation %
2009
2008
2007
-30.7%
128 97
Maintenance and Engineering Reorganization and cost control efforts aimed at attenuating the negative effects of the economic climate With respect to the aeronautical industry, 2009 was without a doubt the worst year in its history, characterized by a high number of bankruptcies, including those of some traditional customers. Everything leads us to believe that the recession will continue to affect the aviation sector for some time yet. In addition, aeronautical maintenance activity, in terms of MRO (Maintenance Repair and Overhaul), has tended to follow the trend of airline operators, with delays of 6 to 12 months. If airline companies, as is expected, are to have a very difficult 2010, the crisis at MRO is likely to continue into 2011. Consequently, and as expected, the results of TAP–Maintenance and Engineering do not reflect the positive, growing trend of the last few years. However, two aspects are worthy of mention, being demonstrative of the efforts made and control measures implemented, with a view to attenuating the negative effects of the existing economic climate. Firstly, the maintenance activity relative to TAP aircraft, even though the growing trend of the last few years was not maintained, was slightly higher than in 2007 (+5.5%), essentially resulting from the increase in the work carried out on the fleet, which has been growing at an annual average of 7.3% over the last five years, having grown 9.6% relative to 2007. Secondly, activities for Third Party Customers, whose revenues, in Sales and Services Rendered, had been increasing every year since 2002, declined in 2009, having ended the year with 98.6 million euros. This decline resulted not only from the loss of some customers, due to insolvency, but also from the difficulty in accommodating more aircraft from Third Party
Customers in the current installations in Lisbon, too small for the current size of the TAP fleet. The area most affected by the insolvency of some customers was the Engine area, having registered a fall in the number of Engine Shop Visits of approximately 28.2%, a decline shared by the Components area, with a decrease in the number of inspected units in the order of 20.8%. The Aircraft area also registered a reduction in the number of small inspections (-7.2%), in line with the decrease in the number of hours flown by the TAP fleet, only offset by the increase in the number of large inspections (+6.3%), due to the fact that more work was carried out within the Grupo TAP. In spite of the decrease in activity, in terms of production hours, TAP–Maintenance and Engineering achieved a 4.7% increase relative to the previous year, having registered a positive variation of 20,0% in works carried out for the TAP fleet, offset by a 22.4% decline in the Third Party Customers segment. There was a marked increase in works related with the recovery of material and manufacture, which grew 36.3%, constituting creation of value in stock. Although the economic and financial results are extremely important for an organization such as TAP–Maintenance and Engineering, there are, however, other aspects of its activity that are worthy of mention, namely: > The AS 9110 standard quality certification – whose final objective remains focused on customer satisfaction and in the continuous improvement of processes – which is specifically applied to aeronautical maintenance organizations; > The obtainment of the EASA Subpart I Certification of TAP–Maintenance and Engineering Portugal, which will allow the Company to certify its own fleet and that of Third Party Customers, guaranteeing the aeronavigability of aircraft without having to resort to the National Authority, in the area of air transport security;
Maintenance and Engineering
ANNUAL REPORT | 2009
77
CONSOLIDATION OF THE EXPANSION TO BRAZIL
Reduction of costs and improvement of efficiency and repair capacity
> The recognition, by Airbus, of the exceptional use and excellent dispatch reliability of TAP’s A320 fleet, to which the Maintenance and Engineering Business Unit contributed significantly, having distinguished the Company with the award for operational excellence. Finally, within the scope of the elaboration of Engineering Projects, for which TAP–Maintenance and Engineering obtained its approval as a DOA (Design Organisation Approval) Project Organization, from EASA (European Aviation Safety Agency), in 2007, it is important to mention the development of 30 projects in the Aircraft area and one in the Engine area, with 35.0% of these projects having been directed at Third Party Customers, constituting an additional factor that generates revenue. It is also important to mention that during 2009 a project aimed at diagnosing the activity and the processes involving the Aircraft Maintenance, Engine Maintenance and Logistics areas was undertaken. As a result of this project, several opportunities for improvement were identified, with a significant impact on the operational and financial performance of the three areas, whose development is expected to occur in 2010.
In a year in which, from the very start, a significant reduction in workload was expected, the Engine area took advantage of this opportunity to implement some strategic measures in terms of cost reductions and improvement in the control of TAT (Turn Around Time), through actions within the scope of Research and Development, introducing new reparations/technologies developed in-house, without requiring an increase in the number of staff, namely: > Total reparation of all combustion chambers of reactor models for which this workshop is certified, with exception of the DAC (Double Annular Combustor) configuration, allowing for intervention in 4 or 5 chambers of Third Party Customers per year; > Reparation of all internal reactor components coated with a bee nest type of material, a technology regarding which equipment has been installed and is fully-operational, and a selected and specifically trained team exists; > Reparation of components by HVOF (High Velocity Oxy Fuel). This reparation has been developed in cooperation with the company T and M, of the domestic market, in which part of the reparation is conducted by the Engine workshop and the application of HVOF is made by the said company. The economic and financial recession had a considerable and negative impact on the activity of TAP–Maintenance and Engineering, with particular incidence on the reactor maintenance area, with the customer portfolio having been significantly affected, due to the abovementioned reasons. Nevertheless, 83 shop visits were conducted, with the need to
The expansion of the TAP fleet over the last few years constitutes the determinant factor leading to the need to balance this with service capacity, with respect to hangar space availability and the current engine maintenance facilities. However, following the limitations resulting from the economic and financial crisis, the projects relative to the identification of alternative solutions were definitely abandoned, with TAP–Maintenance and Engineering having opted to consolidate the expansion of its infrastructures in Brazil. In this way, steps were taken towards the application of a new management model that integrates the two maintenance units, TAP–Maintenance and Engineering Portugal and TAP–Maintenance and Engineering Brazil, in a single global entity. In this new organizational model, emphasis is placed on the creation of a single Marketing and Sales Department, with the objective of ensuring the viability of the development capacity of the two maintenance units in the markets/products in which they already operate, as well as the penetration into new markets/products. The objective is to take advantage of the potential of each unit, managing the capacity of the hangars globally and reducing the need to subcontract from outside the Grupo TAP. The more than 600 activities involved in this organizational transformation process, distributed among the Marketing and Sales, Operations, Planning, Quality and Human Resources and Information Technology areas are being developed and accompanied by a vast team that comprises employees from the Lisbon, Rio de Janeiro and Porto Alegre bases, with the aim of obtaining a significant increase in efficiency, as well as a standardisation of processes between Portugal and Brazil. All the work developed up to date, in strict cooperation between the two companies, permitted TAP–Maintenance and Engineering Brazil to obtain the certification, for the undertaking of Large Maintenance work on A330 and A340 Airbus aircraft, from ANAC (Agência Nacional de Aviação Civil, Brazil – National Civil Aviation Agency), TCCA (Transport Canada Civil Aviation), FAA (Federal Aviation Administration) and EASA (European Aviation Safety Agency), thus increasing its business potential.
78
Maintenance and Engineering
subcontract an additional 8 shop visits relative to reactors for which TAP does not possess certification (CF6-80C2 and PW4000). In 2009, a study on the expansion of the workshop area was conducted, involving new installations and equipment for the Cleaning and NDT areas, as well as new equipment for the painting area. This study has a deadline foreseen for January 2010.
Guarantee of an in-house repair capacity in support of the activity of TAP–Maintenance and Engineering The Components Maintenance area has the capacity to work on about 70% of the components of TAP’s Airbus fleet, as well as providing total support to some Third Party Customers, namely SATA and French Air Force (FAF). Of all the interventions carried out to the TAP and Third Party Customer fleets, approximately 85% was guaranteed in-house. In terms of activity, the number of aircraft units dealt with in-house was 21,614, representing a decrease of 9.1% in relation to 2008. Of this total, approximately 72.4% correspond to units of TAP’s fleet. In addition, a decline in the order of 20.8% was registered, relative to the previous year, in terms of the number of Third Party units intervened, representing a segment which, in spite of its contraction, continues to account for a significant share, corresponding to 22.6% of the total work of this area’s labour force.
ANNUAL REPORT | 2009
Maintenance of the TAP fleet with high standards of quality without compromising its commitments with Third Party Customers The Aircraft Maintenance area ensured the maintenance of TAP’s fleet, carrying out a total of 376 inspections, a similar number to that registered in the previous year, whilst the Operating Dispatch technical reliability stood at 98.77%, slightly above the previous year (98.66%). In addition, transit inspection of the A320 Fam Fleet was implemented in all Portuguese stations, in collaboration with the Air Transport Business Unit, in total crew concept, i.e. transit inspection carried out by the aircraft’s technical crew, using the maintenance services if and when anomalies are detected. Work was also carried out on the phase-in of 6 aircraft and on 4 phase-out, of TAP’s A320 fleet, as well as the phase-in of 1 A320 of SATA and 2 A320 FAM aircraft of White. The 4th line of major inspections was implemented, in a continuous manner, allowing for the maintenance of almost the entire TAP fleet (wide bodies and narrow bodies), at the installations of the Company in Lisbon, having only resorted to the subcontracting of two A319. In addition, 4 major inspections of customers’ A310 aircraft were transferred to TAP–Maintenance and Engineering Brazil.
Also noteworthy is the repair conducted on an A330-200 aircraft, involving two parts of the engine suspension set on the wings, designated as Ribs 18, an operation which, according to the Airbus manufacturer, no other operator had been so bold as to attempt before, by itself, given the complex reparation sequence, the technical proficiency required from its executors and the extreme precision required in the machining of the parts in question. This pioneering feat of an extremely high technical level will also have repercussions on the reduction of deadlines, as well as on the maintenance costs of the older A330 that may, in future, need this reparation. In view of the increase in work for the TAP fleet, inspections for Third Party Customers currently correspond to approximately 18.0% of the area’s total activity. The continuous line was, nevertheless, maintained for FedEx until August, guaranteeing the maintenance of this company’s European A310 fleet, as well as the Total Maintenance programme relative to the two FAF A340 which, having registered a dispatch punctuality of 99.14%, was, once again, highly praised by the Customer.
Maintenance and Engineering
ANNUAL REPORT | 2009
In support of the restructuring of TAP–Maintenance and Engineering Brazil, 3 elements of the Aircraft Maintenance structure were transferred to the company’s installations, during the entire year, and another element during small periods. Local technical support was also provided, through the presence of a technical team, during the first major inspection of an A330. An assistance agreement was also established with TAAG, in Lisbon and in some stations of Brazil for the B777 aircraft, thus contributing to the removal of this company from the Black List of operators that are forbidden to fly over European air space.
Renewal of staff and guarantee of professional development opportunities The average number of staff in 2009 was 1,958 employees, some 1.4% above the level of the previous year, having reached, on 31st December 2009, 1,961 employees, which corresponded to 25 more employees than at the end of 2008. During the year, 66 employees left the Company while 91 were taken on, with 106 employees having been made permanent staff members. In 2009, a total of 689 training sessions were carried out, over a total of 153,667 hours, in classrooms and on-the-job situations, covering a total of 5,231 trainees, corresponding to an 87.5% level of opportunity. In relation to the previous year, this training programme increased by approximately 67.7% in terms of number of hours and 11.5% in terms of number of trainees.
AS 9110 standard certification: an important milestone in the development of the quality system of TAP–Maintenance and Engineering, for constituting a differentiation factor in the relationship with Customers The year of 2009 was an important milestone in the development of the Quality System and competitiveness of TAP–Maintenance and Engineering, with the obtainment of the AS 9110 standard certification. This accreditation, of specific application to organizations of aeronautical maintenance, was attributed by Bureau Veritas, one of the few accredited entities authorized to do so. The process ran simultaneously with the revalidation of the ISO 9001 standard certification, which the Business Unit has held for more than 10 years. The objective of any quality system is customer (internal or external) satisfaction, as well as the continuous improvement of the company. The AS 9110 standard certification has the particularity of responding to these same objectives, aimed at customers of aeronautical products, a viewpoint that brings additional advantages, namely in international tenders. In 2009, less than ten large European companies of the sector, most of which associated with manufacturers, held this accreditation, with TAP– Maintenance and Engineering having become part of this restricted group of organizations, when it obtained
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Maintenance and Engineering
ANNUAL REPORT | 2009
the certification for general maintenance, repair and revision of aircraft, engines and components, according to that standard.
EASA Part M Subpart I Privilege of TAP Portugal Following the creation of EASA (European Aviation Safety Agency) on 15 July 2002, through Basic Regulation EC 1592/2002, and its recent update by the new Basic Regulation EC 216/2008, TAP–Maintenance and Engineering carried out, in previous years, the implementation of the Part M regulations (namely, Subpart G – CAMO), Part 145, Part 66, Part 147 and Part 21 Subpart J (DOA–Design Organization Approval). During 2009, the application of these rules was consolidated, with various audits having been carried out by INAC and EASA, for the respective verification. In addition, in 2009, culminating an extensive preparation process of manuals, procedures and technical staff, the agreement with Part M Sub-part I (Evaluations of Aeronavigability) was obtained from INAC, which will allow TAP to carry out the periodic revision of the aeronavigability of its fleet and issue recommendations for the revision of the aeronavigability of third party aircraft, thus replacing the Aeronautical Authority.
Other Certifications TAP-Maintenance and Engineering also received the IPAC (Portuguese Accreditation Institute) renewal audit of the Calibrations Laboratory, as part of the certification under the NP EN IEC / ISO 17025:2004 Standard. The usual annual quality audit by the FAA (Federal Aviation Administration) took place in December. This audit is essential for the annual renewal of the FAA Repair Station approval certificate, which the Business Unit has held since 7 July 1983. Besides being a prior condition for carrying out maintenance work for American operators, this certification is also a motive of prestige for TAP–Maintenance and Engineering in the MRO market. During 2009, other quality audits were also conducted by the aeronautical authorities and customer operators, essential for the maintenance of several approvals within the scope of the activity of the Business Unit.
National and international certifications Portugal Portugal / EU Portugal / International France EU United States of America International
Portuguese Air Force / NATO: AQAP 2120 IPAC (Inst. Port. de Acreditação): NP EN ISO / IEC 17025:2004 INAC / EASA: EASA Part-145 INAC / EASA: EASA Part-M Subpart G (CAMO) INAC / EASA: EASA Part-147 APCER / IQNet: NP EN ISO 9001:2000 French Air Force / DGA: AQAP 2120 / ISO 9001:2000 EASA: EASA Part-21 Subpart J (DOA) FAA: 14 CFR Part 145 IATA: IOSA
Information Systems and Technological Development
ANNUAL REPORT | 2009
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INFORMATION TECHNOLOGY OBJECTIVES In accordance with the main strategic guidelines followed in recent years, the Information Technology objectives continued to be focused on the following lines of action:
Information Systems and Technological Development The TAPMATIC migration project, involving the group of systems supporting a significant part of Air Transport operational activity, in particular the bookings and departure control systems, marked the high point of 2009 in the area of the Information Technologies. Called the CITP (Common Information Technology Platform), this project seeks to integrate Air Transport in the platform common to the STAR Alliance companies, in this way permitting the adoption of common processes and the exploration, in a more efficient manner, of the advantages and synergies resulting from having joined the Alliance. But in addition to promoting the potential of the Air Transport business, this project will permit the implementation of a modern and flexible infrastructure, based on SOA principles (Service Orientated Architecture), which will allow for swifter and more effective response to the constant changes which occur in the Commercial Aviation industry. The production of Management Indicators and KPI (Key Performance Indicators) – which are increasingly focused on at the Grupo TAP in the pursuit of the improved forecasting capacity, monitoring and analysis of its activity – were of particular importance during 2009. For this purpose, new indicators have been consolidated and developed for the Air Transport Business Unit, especially regarding indicators relative to Flight Crew, Fuel, Passenger Traffic and Customer Segmentation. Investment has also been made in the use of modern technologies of Online Analytical Processing which, in addition to enhancing analytical capacity, improve the presentation of information, providing it in the form of Dashboards and Reports. Documental Management was also the object of special attention during 2009,
through the implementation of two projects, still in progress, for the Air Transport and Maintenance and Engineering Business Units. The modernisation of work processes, in a paperless perspective, their optimisation and the provision of new and swifter methods of access to and more and better technical information, were the major objectives of the initial phases of the project. The following phases, apart from promoting the integration of more areas and more documents, will seek to bring greater transparency between the different technological platforms for the processing, storage and provision of documents and information. Significant progress was made in the provision and use of new functionalities, in the context of Crew Self Briefing processes, aimed at greater autonomy, mobility and access to all the necessary information for each flight, such as flight plans, meteorological information, charts on the weather, surface, wind and satellite, aircraft and crew turnover, transit passengers, VIP passengers and night-stops. As a consequence of the strategy of bringing TAP closer to its Customers, a new portal, tap mobile, has been developed, together with STAR Alliance, accessible through mobile telephone, providing practical and useful travel information in an easy and fast way to all passengers with internet on their mobile telephones. Information on the departure or arrival time of the flight, on the Lounges available at the different airports, on favourite destinations or weather forecasts upon arrival at the destination, are some of the utilities provided by the new service. Services are also available relative to the localisation of baggage, in the event of irregularity and on currency conversion, as well as information on TAP promotions in force. Also relative to the improvement
> Achievement of operating efficiencies; > Simplification and automation of business processes.
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Information Systems and Technological Development
ANNUAL REPORT | 2009
TAP, S.A. Air Transport
of the service provided to the Customer, as a consequence of TAP’s growing focus on WEB channels, note should be made of the functionalities introduced in the different portals of the Company, in particular the improvements made to the Corporate portal, in terms of the management of the site and its navigability. Regarding the Agents portal, designed to support relations with travel agents, the intervention was more profound, with the entire site having been renovated in 2009. It is also important to note that transversal services have been created for the purpose of combating fraud, mainly fraud which exists with the use of credit cards, as a result of the growing exposure of the sales process to payments not made through physical attendance. To finalise, special reference should be made to the start of the technological transformation project of TAP–Maintenance and Engineering Brazil, at the application and technological infrastructure level, as a consequence of the decision to restructure this Maintenance and Engineering Unit, acquired by TAP, in Brazil.
> ATHOS (BI) – Creation of various information models: ATHOS OPS (Operation); ATHOS ASR (Airport Services); ATHOS Produção and ATHOS MARKETING; > COMPASS (REPPTO) – Restructuring of the Pairing Generation module, in the context of ensuring the adequacy of the system’s modules to current business needs; > PROS (Revenue Management System) – Conversion of the system’s version, through the implementation of new connectors with the CITP system; Introduction of autopilot, a functionality which ensures the immediate confirmation of group requests, according to pre-defined criteria > STAR Alliance projects – Participation in the following developments: - SAUA (STAR Alliance Upgrade Awards) – Specification of a new solution, motivated by the replacement of the Booking System and DCS (Departure Control System) with potential suppliers having been identified; - CIMP (Common Information Mobile Platform) – Access is provided to TAP Customers, through mobile telephones, PDAs, or other mobile devices, to various services, namely, arrivals and departures, flight schedules and information on the destination, amongst others.
TAP–Maintenance and Engineering Developments in the context of the information systems integrated platform – Cosmos
> DRACO (Directive Airworthiness Control System) – Implementation of Phase I; > GENESIS V2 (General Engine Shop Information System) – Finalisation of the functional analysis of the new version; > SPACE (System for Planning and Control of Aircraft Maintenance) – Operationalisation of the Products control and Tools module; > SCORPIUS (System for Control, Ordering and Procurement Inventory) – Operationalisation, after reformulation, of the module on procurement conditions; > SAP – Development of the training module of TAP–Maintenance and Engineering; > SAP – Development of the module for Management of Certification of Authorised Technical Staff; > TAP Maintenance and Engineering Intranet – Redesigning and change of the technological platform.
Information Systems and Technological Development
ANNUAL REPORT | 2009
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TAP Serviços
Other developments > ADP 2009 – Assessment of Performance and Potential, created via an online platform; > ADP TAP–Maintenance and Engineering Brazil – Assessment of Performance and Potential; > Module for Control of Route Maintenance Labour. Work carried out in the context of the process of reorganisation of TAP–Maintenance and Engineering Brazil, with the Technological Transformation Plan (TTP) having been started, involving:
> SAP - Reformulation of the Profitability Model for Air Transport and for Portugália, with the implementation of Management and Financial Reporting Indicators; - Projects for the financial integration of Brazil Representations. > Brazil Finances – Migration, development and implementation of the information systems supporting the financial processes of: Invoicing, Revenue Accounting, (Passengers and Cargo) and Accountancy, following the integration of TAP representations in Brazil; > Travel Office Call Centre – Implementation of the telephone attendance centre; > PCI-DSS (Payment Card Industry - Data Security Standard) – Start of the activities aimed at ensuring the adequacy of the processes, networks, systems and applications to the regulations required for companies handling credit cards; > Tele-work – Analysis and implementation of solutions which allow TAP Serviços staff to carry out their work remotely.
SPdH–Serviços Portugueses > Procedural and organic redefinition; > Implementation of SPACE TAP–Maintenance de Handling, S.A. and Engineering Brazil, on the COSMOS Platform – Phase I under test, in a production environment, since the end of 2009; > Inform System (GroundStar) – > Redesign of the technological infrastructure; Coordination and support provided to the GroundForce for the implementation > Analysis of the upgrade of the existing SAP version; of new modules; > Analysis and tender for the updating of the > Cargo System (Hermes) – micro-computer equipment. Implementation of the new version.
PORTUGÁLIA–Companhia Portuguesa de Transportes Aéreos, S.A. > Crew Management System (Netline) – Implementation of the new version; > TAP transversal systems platform (mail and TAPnet) – Conclusion of the integration of Portugália in the user group.
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Human Resources
ANNUAL REPORT | 2009
Grupo TAP Staff
Human Resources During 2009, the implementation of the Human Resources Business Partners model and the shared services of Human Resources Specialists consolidated the Human Resources area in Grupo TAP. Other transversal initiatives are also worth pointing out:
Situation on 31st December 2009 Ground Staff, Portugal Ground Staff, Abroad Total Air Transport - Ground Staff Cabin Crew Flight Deck Crew Total Air Transport Flight Crew Air Transport Staff Maintenance and Engineering Staff* TAP Serviços Staff Other Staff of TAP, S.A. Total TAP, S.A.** Total SPdH, S.A.*** Remaining Companies Total TAP, SGPS, S.A.
EmployEes % Total 870 529 1,399 2,281 809 3,090 4,489 1,961 498 38 6,986 2,439 3,972 13,397
6.5% 3.9% 10.4% 17.0% 6.0% 23.1% 33.5% 14.6% 3.7% 0.3% 52.1% 18.2% 29.6% 100.0%
VARIATION 3.2% 27 -0.9% -5 1.6% 22 -1.6% -38 0.1% 1 -1.2% -37 -0.3% -15 1.3% 25 0.8% 4 -2.6% -1 0.2% 13 -10.2% -276 -4.0% -167 -3.1% -430
> Consolidation of the e-Conhecimento project, through the increase in the offer of training actions via e-Learning, with (*) Includes staff Abroad, of a total of 19 and 17 employees, in 2009 and 2008, respectively strong participation and enthusiasm on (**) Not including non-placed and non-active staff the part of the trainees; (***) Associate Company > Development and conclusion of the Intranet reformulation / modernization project, namely in terms of: –H ome Page of Grupo TAP (New Image, new functions, access from home…) Staff Structure of Grupo TAP –C ommunication Portal of Grupo TAP – Concentration, in a single On 31st December 2009, the Grupo TAP dedicated space, of institutional, (TAP, S.A. and other participated companies) internal and external information had 13,397 employees, 430 less than on 31st and communication of Grupo TAP December 2008. This fact was essentially (partnership established between due to reductions of staff members of the Human Resources area and the the associated company SPdH–Serviços Communications and Public Relations Portugueses de Handling, as well as of area of the Company). staff members in the other participated > Start of the Employee Portal project. This (greater efficiency of Human Resources companies. Further significant changes were tool, available via intranet, is designed for and decrease of the flow of requests seen in Maintenance and Engineering and consulting data from the Human Resources for information to the departments), Air Transport Business Units, which registered area, providing, through controlled increasing the autonomy of its Employees a staff increase of 25 and a reduction of 15 accesses, information within the scope of and the sharing of information and employees, respectively; personal data, alteration requests, situation knowledge. TAP, S.A. total staff (6,986 employees) increased in the Company, remuneration, overtime, > Development of the Clock-in System, by 13 employees, with a decline in Flight absences and holidays, among other included in Data Processing Central Deck Crew (+1 pilot, -38 Flight Assistants and information. Its objective is to decrease the System/RH, with new functions and use of paper, and optimize some of the greater reliability and simplification of the Stewards) and an increase in Ground Staff (+22 employees). work processes of the Corporate group treatment of attendance data.
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Human Resources
ANNUAL REPORT | 2009
EMPLOYEES OF GRUPO TAP COMPANIES
ACTIVE STAFF
ON 31 DECEMBER
ON DECEMBER 31 NUMBER OF EMPLOYEES (SPDH, S.A. AND TAP, S.A. EXCLUDING OTHER COMPANIES)
52.1% TAP, S.A. (excl. Participated Comp.) 33.5% 6.0% 17.0% 10.4%
14.6%
Air Transport Flight Deck Crew Cabin Crew Ground Staff
12,000 10,000
Maintenance and Engineering
3.7%
TAP Serviços
8,000
0.3%
Other Staff of TAP, S.A.
6,000
18.2% SPdH, S.A.
4,000
29.6% Remaining Companies
With the objective of maintaining the proficiency of its Employees, during 2009, TAP carried out 1,204 Training Actions, taught by 348 Trainers, over a total of 219,219 hours, involving 12,351 participants. In addition to Classroom training, 80 Distance Training Actions were also carried out, totalling 214 hours and with the participation of 8,558 Trainees. With the objective of providing a more extensive Training offer, Voluntary Training was also carried out after normal working hours, comprising a total of 2,826 hours, with the participation of 130 persons. All of the Training covers technical, basic and continuous training, specific to each area of the Company and directed at the performance of each position, as well as Transversal Training, in this case rigorously chosen, in order to represent an added value for the Employee and for the Person. For the holding of this Training, TAP has a Professional Training Centre in a building specifically for this purpose, comprising fully equipped Training Classrooms, Workshops, Laboratories, Technical Training classrooms, a Distance Training Classroom, Mock-ups and Flight Simulators.
2009
2008
2007
600
10,000
500
8,000
400
6,000
300
4,000
200
2,000 0
100
Number of Actions Number of Employees (000) Hours
New Opportunities Initiative Maintaining its commitment to the constant enhancement of the value of its Employees, and following the signing of a Protocol with the National Agency for Qualification (NAQ) and the Employment and Vocational Training Institute (EVTI) at the end of 2008, regarding the New Opportunities Initiative, in April 2009 TAP signed a Cooperation Protocol with the New Opportunities Centre (NOC) of the Eça de Queirós Secondary School, since the Company is included in the Education Letter of the area of influence of that NOC. This Protocol was signed with a view to developing the Skills Recognition, Validation and Certification Process (SRVC), with TAP having provided its Training installations, as well as the necessary equipment for the operationalisation of the Process. The number of participating Adults was 84 and 353, respectively, at Elementary and Higher education levels.
Distance Training, better known as e-Learning, is known at TAP, by the designation:
2009
2008
2007
2006
2005
0 2004
Number of Actions Number of Employees
This Training model adopted by the Company is based on the use of internal trainers, for motives related to the strict specificity of its corporate reality. Concerning e-Learning Training, internal development is being intensified with a technical and pedagogical centre having been created to support its conception.
12,000
(000) Hours
TRAINING
At the close of the financial year, TAP S.A. had 52.1% of the total workforce of the Group, SPdH–Serviços Portugueses de Handling had 18.2% and Other Companies 29.6%.
Training
2006
Ground Staff, Portugal Flight Crew Ground Staff, Abroad Total - Staff Dec 31 Total - Average Staff
The remaining companies (3,972 employees) registered a decrease of 167 employees, largely due to the decrease of 239 employees in the company TAP–Maintenance and Engineering Brazil, and the increase in staff members of the companies Cateringpor (+44), Lojas Francas de Portugal (+16) and Megasis (+16).
In 2009, the average number of active staff of Grupo TAP, excluding Other Companies, was 9,569 employees, 542 of which were located abroad. This figure is lower than that for 2008, by 105 employees, reflecting staff reductions across the Company.
2005
2004
2,000 0
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Other Grupo TAP Activities
ANNUAL REPORT | 2009
Other Grupo TAP Activities With regards to the remaining shareholdings held by TAP, SGPS, S.A., it is important to mention the development of activity in areas related to the main businesses of the Group – Air Transport and Maintenance and Engineering – which work through their services to enable a better control of the service chain, as well as the increase in competitive advantages promoted through the effects of synergies. The selection criteria for these investments was based on the assumption that the development of the respective activities contributes to the strengthening of the Group’s main businesses, through returns on the capital invested, held by TAP, directly or
indirectly, wholly or only as part of the share capital of that group of companies. With the fundamental objective of supervising the management of some of its subsidiaries, which are non-aviation companies, TAP also has a company which functions as a holding company, TAPGER–Sociedade de Gestão e Serviços, S.A.. Similarly to the trend in the Industry, TAP holds its financial investments in the following areas: Catering, Information Systems, Tour Operators, Airport Shops and In-flight Sales; Health-Care Services and Ground Handling Services.
Other GrupO TAP shareholdings, on 31 December 2009 Amount Stake of TAP Share EUR Thousand of TAP (%) Capital
Total Revenue
TAP, S.A. Tour Operators Air Portugal Tours (AP Tours) 100 100 3,569 SEAP (1) 75 76 0 Air Macau, C.º Ltd. (2) 0.001 N/D N/D Portugália, S.A. 100 15,000 67,211 Reaching Force, SGPS, S.A. 100 50 8,253 AeroLB, Participações, S.A. 99 27,269 8,962 TAP–Maintenance and Engineering Brazil, S.A. 98.64 207,058 149,018 TAPGER–Sociedade de Gestão e Serviços, S.A. 100 2,500 4,841 Catering Cateringpor–Catering de Portugal, S.A. 51 1,785 33,762 Airports Shops and In-flight Sales LFP–Lojas Francas de Portugal, S.A. 51 281 122,956 Information Systems Megasis-Soc. de Serv. e Eng. Inf., S.A. 100 500 36,107 Health-Care Services UCS–Cuidados Integrados de Saúde, S.A. 100 500 7,355
Net Income 23 (2) N/D (5,135) 3,508 2,400 (162) 2,978 1,115 6,116 107 32
Notes: (1) Conversion to €: Net Income, at the 2009 average exchange rate of 11.133195 MOP; Share Capital at the historical exchange rate of 9.8857 MOP (2) Conversion to €: Net Income, at the 2009 average exchange rate of 11.133195 MOP; Share Capital at the historical exchange rate of 9.8857 MOP Indirect stake; the company is 0.001% owned by SEAP
Other Grupo TAP Activities
ANNUAL REPORT | 2009
Launch of a new image of UCS, with the creation of a new logo, with an aesthetic focus in harmony with the Grupo TAP. The adoption of the TAP uniform by the Clinic’s Reception and Secretarial service has strengthened the corporate image of the Group, conveying a homogenous and integrated visual presentation.
The 2nd Best Catering Supplier – A distinction awarded by Air France to the company Cateringpor of Grupo TAP.
External recognition of the success of the company LFP by the magazine Exame, as the best company in the trade sector, in the edition of 2009 of the 500 Largest and Best companies. This award aims to quantify the performance and dynamism of the companies and their respective contribution to national wealth.
PGA has renewed its certificate in the IOSA programme (IATA Operational Safety Audit), complying with the approximately 900 established requisites, without which it could not continue registered at IATA. This certificate confirms the efficiency and high standard of safety and quality of the company, recognised internationally.
GroundForce obtained ISAGO certification (IATA Safety Audit for Ground Operations), confirming compliance with rigorous safety and operating management standards in the activity at the airports. The company thus became the 16th handler, at a world level, to achieve this certification.
The new DPC2 (Data Processing Centre) became operational in the company Megasis, with this infrastructure supporting TAP’s computers and systems being more functional, safer and more suited to the current demands posed by information technology and by the business supported by it.
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Other Grupo TAP Activities
ANNUAL REPORT | 2009
PORTUGÁLIA–Companhia Portuguesa de Transportes Aéreos, S.A. In 2009, PGA continued the process of consolidation of the business model resulting from the restructuring which took place in 2007 and has been maintained since July of that year: flight capacity provider of Grupo TAP, under the Wet Lease contract with the company Transportes Aéreos Portugueses, S.A.. GENERAL MEETING COMMITTEE
Chairman António Lorena de Sèves Secretary Maria Manuela Fernandes Barata Valadão Silveira BOARD OF DIRECTORS Chairman Fernando Abs da Cruz Souza Pinto Chief Executive Officer Luiz Filipe Plácido Lapa Member Fernando Jorge Alves Sobral Member Manoel José Fontes Torres Member Michael Anthony Conolly
AUDITING COMMITTEE
Chairman Luís Miguel Tavares de Almeida Costa Permanent Member Joaquim Oliveira de Jesus Permanent Member José Vieira dos Reis Substitute Member Mário José Silva Jerónimo
REGISTERED OFFICE Aeroporto de Lisboa Rua C - Edifício 70 1749-078 LISBOA Tel. +351 21 842 5500 Fax +351 21 842 5625 Email:
[email protected] Share Capital EUR 15,000,000 Taxpayer no. 502 030 879
MAIN ACTIVITY Air Transport.
The company continued the implementation of some alterations, namely in the processes and reformulation of procedures, with the Group synergies having been fine-tuned and the functioning matrices identified in 2008. The company continued to operate with the same fleet, composed of six Fokker 100 and eight Embraer 145, with capacities of 97 and 49 passengers, respectively. Constant efforts have been made towards improved productivity, always allied to safety. The effective results of this effort are confirmed through the comparison of the average Flight Hours per day of PGA with that registered by the analogous European companies operating the same type of equipment. In November 2009, PGA renewed its certificate in the IOSA (IATA Operational Safety Audit) programme of IATA, being part of this organisation. The company has passed the audit carried out by this institution with distinction since 2005, complying with the approximately 900 established requisites. The IOSA record of PGA, assured for two more years and without which the company could not maintain the record at IATA, confirms the efficiency and high standard of safety and quality of PGA, recognised internationally.
2009 was a year of investment and focus on Human Resources, with various projects of valorisation and development of Human Capital having been started. PGA implemented the System of Assessment of Performance and Potential for the Groundforce staff for the first time, thus responding to one of the points considered crucial by its Employees. It also joined the New Opportunities Programme, providing its Employees with the possibility of concluding their secondary education. Training actions in Business English were also developed, covering 25 Employees. In the projects transversal to the company, note should be made of the training with a view to the development of leadership and conflict management skills, which covered Employees from various areas of the company, in addition to the Initial Pedagogical Training of Trainers. In the area of the provision of Health, Hygiene and Safety at Work services (HHSW), PGA signed a contract for the provision of services with UCS. These services are now even more directed towards the reality of PGA, thus responding in a more effective manner to the needs of its Employees. Simultaneously with compliance with the legal impositions, PGA, in collaboration with UCS, has started an intensive intervention programme in the area of HHSW, involving the survey of critical situations and consequent implementation of corrective and training actions. With a view to the prevention of health problems of its Employees, PGA has contracted an additional service of Home Medical Assistance, covering the Employee and his/her respective family. As at 31 December 2009, the total number of PGA staff stood at 531 Employees. Of these, 69% are allocated to the Flight Operations
Other Grupo TAP Activities
ANNUAL REPORT | 2009
Department (Technical Flying Crew and Cabin Crew), 19% are in the Maintenance and Engineering Department, and the remaining 12% are Ground Staff / supporting areas. Of the total of 531 Employees, 42% are female and 58% are male. It should also be noted that 42% of the Employees are less than 35 years old, and 43% of the population have more than 10 years of active service. These indicators permit concluding that the potential development of the Human Resources of the Company is high, since PGA has a young population, but one which is experienced in the activity sector.
OPERATING PERFORMANCE In 2009, PGA registered a decrease in the number of block hours of flight carried out, of -14%, compared with the previous year and -17% in terms of the budget. This situation was essentially due to a fall in Customer demand, as a result of the state of the Industry, and the stoppages in operation (sixteen days of strike of the Technical Flight Crew).
MAINTENANCE AND ENGINEERING The Maintenance and Engineering Business Unit continues to define projects and invest in certification, as a form of increasing in-house capacity to carry out services which are normally outsourced, thus seeking to ensure capacity for the provision of services to third parties in the future. It is important to note the conclusion of the Maintenance and Engineering Department certification in 2009, which began in 2008, and will now permit the undertaking of base inspections in the PGA hangar. The programming of the maintenance activity for 2010 now includes this scenario. In terms of optimisation of costs, the introduction of the Crew Concept will lead to improvements in the service rendered, by allowing the allocation of the aircraft maintenance technical staff to more specialised and value added work, rather than keeping them to simpler functions, which will be attributed to the crew and to handling service providers. This project implies improved coordination between the
Flight and Maintenance areas, in addition to greater demands on the handling provider, Groundforce, in Lisbon and Porto. Regarding contractual matters, note should be made of the review of very important and major contracts in terms of costs, such as is the case of the contracts relative to Engines, a dossier which represents approximately 4 million euros per year. In addition to the significant impact in terms of cost reduction, this alteration of service provider also led to improvements in the quality of the service. This programme of renegotiation and revalidation of contracts, while started in 2009, will be maintained over 2010, with it being expected that its implementation will lead to the achievement of better financial conditions, improved guarantees and services rendered, and the full impact of this action will be analysed at the end of 2010.
QUALITY Safety: PGA continues to work on its Safety Management System, so as to provide it with the necessary tools for swift and effective analysis, for the purpose of improving operation management capacity, carefully analysing the events registered, and implementing the measures which prove to be necessary. Flight Staff: The quality of the service provided to the Customer continues to be an objective of PGA. In 2009, the management between TAP and PGA was fine-tuned, involving various aspects which, in view of the current business model, are controlled and managed at the level of Grupo TAP (e.g. catering and handling services), with this practice being pursued in 2010. Environmental Policy: In the context of the inclusion of aviation in the European trade of CO2 emission licenses, which covers all flights arriving to or leaving from aerodromes situated in EU territory, in 2009 PGA, together with TAP, submitted an annual emissions monitoring plan and a ton-kilometre monitoring plan (with the latter being carried out once only and permits the company to apply for the attribution of a free quota of
89
emission licenses for the period between 2012 and 2019). Over the next few years, PGA will monitor the emissions of the aircraft and of the tons per kilometre, with this process being managed autonomously by PGA. However, reporting to the APA (Portuguese Environment Agency) is carried out by TAP, as a whole for the Group’s two airline companies. Jet-fuel: PGA manages its Fuel Conservation project internally, although the costs of this item are of the responsibility of the Customer. A series of measures to optimise fuel consumption implemented through the coordinated work of the Flight Operations and Maintenance and Engineering Departments, have been fine-tuned. However, the effective reduction of fuel consumption is possible only with the commitment of full involvement, valorising the sum of small gains. The following measures have been implemented, taking this principle into consideration: > Efficient practices in the operation of the aircraft (redefinition of procedures for approach, landing, take-off, use of engines, and use of the ground energy generating service instead of the use of that of the aircraft); > Programme of the periodic washing of aircraft; > Weight reduction (new painting, replacement of carpets, windshield connection elements – titanium versus stainless steel); > Concordance of the panels and polishing of the fan blades.
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Other Grupo TAP Activities
ANNUAL REPORT | 2009
SPdH–Serviços Portugueses de Handling, S.A. THE STRATEGY – CONTINUOUS IMPROVEMENT OF SERVICE QUALITY GENERAL MEETING COMMITTEE
Chairman Alda Maria dos Santos Pato (*) Deputy Chairman Carlos Pedro Silva (**) Secretary Carlos Pedro Silva (**)
BOARD OF DIRECTORS
Chairman Luís Manuel Miguel Correia da Silva (**) Chief Executive Officer Fernando Alberto Mesquita de Melo (**) Member José Manuel de Esaguy Gonçalves Onofre (**) Member Luís Manuel da Silva Rodrigues (***) Member Michael Anthony Conolly (**)
STATUTORY AUDITOR
Permanent PricewaterhouseCoopers & Associados SROC, Lda. Substitute José Manuel Henriques Bernardo (ROC)
REGISTERED OFFICE Edifício 25-6°, Aeroporto de Lisboa 1704–801 Lisboa Tel. +351 21 891 8700 Fax +351 21 891 8701 Email:
[email protected] Share Capital EUR 8,000,000 Taxpayer no. 506 651 649
MAIN ACTIVITY Provision of ground handling services for air transport. (*) Through deliberation of the General Meeting, of 15th April 2008, for the three-year period 2008-2010. (**) Through deliberation of the General Meeting, of 2nd April 2008, for the three-year period 2008-2010. (***) Through co-optation by the Board of Directors, on 18th June 2009, ratified by the General Meeting, of 25th June 2009, for the three-year period 2008-2010, substituting the Member of the Board of Directors Luís Miguel da Silveira Ribeiro Vaz.
The company decisively entered into the second year of the new Groundforce Management with the respective Strategic Plan and with the Operative Plan for 2010. The year of 2009 was a period of great difficulties at various levels, where the economic recession had a negative impact on turnover, of the order of 14 million euros. However, 2009 also brought good news, with the company having significantly improved the quality of the services rendered to its Customers, as a result of the Sustained Development plan launched in August 2008. As such, the Customer Experience policy was continued, which involves the management of the emotions of the Passenger customers (B2BC), focused on the image, friendliness and technical efficiency of the company’s Employees, where the training and satisfaction questionnaires have become the major conductors of the process.
QUALITY - THE PATH TOWARDS THE MODELS OF EXCELLENCE Groundforce’s recovery strategy is based on the certifications which have leveraged the service provided by the organisation, permitting the enhancement of process consistency and the improvement of operating efficiency on the path towards the models of excellence. ISO 9001:2000 certification was obtained in 2009, with this standard recognising the effort of the organisation to ensure the conformity of its services, the satisfaction of its Customers and the continuous improvement of its performance.
In the area of Safety, ISAGO - IATA Safety Audit for Ground Operations certification was obtained. The emphasis of this certification is placed on the Safety and Security practices shown by the company in all its areas of action, making Groundforce Portugal part of the first group of European handlers certified with this standard. Cargo 2000, another certification obtained in 2009, is an initiative of various players of the Air Cargo industry, aimed at the implementation of a new quality management system for world business in this sector. The objective is simple: the implementation of processes, based on measurable principles and standards of quality, capable of enhancing the efficiency of Air Cargo. All these certifications encourage the company to continue along the chosen path, and to believe in the real capacities of the organisation. The preparation of OHSAS 18001 – Health and Safety at Work Certification is currently underway, and the start-up of the process for ISO 14000 – Environmental Standard Certification and SA 8000 – Social Responsibility Certification is expected to take place soon. These certifications will permit the adoption of good practices by the organisation, contributing to the significant improvement of the key processes indicators.
THE BUSINESS – UNDERSTANDING CUSTOMER NEEDS In the context of the development of sales, in 2009, 48 contracts were renewed and 15 customers were attracted, as a result of a clear and fair commercial attitude, which differentiates the company and leads Customers to attribute their preference to the company.
ATTENDED PASSENGERS IN LISBON MILLION
THE ORGANISATION AND HUMAN RESOURCES – MANAGEMENT WITH PEOPLE Continuing the project launched in 2008, the Investors in People Certification programme constitutes an important alteration in the way the company and its Employees relate to one another. Hence, in 2009, some projects recommended in the Investors in People action plan were carried out. The more efficient planning of resources, improved communication, the disclosure of the Operative Plan, among other initiatives, are sufficient reasons to want to continue to do more and better. The Management of Change at Groundforce mandatorily involves transforming the vision which both parties have of one another, where the key principle is that Motivated, trained and productive People provide quality service, which in turn is transformed into customer satisfaction, and as a consequence brings the company sustained development, which will create value for the shareholders and for people. Over the year, Groundforce has developed a series of actions aimed at the training, development and qualification of its resources. Indeed, Service Quality is positively related to the satisfaction of the internal and external customer, which no longer has a passive action in the organisation, but takes on an active character within the organisation. The full time equivalent (FTE) decreased by 7.9%, (2,799 FTEs in 2008 to 2,579 FTE in 2009), in relation to the average of the previous year.
ECONOMIC PERFORMANCE In 2009, turnover reached 115.7 million euros, representing a decrease of 9% relative to the previous year. This evolution reflected the general performance of the market, where Groundforce Portugal registered a minor loss in market share (-4 p.p.).
Third Parties TAP
TOTAL WEIGHTED ATTENDED MOVEMENTS IN LISBON
-5.1%
-5.7%
2008
2009
2007
9.7
2009
10.0
2008
9.1
2007
The sales activity is permanently attentive to new opportunities, with a persistently optimistic attitude, always seeking to innovate and improve. For this motive, the more rigorous and careful management is sought of all the services complementing the core activity of the company, which allows for the provision of an integrated and progressively more complete offer, available to the customer portfolio.
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Other Grupo TAP Activities
ANNUAL REPORT | 2009
Third Parties TAP Variation % Note - The weighted movements were altered, since the configuration of TAP’s A320 aircraft increased from 156 to 162 seats.
57.5 54.6 51.5
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Other Grupo TAP Activities
ANNUAL REPORT | 2009
TAPGER–Sociedade de Gestão e Serviços, S.A. TAPGER–Sociedade de Gestão e Serviços is a limited liability company based in Lisbon that was created by TAP, in September 1997, with the aim of assuring a more direct and active management of the various complementary or collateral activities of its main business of air transport and maintenance, with a view to its development.
GENERAL MEETING COMMITTEE
Chairman Alda Maria dos Santos Pato Secretary José Carlos Magalhães Ferreira
Board OF Directors
Chairman Fernando Abs da Cruz Souza Pinto Member Mário Marmelo Castanheira Guilherme Member Michael Anthony Conolly
STATUTORY AUDITOR
Permanent PricewaterhouseCoopers & Associados, SROC, Lda. Substitute José Manuel Henriques Bernardo (ROC)
REGISTERED OFFICE Aeroporto de Lisboa Reduto TAP, Edifício 25 – 8° 1704–801 Lisboa Tel. +351 21 841 5978 Fax +351 21 841 6666 Share Capital EUR 2,500,000 Taxpayer no. 503 986 798
MAIN ACTIVITY Provision of commercial consulting and management services, studies and preparation of contracts and support to international trade operations.
TAPGER’s current activity is characterised by total dedication to supervising the management of its participated companies, particularly their respective financial and economic performance, and the provision of assistance and support to the companies Lojas Francas de Portugal, S.A. and Cateringpor – Catering de Portugal, S.A., in specific areas, as established under the Joint Venture Agreement and Technical Service Agreement, respectively. In relation to treasury management, a decision was made to coordinate with TAP Serviços (Treasury area) the use of the funds available at TAPGER, during most of the year, by lending them to TAP SGPS, S.A. for short-term investment.
Alteration of the Corporate Name of A.A.E.–Academia Aeronáutica de Évora In relation to the Academia Aeronáutica de Évora, and at the request of the CAE, the following were formalised by Unanimous Board Decision in Writing: 1) The alteration of the Corporate name of the company Academia Aeronáutica de Évora, which took on the reference of the majority group CAE Global Academy; 2) The alteration of the financial year, which now runs from 1 April to 31 March of the following year.
LFP–Lojas Francas de Portugal, S.A.
This decline had an even greater impact on the sales of LFP, which declined 9.8% to 119.2 million euros. In addition to the abovementioned decline in the number of boarding passengers, it is also important to mention the following main reasons for this negative behaviour: the loss of price competitiveness (due to the constant devaluation of the pound, versus the euro), the worldwide economic crisis, as well as the economic crisis in the United Kingdom. However, tight cost control, alongside efforts to maximise supplementary revenues, enabled the company to achieve a Pre-tax net income of 8.3 million euros. In addition, several efficiency ratios, especially return on sales, registered improvements, although the result reflects differences in terms of the sales performance of different company businesses. At airports, Faro continued to be the airport most penalised by the economic crisis, registering a significant decline in sales, whereas Lisbon and Porto recorded only slight reductions, and the Azores registered an increase relative to 2008. Similarly, In-flight Sales registered a decrease, due to the fewer number of passengers flying TAP and the termination of the contract with the companies SATA International and White, which decided, for operational reasons, to terminate their In-flight Sales service. It is also important to mention that in terms of the streamlining of company management, alongside a considerable effort to generate additional revenues, it was possible to implement a series of cost control measures which, collectively, ensured the integrity of the result for shareholders whilst,
SALES
EUR MILLION
140 120 100 80 60 40
The generation of additional revenues and the widening of margins resulted, essentially, from the improvements obtained in the negotiations with suppliers, the increase in the number of campaigns and marketing initiatives, as well as from the improvement in the capacity to attract promotional revenues. In terms of costs, the control of salary costs, the reduction of overtime hours, the renegotiation of third party contracts, the reduction of travel costs, as well as raising awareness of the need to reduce costs is noteworthy. The year 2009 was characterised, once again, by the opening of new stores and by exploiting new flows of passengers. Thus, in Lisbon, a new store at the new Pier Norte was opened, which will serve non-Schengen passengers. In the case of Porto airport, a sales post at the Bus Gate Norte was opened, as a means of ensuring closer proximity to the considerable number of passengers that are expected in that area of the airport, resulting from the installation of the Ryanair base in that city. In the case of Faro, the shopping spaces in the luggage claim and non-Schengen areas were renovated. As for In-flight Sales, it is important to mention the start of the operation with STP – the national airline of S.Tome and Principe, which, in addition to contributing with one more airline company to LFP’s portfolio, will contribute to partially limit the impact of the loss of SATA International.
2009
2008
2007
2006
2005
2004
2003
in parallel, ensuring the maintenance of the total number of jobs. This result is even more remarkable if we consider that, in 2009, there was a considerable increase in costs, resulting from the increase in operating charges payable to ANA, due to the negotiation of the respective license extension.
2002
0
2001
20 2000
Airport retail activity is closely associated with the evolution of air traffic as a result of the very specific characteristics of this business, namely, its restricted location and its range of products. In this sense, 2009 had a negative impact on the entire sector, due to the significant decline in demand for air travel and, consequently, on the number of passengers in airports. This situation, on a worldwide scale, was felt with different intensity at various airports, and even within the same country. Portuguese airports thus registered a decline in passengers of 2.9%, and TAP, as the main operator and, simultaneously, as the main airline company in the In-flight Sales business, registered a decline in passengers in the order of -3%.
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Other Grupo TAP Activities
ANNUAL REPORT | 2009
GENERAL MEETING COMMITTEE
Chairman Peter Christopher Wood Secretary Anabela Gomes Lopes
BOARD OF DIRECTORS
Chairman Luiz da Gama Mór Chief Executive Officer Nuno Filipe Martins do Amaral Member Andrea Belardini Member Christian Heinrich Stegemann Member Luís António Domingos Fernandes Silvério Monteiro
STATUTORY AUDITOR Deloitte e Associados, SROC, S.A.
REGISTERED OFFICE Aeroporto de Lisboa Rua C, Edifício 10, Piso 0 1700–008 Lisboa Tel. +351 21 841 5685 Fax +351 21 841 5373 Email:
[email protected] Share Capital EUR 550,000 Taxpayer no. 503 346 128
MAIN ACTIVITY Operation of Airport Shops and In-flight Sales.
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Other Grupo TAP Activities
ANNUAL REPORT | 2009
USERS OF TAPNET SERVICES TOTAL USERS
12,770 10,100 8,000 7,000
8,500
2009
2008
2007
2006
2005
2004
2003
2002
2001
5,150 3,950 3,250 2,750
BOOKING SYSTEM
TOTAL TRANSACTIONS / SECOND
458 341
464
378
233
2009
2008
2007
2006
2005
2004
161
GENERAL MEETING COMMITTEE
Chairman Alda Maria dos Santos Pato Secretary José Carlos Magalhães Ferreira
BOARD OF DIRECTORS
Chairman Michael Anthony Conolly Chief Executive Officer Eduardo Jorge Dias Rodrigues Member Maria dos Prazeres Nunes Ramalho Monteiro
STATUTORY AUDITOR
Permanent Deloitte e Associados, SROC, S.A.
REGISTERED OFFICE Aeroporto de Lisboa Reduto TAP, Edifício 19 1704–801 Lisboa Tel. +351 21 841 6888 Fax +351 21 841 6344 Email:
[email protected] www.megasis.pt Share Capital EUR 500,000 Taxpayer no. 502 199 210
MAIN ACTIVITY Provision of services in the area of the development and maintenance of computer software.
MEGASIS–Sociedade de Serviços e Engenharia Informática, S.A. 2009 was marked, once again, by the enormous difficulties felt by the Commercial Aviation industry. And, once again, the reduction of costs was the initiative most used by the Commercial Aviation companies, notwithstanding the increasingly evident need to increase the effectiveness of processes, in addition to the usual search to enhance the efficiency of the organisations. However, TAP presented important results, with a performance which resulted from the maintenance of the essential objectives, defined some time ago, based on the search for operating efficiencies, not forgetting, moreover, the improvement of the service offered to the Customer and the significant commitments of the Company with respect to the environments and to improvements of the recognised culture of social, environmental and safety responsibility.
area, which significantly contributed to the increase in the Company’s operational efficiency; > The launch of the technological transformation project of TAP–Maintenance and Engineering Brazil, as a form of ensuring the adequacy of the operating and business management processes to the best practices, which are already followed by TAP–Maintenance and Engineering Portugal.
It should be noted that the result of the investments made by Megasis during 2009, are reflected in the existence of modern technological infrastructure at TAP, which will permit facing the future challenges which will arise from the growth of the Company and, consequently, in the area of the information The activity of Megasis was naturally technologies. The operationalisation of the influenced by the decisions made by its second data processing centre, with its shareholder and main Customer. The forecast great number of advantages in the area of growth of activity relative to the information the capacity of technological production, technologies, resulting from the increase or in the construction of the business on the level of business referred to above continuity plan, is an example of the also led to the growth of Megasis, both in abovementioned modernisation. Also in terms of applied technologies and relative the context of technological modernisation, to the resources incorporated for the timely reference should be made to the start of the development and support of the planned construction of the SOA (Service Orientated activity. Architecture), called Mozart under the CITP During 2009, a large number of projects were project. The objective of this architecture is initiated or pursued, with the following being to provide TAP with a service infrastructure particular examples: which will permit the future development of swifter and more effective information > The activities developed for the project to systems, so as to respond to the changes migrate the reservations and passenger which will certainly take place in the control systems to the Amadeus platform, Commercial Aviation industry. known as the Common IT Platform (CITP), following the decision taken to join the To finalise, it should also be pointed out STAR Alliance; that Megasis has met its commitments to > The expansion and improvement of the the shareholder, by once again boosting services provided through electronic productivity based on increased quality and channels to customers; quantity of services offered and consequently > The production of management maintaining the Company’s levels of indicators, in the Business Intelligence competitiveness.
Other Grupo TAP Activities
ANNUAL REPORT | 2009
CATERINGPOR–Catering de Portugal, S.A.
The significant irregularity of demand in the first semester of the year also added to the difficulty of adapting some types of costs to the levels of activity observed on a monthly basis. 2009
In terms of positive factors, some smaller Customers registered some growth, alongside a more positive behaviour of demand during the second semester. It is also worth pointing out the successful efforts within the scope of attracting new customers, whose results will only be revealed in the following financial year. Internally, it is worth highlighting the development and start of the implementation of the information system for production control, aimed at increasing NUMBER the qualityOF ofMEALS delivery and the levels of THOUSAND efficiency. 8,611 8,426 5,929
2008 6,233
6,909 1,250
7,585
1,274
var. %
Number of meals 7,337 1,314 1,358 TAP 7,054,887 7,336,734 6,178 -3.8% 5,658 Other companies 1,371,087 1,274,323 7.6% 4,920 4,571 Total 8,425,974 8,611,057 -2.1%
48,682
49,996
TAP
2008
2007
2006
2004
2005
Number of flights attended TAP 40,528 42,301 -4.2% Other companies 8,154 7,695 6.0% Total
1,371
1,406
7,055
2009
The activity of the company, with TAP continuing to be its largest Customer, and given the small dimension of the aviation catering market generated by the remaining operators at Lisbon Airport, directly reflects the operating variations that take place there. In fact, the responses to the national and international crisis of its main Customer, namely resulting from the policy of contention of the number of services offered, which led to an increase in the efficiency of the fleet used, led to a reduction in the total number of meals sold and the number of flights attended.
-2.6%
var. (abs.) -281,847 96,764 -185,083
-1,773 459 -1,314
GENERAL MEETING COMMITTEE
Chairman Alda Maria dos Santos Pato Secretary José Carlos Magalhães Ferreira
BOARD OF DIRECTORS
Chairman Luiz da Gama Mór Chief Executive Officer Mário José Santos de Matos Member Sílvio Canettoly
Other companies
AUDITING COMMITTEE
NUMBER OF FLIGHTS ATTENDED
NUMBER OF MEALS
THOUSAND
THOUSAND
9.7
8.3
26.6
27.7
37.5 7.7
40.0 8.1
42.3
48.7 8.2
40.5
2009
31.9
2008
29.8
2007
2009
2006
36.0
7.7
6,178
4,920
2005
2004
7,055
36.3
2006
5,658 4,571
7,337
1,314
50.0
2005
1,250
1,371
2008
1,358
1,274
1,406
2007
5,929
8,426
2004
6,909 6,233
7,585
8,611
Chairman Maria de Fátima Castanheira Corte Damásio Geada Member Miguel de Azeredo Perdigão Member Deloitte e Associados, SROC, S.A.
REGISTERED OFFICE Aeroporto de Lisboa Rua C, Edifício 59 1749–036 Lisboa Tel. +351 21 854 7100 Fax +351 21 854 7199 Email:
[email protected] Share Capital EUR 3,500,000 Taxpayer no. 502 822 112
MAIN ACTIVITY TAP
Other companies
NUMBER OF FLIGHTS ATTENDED THOUSAND
50.0
TAP
Other companies
Preparation and sale of in-flight meals as well as provision of services and logistics support to aircraft.
95
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Other Grupo TAP Activities
ANNUAL REPORT | 2009
CLINICAL ACTIVITY Clinical Acts
160,000 140,000 120,000 100,000 80,000 60,000 40,000
UCS–Cuidados Integrados de Saúde, S.A.
GENERAL MEETING COMMITTEE
Chairman Anabela Gomes Lopes Secretary José Carlos de Azevedo Magalhães Ferreira
BOARD OF DIRECTORS
Chairman Michael Anthony Conolly Chief Executive Officer Maria Helena Arrobas do Carmo Paiva Peixoto Member Orlanda do Céu Silva Sampaio Pimenta d’ Aguiar
STATUTORY AUDITOR Deloitte e Associados, SROC, S.A.
REGISTERED OFFICE Aeroporto de Lisboa Edifício 35 Apartado 8426 1804–001 Lisboa Tel. +351 21 843 6300 Fax +351 21 843 6310 Email:
[email protected]
With Grupo TAP as the largest customer of UCS, its mission is focused on the provision of out-patient global health-care, and within the context of the specifications of the aeronautical industry, through an integrated strategy for the promotion of health, prevention, diagnostic and treatment and rehabilitation. The activity of the company comprises three key structuring areas: Occupational Health (Medicine of Health, Hygiene and Safety at Work), General Medicine and Aviation Medicine Centre (certification of pilots and air traffic controllers), combining two specific and unique areas of know-how – Aviation Medicine and Travel Medicine. It is within this context of permanent support to the Grupo TAP, with respect to operational decisions in the health area, with the inherent gains of productivity, security and compliance with national and international regulations, that UCS develops its activity.
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
20,000
Medical Appointments Complementary Diagnostic Therapeutic Acts
implementation of reliable interfaces with the administrative and financial areas. In this way, at the start of 2009, the new chosen computer application became operational, with the interface of the central information system of TAP, with respect to the non-specific areas of the UCS core business, having been implemented simultaneously. In 2009, considered as a turning year, it is also important to mention the launch of the new image of UCS, with the creation of a new, rejuvenated logotype, with an aesthetic focus on achieving harmonisation with the Grupo TAP.
MAIN ACTIVITY
The year of 2009 was viewed as the year of technological change, which would permit the optimisation of the management processes in all areas of the company.
In that regard, the TAP uniform was adopted by the Clinical Reception and Secretariat department, thus reinforcing the corporate image of the Group and providing a homogeneous and integrated visual presentation.
Providing out-patient health-care (medical appointments, complementary diagnostic tests and treatment); implementation of safety, hygiene and health at work activities; medical certification of pilots and air traffic controllers; consultancy in the organisation and management of health-care services.
In that sense, UCS conducted a solution study aimed at obtaining an integrated clinical management platform, focused on the user, providing UCS with not only best practices in electronic clinical management through integrated workflows, but also the
In 2009, turnover reached 7.3 million euros, representing a decrease of 5.6%, relative to the previous year. The company was nonetheless still able to record positive results, since a rationalisation of costs, in the same proportion, was undertaken.
Share Capital EUR 500,000 Taxpayer no. 503 486 647
ANNUAL REPORT | 2009
Grupo TAP Economic and Financial Performance
97
98
Grupo TAP Economic and Financial Performance
ANNUAL REPORT | 2009
Grupo TAP Economic and Financial Performance Economic Situation CHANGES TO THE GROUP’S STRUCTURE All the entities controlled by the Grupo TAP were considered subsidiaries, with control being defined as the power to manage the financial and operating policies of an entity, in order to obtain benefits from their activities. As at 31 December 2009, the following subsidiaries were included in the financial statements: > TAP–Transportes Aéreos Portugueses, SGPS, S.A. > Transportes Aéreos Portugueses S.A. (TAP, S.A.) and subsidiary: - AIR PORTUGAL TOURS–Programações Turísticas, S.A. > TAPGER–Sociedade de Gestão e Serviços, S.A. and subsidiaries: - CATERINGPOR–Catering de Portugal, S.A. - L.F.P.–Lojas Francas de Portugal, S.A. - U.C.S.–Cuidados Integrados de Saúde, S.A. - MEGASIS–Sociedade de Serviços e Engenharia Informática, S.A. > SEAP–Serviços, Administração e Participações, Lda. (SEAP) > PORTUGÁLIA–Companhia Portuguesa de Transportes Aéreos, S.A. (PORTUGÁLIA) > REACHING FORCE, SGPS, S.A. (REACHING FORCE) and subsidiary company: - Aero-LB, Participações, S.A. (Aero-LB) and subsidiary: - TAP–Maintenance and Engineering Brazil, S.A. (former-VEM) The financial statements of TAP SGPS and its subsidiaries were consolidated through the full method. The book values of the investments of TAP SGPS in each subsidiary, and the respective holding in the share capital of each
one were eliminated, with the minority interest having been identified in their net income. The minority interests in the net assets of the consolidated subsidiaries are identified separately from the shareholders’ equity. Intra-group balances, transactions, income and costs were eliminated. All entities over which the Grupo TAP has significant influence but which are not subsidiaries nor have interests in joint ventures were considered associates. Significant influence was considered the power to participate in the financial and operating policies of the companies in which the Grupo TAP has a stake, but not assuming control, or joint control, over these policies. It is considered that there is significant influence when TAP SGPS holds, directly or indirectly, 20% or more of the voting power in the company in which it has a stake, or when it holds special voting rights. The following entity was classified as an associate: > SPdH–Serviços Portugueses de Handling, S.A. (SPdH) The associate companies were accounted for through the equity method, where the investments in associates are initially recorded at cost value and the book values are increased or decreased to recognise the shares of the Group in the net income of the companies in which it has a stake after the acquisition dates; the shares of the Group in the net income of the companies in which it has a stake are recognised in the net income of the minority interests; the distributions received from the companies in which it has a stake reduce the book values of the investments; any alterations to the proportional interests of the Grupo TAP in the companies in which it has a stake, arising from alterations in shareholders’ equity, which have not been recognised through profit or loss,
are recognised directly in the shareholders’ equity of the Group. The attached consolidated financial statements were prepared in accordance with the IFRS (International Financial Reporting Standards).
GRUPO TAP CONSOLIDATED RESULTS For the Commercial Aviation Industry, significantly exposed to factors beyond its control, the global economic crisis had a profound effect, with 2009 being marked as one of the years with worst result, for aviation companies at a worldwide level. Annus Horribilis was, in fact, the consideration made by IATA (International Air Transport Association) on 2009, with the Industry having been faced with the deepening of the global economic recession, and which carried in its wake a sharp reduction of air traffic levels. With an increasingly important percentage of revenue directly related to economic growth, and strongly influenced by alterations in consumption patterns, the significant fall in traffic demand, in particular of business travel traffic, as well as in international trade, contributed to further deteriorate the results, with it being estimated that by the end of the year the Industry had suffered losses of 9.4 billion USD. At TAP, SGPS, S.A., although conditioned by very difficult circumstances, in 2009 the companies of the TAP holding presented a strong recovery, with almost all registering positive results. It should be noted that, notwithstanding the economic context described above for 2009, albeit under a scenario of lower fuel prices, these results were possible only due to the combined
Grupo TAP Economic and Financial Performance
ANNUAL REPORT | 2009
Grupo TAP Consolidated Results EUR million 2009 Operating Revenues Operating Net Income Pre-tax Net Income Consolidated Net Income attributable to TAP shareholders Minority Interests
effect of greater rigour in cost management, the permanent increase in productivity levels, the adoption of best practices and process simplification, and the intensification of aggressive sales policies. As such, notwithstanding the extremely difficult conditions under which the Company operated, TAP SGPS ended 2009 with a consolidated net income with minority interests for the year of -3.5 million euros, that is 284.9 million euros more than the -288.4 million euros registered in 2008 (restated). Contributing to this result was the net income calculated for the companies Groundforce with -28.2 million euros and Reaching Force – with this company owning 98.64% of the share capital of TAP–Maintenance and Engineering Brazil – with 3.5 million euros, and the company TAP, S.A. having registered a positive net income of 57.4 million euros. Pre-tax income came to 7.3 million euros, which represents an improvement of 287.9 million euros in comparison to the -280.6 million euros of 2008 (restated).
Total costs and expenses incurred, including depreciation, amortisations and impairment losses, stood at 2,131.9 million euros, corresponding to 474.3 million euros less than in 2008, in other words a decrease of 18.2%. Excluding Fuel costs, this variation would have been -6.8%, a behaviour indicating the considerable cost reduction achieved in Air Transport and in Maintenance and Engineering, with the other participated companies having provided a positive contribution.
The total revenues reached 2,179.6 million euros, which compares with the 2,405.3 million euros of the previous year (restated), corresponding to a decrease of 9.4%. Total Sales and Services Rendered, representing 95.2% of total Company revenues decreased by approximately 288.2 million euros, corresponding to a decrease of 12.2% relative to the previous year. This reduction was mainly due to the reductions of the revenues from Air Transport, in the amount of 174.4 million euros, and from the Maintenance and Engineering activity, with 99.4 million euros. Air Transport represented 85.1% of total revenue, 0.7 p.p. more than in 2008. The other services, arising from activities complementary to the OPERATING NET INCOME core business of the Company reached a At the operating level (before financing and tax total of 3.1%, representing 0.3 p.p. less than costs), the Company also registered a positive in 2008. The development of activity for Third result, with a net income of 47.7 million euros. Party Customers by TAP–Maintenance and These values reflect an improvement of 248.7 Engineering fell in value by approximately 7%, million euros in comparison with 2008, with with there having been a slight reduction of the series of measures implemented, especially 1.5 p.p. in the contribution of TAP–Maintenance relative to the reduction of the services offered, and Engineering Portugal which, showing having had a positive impact on costs, which, a high level of work for the Company fleet, combined with the sum of the initiatives which reached 4.5%. Regarding costs, the heading have been developed over several years, in related to the acquisition of materials and addition to the reduction in the cost of fuel, services consumed, fell by 421.5 million euros, more than compensated for the loss of income. to represent 56.9% of total costs. It should be noted that Fuel costs, which in the period between 2001 and 2003 varied between 140 million euros and 150 million euros, registered a value in the order of 358.6 million euros in 2009, for the company TAP, S.A., corresponding to 49.0% less than in 2008, with this evolution being equivalent to -344.6 million euros, of which -296.5 million euros is attributable to the price effect.
FINANCIAL RESULTS Net financial costs stood at 40.4 million euros, reflecting an improvement in the order of 39.2 million euros in relation to 2008. The performance of the financial function was mainly influenced by the reduction in currency conversion differences and interest paid.
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2008 Restated
2,179.6 47.7 7.3
2,405.3 (201.0) (280.6)
(3.5) 3.5
(288.4) 2.5
Fuel Costs tap, s.a. EUR million 2009 2008
var. (abs.)
Total 358.6 703.2 Price Effect Quantity Effect
-344.6 -296.5 -48.1
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Grupo TAP Economic and Financial Performance
Grupo TAP Consolidated Operating Net Income EUR million 2009 Sales and Services Rendered Air Transport Maintenance and Engineering Other Services Rendered Other Operating Revenues Operating Subsidies Costs and losses Cost of Materials and Services Consumed except fuel Fuel Payroll Expenses Other Operating Costs and Losses Other Costs and Losses Depreciation, amortisations and impairment losses Operating Net Income
ANNUAL REPORT | 2009
2008 Restated
2,179.6 2,075.0 1,854.2 152.4 68.4
2,405.3 2,363.2 2,028.6 251.9 82.7
101.0
32.3
3.6
9.8
2,131.9 1,958.3
2,606.3 2,457.0
853.4 358.6 502.6 17.0 226.7
930.1 703.5 510.9 11.7 300.8
EBITDAR 173.6
149.2
47.7
(201.0)
RISK MANAGEMENT
OPERATING PERFORMANCE Revenues 2009
85.1% Air Transport Sales and Serv. Rend. 7.0% Maintenance and Engineering Sales and Serv. Rend. 3.1% Other Sales and Serv. Rend. 4.6% Other Operating Revenues 0.2% Operating Subsidies
84,3% Vend. e Prest. Serv. Transporte Aéreo
Costs 10,5%
Vend. e Prest. Serv. Manutenção e Engenharia
20093,4% Vend. e Prest. Serv. Outros 1,4% Outros Exploração 0,4% Subsídios à Exploração
40.0% Cost of Materials and Services Consumed except fuel 16.8% Fuel 23.6% Payroll Expenses 11.4% Other Costs and Losses 8.1% Depreciation, Amortisations and Impairment Losses
35,7% Custo de materiais e serviços consumidos excepto combustível 27,0% Combustível 19,6% Custos com o Pessoal 12,0% Outros Gastos e Perdas 5,7% Depreciações, amortizações e perdas por imparidade
Net working capital to deal with financial and investment costs, measured by EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortisation and Rent derived from fleet leasing), reached 272.4 million euros, corresponding to 221.6 million euros more than in 2008 (restated).
General aspects While 2007 saw the eruption of the crisis in the financial and real estate markets, and 2008 witnessed the largest oil shock since the 1970’s, in 2009 the greatest recession at a global scale since the 2nd World war was experienced. The GDP of the European Union fell by 4.2%, in the USA GDP contracted by 2.4% and even the emerging markets showed zero growth on average, according to the statistics of the World Bank, with Brazil having registered slightly negative growth. China and India, albeit in deceleration, followed a path contrary to the general trend with growth of 7% and 5%, respectively. Inflation also fell sharply, having fallen from 3.7% in 2008 to 1% in 2009 in the European Union, and from 3.8% to -0.4% in the USA, while unemployment rose in a generalised manner all over the world. The Portuguese economy, which had already stagnated in 2008, contracted by 2.7% in 2009, with inflation having fallen from 2.7% in 2008 to -0.9% in 2009, according to Eurostat statistics. The historical contraction of the world economy observed in 2009 was not even more serious as a result of the expansionary policies implemented by most countries, both in terms of the budget and through interest rates, which fell to the lowest level ever, that is, 0% in the USA and 1% in the euro zone. The markets of raw materials also contributed to mitigating further falls in activity and, in particular in the 1st semester of the year, the market prices of energy, for example, stood at 1/3 of the peak which had been reached in mid-2008.
ANNUAL REPORT | 2009
Evolution of the price of fuel The market prices of crude oil started the year at 40 USD/barrel and finished 2009 at 80 USD/ barrel. However, the market price of jet fuel, which showed slightly less volatility, increased from 500 USD/ton in the beginning of 2009 to 700 USD/ton by the end of the year. The annual average of the price of fuel stood at 567 USD/ton, with this value not having been registered since 2005. It should be recalled that the average price of jet fuel was 650 USD/ton in 2006, 712 USD/ton in 2007 and 1,007 USD/ ton in 2008.
Grupo TAP Economic and Financial Performance
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Market rates followed the decrease of central bank reference rates: the medium-term (from 3 to 6 months) Euribor interest rates declined from an average of 4.6% in 2008 to 1.3% in 2009, and the USD Libor declined from an average of 3% in 2008 to 0.9% in 2009. Long-term interest rates also reached record lows, with 5-year euro swap rates having fallen from a peak of 5% in mid-2008 and 3% levels at the end of 2008 to approximately 2.5% by the end of 2009.
In spite of the reduction in interest rates and stabilisation of monetary markets, as well In terms of risk management, multiple price as the progressive reduction of the spread fixing operations were contracted both for the between central bank reference rates and semester in progress and for the first semester interbank rates, the difficulties regarding of 2010. Almost all of the operations generated company financing remained throughout a positive result at settlement or even a 2009, and credit restrictions were reflected favourable mark as at 31 December, with both in terms of the difficulty in negotiating respect to operations which were carried over new operations and in terms of the increase to 2010. The degree of coverage reached was in short-term credit line margins, which of approximately 55% relative to the actual were renewed under progressively more fuel consumption in 2009, while the volume of unfavourable conditions. fuel contracted for 2010 came close to 2/3 of the consumption forecast for the 1st semester In view of the relatively low percentage of of this year. The enormous effect of the fall in short-term debt in the Company’s total debt average market prices from 2008 to 2009 was structure, approximately 7% of total debt, reflected in a historic reduction in the total the increase in the cost of financing in 2009 cost of fuel in 2009 to, practically half of its did not have a significant impact on total value of 2008, from 703 million euros to 359 financial costs. However, the response of the million euros. Contributing decisively to this market to the launch, in October, of a Request result was the almost zero hedging value of for Proposal for new funding for the Group the first part of the year, as well as the timing indicated an aggravation of the financial of the operations carried out in the 2nd half margins practised. of 2009. The exposure to interest rate risk was the Interest rate behaviour object of several actions at the end of the Following the agitated months at the end of year, following the continuous fall in long 2008, with the threat of bankruptcy of several term interest rates. As such, a decision large financial institutions, the year of 2009 was made to activate the hedging devices was marked by a progressive stabilisation established in the actual leasing contracts of of financial markets at a worldwide level, the aircraft relative to the new A330. In order to which the monetary policy of the main to ensure the best price for the respective central banks, namely the FED and ECB, establishment of the rate, the entities directly contributed decisively. These two central involved in the contracts in question and banks maintained interest rates at levels close bank entities were placed in competition, to the absolute minimum, at 0%-0.25% (since with rates having been established relative December 2008) during the entire year of to 5 existing contracts. The rates were all 2009 in the case of the FED, and at 1% since established below 3%, with the average life May 2009 in the case of the ECB. of the operations being above 5 years and
the final dates of the leasings in question being situated between 2019 and 2020. As a consequence of the variable rate to fixed rate conversions there has been an increase in the coverage rate of the fixed rate, which reached 58% of total debt by the end of 2009. Exchange rate risk Although the Euro-USD levels, as at 31/12/2008 and 31/12/2009, were very close (respectively, 1.3917 and 1.4406, ECB reference exchange rates), and the annual average of 1.395 was also close, over the year there was, however, significant volatility within an interval between 1.25 and 1.50. The profile of the evolution of the euro-USD over the year ended up by having a negative impact, corresponding to an aggravation of 6% in total fuel costs in relation to the previous year, which contradicted, albeit in a very limited manner, the extremely significant gains referred to above as a result of the lower market prices and hedging. In terms of passenger and maintenance revenues, the average performance of the euro-USD had little impact on their results. In the same way, the specific performance of currencies such as the pound, which devalued slightly, and the Swiss franc, which appreciated, also slightly, also had a minor impact on the Company’s revenues.
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Grupo TAP Economic and Financial Performance
ANNUAL REPORT | 2009
GROSS FIXED CAPITAL FORMATION EUR MILLION
300.9
316.3
2009
2008
32.3
2007
15.5
2006
23.5
2005
203.9
2004
350 300 250 200 150 100 50 0
2009
88.6% Basic Equip. (Aircraft + Spare Engines + Misc. Machinery and Equipment) 0.2% Buildings and Other Constructions 0.2% Transport Equipment 3.8% Administrative Equip. 7.2% Other (Other+Intangible Assets+Assets in Progress+Tools and Dies)
The Brazilian real registered a sharp increase throughout the year (approximately 30%), against the euro and USD, having benefited progressively from the stabilisation in financial markets and the good performance of the Brazilian economy in the context of the worldwide recession. In view of the growing exposure to the Brazilian market, both in terms of air transport and investments in TAP–Maintenance and Engineering Brazil, the exchange rate appreciation of the real and the increasing economic robustness of Brazil should bring long-term benefits to the Company. It should also be noted that in 2009, no foreign exchange hedging operations were carried out and that in relation to debt exchange rate exposure, the debt continued to be almost totally denominated in euros, representing approximately 97% of the total at the closing of the financial year.
Financial Situation The Consolidated Total Assets of TAP, SGPS, S.A. reached 2,024.4 million euros, while the degree of use of the Assets, expressed through the ratio between the Company’s Turnover and Total Assets reached 1.03. In 2009, the total Gross Fixed Capital Formation of Grupo TAP reached 32.3 million euros. This value essentially reflects the investments made in the acquisition of stocks and a spare engine in the context of the introduction of the A330 fleet as well as computer equipment, hardware and software. It should also be noted that, of this amount, Innovation and Development Costs accounted for 1.1 million euros, corresponding to the reformulation of applications in the area of the central support system.
The analysis of the economic and financial indicators shows that the Net Worth of the Company stands at approximately -204.6 million euros, reflecting an aggravation of 16.6 million euros relative to 2008. Reference should also be made to the existence of Minority Interests to the value of 6.7 million euros, relative to the companies LFP–Lojas Francas de Portugal, Cateringpor and SEAP. The Financial Autonomy ratio reached -10.1%, representing an aggravation of 1.7 p.p. relative to 2008 and the Solvency ratio was -9.18%, decreasing by 1.4 percentage points in relation to the previous year. The share capital of TAP, SGPS, S.A. is represented by 1,500,000 shares, with the nominal value of 10 euros each, held by Parpública–Participações Públicas, SGPS, S.A., a company 100% owned by the Portuguese State. Total Liabilities of TAP, SGPS, S.A. stood at 2,229.0 million euros, with 1,284.4 million euros being relative to Non-current Liabilities and 944.7 million euros relative to Current Liabilities, which currently represents 42.4% of total Liabilities, 1.7 p.p. more than in 2008. Regarding debt structure, bank loans and financial leasing, by the end of 2009, reached a total of 1,302.5 million euros. Liabilities relative to the current remunerated debt of 265.3 million euros represented 20.4% of the total, corresponding to 6.7 percentage points more than in 2008.
Outlook for 2010
ANNUAL REPORT | 2009
Outlook for 2010 After a deep worldwide recession, economic growth returned to positive values, following the timely adoption of monetary and fiscal stimulus measures and policies aimed to support the financial system, which were decisive in reducing volatility and the risk-aversion levels of economic agents, and contributed to limiting the contraction in economic activity, creating the conditions for a gradual recovery as of the second half of 2009. A slow recovery is, however, expected, in the face of still debilitated financial systems and a progressive reduction of public stimuli and support. On the other hand, in the economies that underwent significant reductions in asset prices, families are expected to continue to increase their levels of saving, while simultaneously facing high unemployment levels. The current forecasts point to an increase of global activity in 2010, in the order of 3.9%, progressing, however, at different speeds, at a global level: on the one hand, emerging markets, led by Asia, present themselves as relatively vigorous, with the advanced economies, on the other hand, maintaining a sluggish growth rate and still dependent on government stimulus measures. In this context, positive evolutions of economic growth in Japan and the United States are expected, of 1.7% and 2.7%, respectively, and moderate growth, between 0.1 to 1.5 per cent, in the Eurozone, in a process of irregular recovery, still marked by some uncertainties. Regarding Portugal, forecasts point towards a slight recovery of economic activity by approximately 0.7% in 2010, accompanied by a return to positive inflation figures, close to 0.7%, due to the increase in the price of oil, the increase of the imports of non-energy goods deflator and a moderate growth of labour unit costs. This forecast essentially arises from a progressive dissipation of the financial crisis in international markets and from a gradual reversal of the degree of worldwide risk aversion, with a direct impact on the recovery of external demand benefitting companies operating in Portugal and on the improvement of the financing conditions
for families and national companies. With respect to domestic demand, it is expected to continue to be conditioned by the deterioration of labour market conditions, the persistence of structural weaknesses, as well as the uncertainty associated with the restart of the fiscal consolidation process. This forecast also points to an increase in the external financing needs of the Portuguese economy, reflecting in particular a slight deterioration of the goods and services balance deficit, and a significant widening of the income balance deficit, resulting from a new deterioration of the foreign investment position and from a gradual increase in interest rates, from mid-2009 onwards. With respect to the Air Transport Sector, in which economic growth is the main driver of the Industry, and although there are signs of some recovery in the traffic volumes of certain markets, this improvement merely represents a first step on the way to achieving previous traffic levels. The extension of the contraction corresponds to a long distance to cover until the nature of the structural or merely cyclical alterations is fully understood. In addition, the revitalisation of markets and international trade, slower than in previous recessions, conditioning the evolution of business traffic, also leads to a slower recovery of the yield levels that, although having recovered somewhat recently, is still significantly far from the values recorded at the start of 2008. In this context, with fuel prices in an ascending trend, 2010 is likely to be another year of significant challenges for airline companies, compelled to use their capacity rationally, and maintain a rigorous cost control. For TAP, following a year marked by increased rigour in short term management, the Company proposes, in 2010, following the first signs of recovery, to continue with prudent optimism, to face challenges and not abdicate from a long term vision in the construction of its future. Thus, its main objective is to achieve profitability in its businesses, so as to enable, in a sustainable way, the restoration of its trajectory of positive net income and value creation consolidation. In a context of globalization with higher levels of competition requiring flexible and adaptable structures, 2010 will
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be a year of tough challenges, relative to the continuation of the structural alterations that have been implemented over the last few years. It is thus seen as necessary to give privilege to the growth consolidation strategy undertaken in recent years, continuing its efforts to stimulate the load factor, with intensified commercial aggressiveness, as well as cost control reinforcement, based on a vision focused on the Customer and on an internal organization based on best practices. Therefore, having restructured the fleet and presented the new connections as a fundamental tool for the consolidation of the Company at an international level, it is important to mention, as main objectives for 2010, the restoration of the growth trajectory, with the creation of new connections, and the reinforcement of those already in operation, in an approach focused on the exploitation of opportunities. Of particular interest in this context is the start-up of the operations to Marrakech and Algiers, from June, and to Campinas in Brazil, from July. In the former case, it is an initiative resulting from a reinforcement of the growth strategy for Africa, whereas the latter case represents a diversification for the interior of the region of Sao Paulo. In June the interruption of the application of the Contingency Plan is also foreseen, in operation since the end of the summer period of 2009, implemented with a view to promoting a rational adaptation of the offer of flights, due to the intensification of the economic and financial crisis and the consequent reduction in demand. However, considering the quality of the service provided to passengers as inseparable from the future of the Company, the Company’s main objective for 2010 is to continue improving supported by technological innovation, namely, consolidating the mobile channel as a new form of interacting and intensifying communication with Customers. The Company will thus conclude the second and third phases of the tap mobile portal, implementing mobile check-in, with check-in information available on Customers’ mobile phones, as well as the sale of tickets via mobile phone, among other features. Also in this context, the Company will remain committed in its efforts to improve its
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Outlook for 2010
ANNUAL REPORT | 2009
positioning in the areas of punctuality and luggage irregularities. During 2009, it was possible, following the efforts which had already been made, to visibly improve the punctuality of TAP flights, which currently shows an increase of 5 p.p. in relation to 2008, and of 21 p.p. relative to 2007. Within the scope of the Maintenance and Engineering business, the current organizational model enables the Company to present itself commercially, on the world market, as one of the few MRO (Maintenance Repair & Overhaul) organizations capable of supporting the fleets of the 3 main world manufacturers of aircraft: Airbus, Boeing and Embraer. Thus, having as main objective for 2010 the adoption of a global contention policy, guaranteeing the maintenance of the installed capacity, in Portugal and Brazil, to meet the needs of the TAP fleet and of Third Party Customers with contracts in force, the Business Unit, in spite of the current economic recession, expects to maintain a perspective of medium term growth, supported by an integrated commercial strategy. Its objective also involves the guarantee of the sustainability of its activity, respecting the actions and investments necessary for the fulfilment of the aeronautical standards and environmental legislation. It is also important to mention the intention of continuing to develop an in-house repair capacity, namely in the Engine Maintenance areas, in line with what has already been developed over the last 5 years, enabling wider profit margins in this activity, and in Aircraft Maintenance, more specifically in the development of reparations in composite materials, whose utilization have been expanding and will continue to do so. Following the project aimed at diagnosing the activity and the processes involving the Aircraft Maintenance, Engine Maintenance and Logistics areas, initiated in 2009, and based on the current organizational structure of Maintenance and Engineering, outlined and approved in April, the creation, in 2010, of a specific team, dedicated to Organizational Transformation and the improvement of the performance of the areas – Continuous Improvement Project – is foreseen. It shall
be responsible for the implementation of the opportunities identified in the areas that were diagnosed, as well as the extension of the methodology of analysis and the implementation of the improvement processes underway to other areas, thus creating a Lean culture that is transversal to the entire Business Unit. In the interim, in compliance with the provisions issued by the Competition Authority on the concentration operation between TAP and the ground handling services provision company SPdH, and following the Trustee Contract, having all the members of the Board of Directors presented their resignation on 31 December 2009, the election of a new Board of Directors for the three-year period 2010-2012 was registered at the Extraordinary General Meeting of said company held on 27 January 2010, which shall be composed as follows: Carlos Nogueira, José Fragoso de Sousa and Fernando Melo (position of Chief Executive Officer), according to the proposal of EUROPARTNERS, and Luís Correia da Silva – Chairman (non-executive) and Luís Silva Rodrigues, according to the proposal of the representative of TAP, SGPS, S.A.. Lastly, it is also noteworthy that within a strategic perspective, the role of TAP, continuously supported by the Company’s Management, is important as a stimulator of national tourism, acting towards the promotion of the image of Portugal and of the consequent creation of wealth. It is also important to emphasize that over two thirds of the revenue generated by TAP are obtained abroad, a fact of significant importance, with direct impact on the creation of employment and wealth for the Country. In short, the objective is to continue the transformation of TAP into a solid company within the European space, equipped to make the most of all the opportunities presented in the market niche in which it operates, and to differentiate itself due to its operating efficiency and aggregate value of the services provided.
History of TAP
ANNUAL REPORT | 2009
History of TAP
Transformation into a private company 1953, 1st June
The creation of Transportes Aéreos Portugueses (TAP) 1945, 14th March Transportes Aéreos Portugueses is created as a section of the Civil Aeronautics Secretariat. Recruitment of technical staff from the Military and Naval Aeronautical Schools begins, and a group of 11 pilots receives specialised training at BOAC (British Overseas Airways Corporation).
Transportes Aéreos Portugueses achieves the status of a private company (S.A.R.L.) with mixed capital, majority-owned by the State.
1955 The Company’s route network now includes a total of eight destinations and its first four-engine aircraft, a Lockheed L-1049G Super Constellation enters into service, operating on the Africa route and substantially reducing flight time.
1960
The inaugural flight of the Lisbon-Goa route which lasts close to 19 hours is performed and the Friendship Flight is launched In 1946, the first General Pilots’ Course is given between Lisbon and Rio de Janeiro. in Portugal and, on 19th September, the first commercial route is launched: Lisbon-Madrid. 1962 In July, TAP receives the first of its three On 31st December, the Lisbon-Luanda-Lourenço Marques route is launched, known Caravelle VI-R aircraft, bringing it into the jet era. The first two 21-passenger DC-3 Dakota aircraft are purchased.
as the Imperial Air Route. With 12 stopovers and taking 15 days (return), it is the longest route in the world, operated using a DC-3.
1948 TAP becomes a definitive member of IATA. The Paris and Seville routes are launched. A new image is adopted and the first ticket office is opened.
1950 Maintenance and Engineering begins to provide technical assistance, at the Lisbon and Porto airports, to foreign companies without the means to maintain their own aircraft.
The first European company to operate exclusively with jets 1967 The first B727 arrives at the Company, and the last Super-Constellation is decommissioned. TAP thus becomes the first European company to operate exclusively with jets.
1968 Maintenance and Engineering infrastructures are expanded, with the opening of
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History of TAP
ANNUAL REPORT | 2009
1994 The first two A340-300s become part of the fleet, and the Strategic Plan for Economic and Financial Restructuring (PESEF) is launched.
the Aircraft Engine Revision and Testing Centre, endowed with the most modern technological equipment of the time.
1971 The Company’s services are transferred to new premises at Lisbon airport, and new maintenance facilities are opened, including Hangar 6.
1972 The first two of four Boeing 747-200 become part of the Company’s fleet. TAP takes a 50% stake in the Azorean company SATA, holding the chairing position at its Board of Directors.
1974 TAP’s network includes over 40 destinations located on four continents, operated by a fleet of 32 technologically-advanced aircraft. Start-up of the computerised booking, load control and check-in service with the TAPMATIC System. TAP becomes the first European company to carry out major complete overhauls of the B747 JT9-D engines.
Nationalisation of TAP 1975, 16th April
1996
Strengthening of TAP’s fleet 1983 The first Boeing B737-200 aircraft arrives at the Company for medium-haul routes and the Lockheed L1011-500 Tristar for long-haul. Maintenance and Engineering is awarded, for the first time, by the Federal Aviation Administration of the USA (FAA), with the Repair Station certificate, endowing TAP with the most extensive licence to repair aircraft and their components. TAP wins the international tender for major inspections of 35 B727-100 aircraft owned by the Federal Express Corporation (FEC).
1987 Maintenance and Engineering goes ahead with an extensive programme of structural modifications in Douglas DC-10 aircraft of the FEC, which is the first time this has happened anywhere in the world.
Airbus distinguishes TAP with the Award for Operational Excellence, for the best operating performance worldwide for the A340 fleet.
1997 The first two A319 become part of the TAP fleet, and the cutting edge technology of Electronic Ticketing (ET) is introduced for domestic flights. A strategic alliance agreement is signed with SAirGroup.
1998 TAP becomes a founding-member of the Qualiflyer Group.
1999 The first cooperation agreement is established with the company Oficinas Gerais de Material Aeronáutica (OGMA).
1988 The first A310-300 begins operating.
1989
TAP becomes a State-owned company through Decree-Law number 205-E/75.
TAP is the first airline to establish land-air links by satellite and the first pilots’ course entirely held in Portugal takes place.
1978
1991, 17th August
Maintenance and Engineering is distinguished by the international magazine Air Transport World, with the Technical Management Award.
TAP becomes a public limited company (TAP S.A.), with capital majority-owned by the State through Decree-Law number 312/91.
1979
TAP enters into the Airbus era
The Company’s modernisation programme is implemented, which also changes the corporate name to TAP–Air Portugal.
1992
The computer cargo booking system (CARGOMATIC) begins operating.
TAP launches its own website and the decision is taken to renew the medium-haul fleet.
The first A320 are delivered, equipped with the most advanced technology: fly-by-wire controls.
TAP’s recovery 2000 The QTC–Quick Transfer Centre is created, which is a system for fast links for transit passengers at Lisbon airport. Airbus distinguished TAP with the Award for Operational Excellence, for the best operating performance worldwide for the A319 fleet. The Maintenance and Engineering Quality system is awarded its first certification from APCER in conformity with NP EN ISO 9002 Standard, as a company for the Maintenance of Aircraft, Engines and Components.
2001 A hub strategy is adopted, with Lisbon airport as the centre for operations.
History of TAP
ANNUAL REPORT | 2009
Due to internal problems, the SAirGroup is forced to abandon its intention to acquire a 34% stake in TAP. Consortium Contract signed for cooperation in the area of extensive maintenance of Airbus aircraft in the A320 family, at OGMA’s facilities in Alverca.
2003, 26th April The Grupo TAP is created through the incorporation of a holding company, TAP, SGPS, following a corporate restructuring process, which also involved the creation of the company SPdH–Serviços Portugueses de Handling, S.A., through Decree-Law number 87/2003. Airbus distinguishes TAP with the Award for Operational Excellence, for best operating performance worldwide for the A310 fleet, which also receives the Highest Daily Utilization Award. APCER and IQNet certify the Maintenance and Engineering Quality System in compliance with ISO 9001:2000 Standard.
2004 The strategy adopted by TAP is considered as a case-study, in an academic context, by Harvard University. TAP–Maintenance and Engineering and Federal Express celebrate 20 years of technical cooperation.
2005 The Company’s new corporate image is presented (TAP Portugal). TAP joins the world’s largest airline alliance, as a company-member of the STAR Alliance. TAP–Maintenance and Engineering joins the Airbus MRO Network.
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2006 Renewal of the long-haul route fleet, composed of A310 and A340 aircraft, with the first Airbus 330-200 arriving for the operation of the Brazil, USA and Africa routes. TAP–Maintenance and Engineering and Air France Industries celebrate 10 years of technical cooperation and renew their contract. The Grupo TAP and the Grupo OMNI sign a contract to sell all the shares of White–Airways, S.A..
2007 TAP–Maintenance and Engineering obtains the DOA–Design Organisation Approval certification from EASA–European Aviation Safety Agency following a complex certification process. After the Competition Authority had issued its decision of non-opposition to the operation, TAP acquired the entire share capital of Portugália–Companhia Portuguesa de Transportes Aéreos, S.A, with Gertiserv–Sociedade de Gestão e Serviços, S.A. having been the intermediary, and specifically incorporated for this purpose. IATA, International Air Transport Association, announces, in Canada, that Fernando Pinto, CEO of TAP, begins a one year term as Chairman of the Governing Board of the Association, electing the environment and operational safety as priorities. TAP signs a contract for the acquisition of twelve A350 XWB aircraft with Airbus, in Toulouse, with the option of three additional aircraft, including a letter of intention for a further eight aircraft of the A320 family.
2008
TAP–Maintenance and Engineering wins the tender for the total maintenance of two French Air Force Airbus A340.
February – The inaugural flight to Belo Horizonte is carried out, bringing the operation’s total number of destinations between Europe and Brazil to eight;
Airbus distinguishes TAP with the Award for Operational Excellence, for the best operating performance worldwide for the A310 fleet.
May – The TAP fleet is reinforced, with the entry into operation of the new medium-haul A319 aircraft;
June – From June 1 onwards, the emission of all TAP tickets is carried out in electronic format. TAP undergoes a significant change in its commercial model, with the launch of the Freedom of Choice Campaign. 1 Flight, 5 Ways to travel, focusing on product quality and price differentiation, according to the motivation of each Customer. The new Premium Space (Premium Customer Centre), is inaugurated at Lisbon airport, for Executive class passengers or holders of the Victoria Programme Gold Card or TAP Corporate card. July – TAP includes the 9th A330-200 aircraft, received directly from Airbus, in its fleet. October – The Morocco operation is inaugurated, with six weekly connections between Lisbon and Casablanca, one of the main traffic distribution hubs for several Western African countries. December – Opening of the new lounge at Lisbon Airport, offering Executive class passengers, or holders of the Victoria Programme Gold card or TAP Corporate card, more space, comfort and new functions.
108
Consolidated Financial Statements
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Consolidated Financial Statements
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Consolidated Financial Statements Consolidated Profit and Loss Statement Consolidated Balance Sheet Statement of Changes to Consolidated Equity Statement of Consolidated Alterations of Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements Audit Report
Annex
109
110
Consolidated Financial Statements
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Consolidated Profit and Loss Statement as at 31 December 2009 and 2008
Values in Thousand Euros Note 2009
2008
restated
Sales and services rendered
4
2,075,010
2,363,163
Appropriation of net income of associated companies
9
(29,596)
(22,954)
Other operating revenues 5 134,192 2,179,606 Costs and losses Inventories consumed and sold 6 (180,238) Variation in production 6 (14,673) Materials and services consumed 6 (1,212,059) Payroll expenses 6 (502,607) Costs related to post-employment benefits 6 (1,843) Inventory and accounts receivable impairments 6 (26,105) Provisions 6 (3,832) Other costs and losses 6 (16,985) 221,264 Depreciation, amortisations and impairment losses 8 (173,580) Operating net income 47,684 Net financial results 10 (40,396) Pre-tax net income 7,288 Income tax 11 (7,287) Net income for the year 1 Retained profits for the year Attributable to TAP shareholders 12 (3,542) Attributable to minority interests 13 3,543 Net income per share Basic net income per share (Eur) 12 (2) Diluted net income per share (Eur) 12 (2)
65,064 2,405,273 (235,390) (5,980) (1,633,554) (510,931) (11,532) (12,505) (35,417) (11,721) (51,757) (149,237) (200,994) (79,585) (280,579) (5,341) (285,920)
(288,394) 2,474
(192) (192)
Consolidated Financial Statements
ANNUAL REPORT | 2009
111
Consolidated Balance Sheet as at 31 December 2009 and 2008
Values in Thousand Euros Note 31-12-2009
31-12-2008
01-01-2008
1,303,593 1,287 193,205 4,095 - 1,135 24,889 52,705 1,580,909
1,206,982 1,287 63,099 12,858 4,849 692 26,967 6,401 1,323,136
114,140 330,397 33,097 182,298 659,932
66,361 248,243 39,467 321,070 675,141
restated
restated
ASSETS Non-current assets Tangible fixed assets 17 1,188,526 Investment properties 20 1,287 Goodwill 15 204,432 Other intangible assets 16 2,115 Investments in associated companies 18 - Other financial assets 19 3,395 Deferred tax assets 28 24,221 Other non-current assets 21 26,663 1,450,639 Current assets Inventories 23 126,671 Current accounts receivable 24 291,194 State 25 24,814 Cash and equivalent 31 131,077 573,756 Non-current assets held for sale 36 - Total Assets 2,024,395
-
263,790
2,240,841
2,262,067
EQUITY AND LIABILITIES Capital and reserves Share capital 26 15,000 Legal reserve 27 3,000 Currency conversion reserves 27 (7,423) Fair value reserves 27 and 34 4,348 Adjustment of shareholdings (2,260) Retained profits (220,454) Retained profits for the year (3,542) Equity attributable to the Group (211,331)
15,000 3,000 10,056 (2,468) - 67,940 (288,394) (194,866)
15,000 1,785 (2,385) (2,929) 47,249 21,906 80,626
6,796 (188,070)
7,417 88,043
24,712 97,168 93,980 1,219,560 4,758 1,440,178
26,712 70,384 15,871 995,316 74 1,108,357
193,337 447,624 119,306 228,466 988,733
222,771 397,416 26,872 192,294 839,353
-
226,314
2,428,911
2,174,024
2,240,841
2,262,067
Minority interests 13 6,705 Total Equity (204,626) Non-current liabilities Deferred tax liabilities 28 24,064 Pensions and other post-employment benefits 29 87,784 Provisions 30 134,039 Remunerated liabilities 31 1,037,208 Accounts payable 32 1,275 1,284,370 Current liabilities Remunerated liabilities 31 265,330 Accounts payable 32 359,646 State 25 112,691 Doc. Tickets to be used 33 206,984 944,651 Non-current liabilities held for sale 36 - Total Liabilities 2,229,021
Total Equity and Liabilities
2,024,395
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Statement of Changes to Consolidated Equity as at 31 December 2009 and 2008
Values in Thousand Euros
2009
2008
1
(285,920)
Retained profits for the year, before minority interests Fair value of derivative financial instruments Currency conversion differences Other costs and losses
6,816
461
(17,479)
12,441
(2,260)
(53)
(12,923)
12,849
(12,922)
(273,071)
Income recognised directly in equity Attributable to: TAP Shareholders Minority interests Total income and costs recognised in the year
(16,465)
(275,492)
3,543 (12,922)
2,421 (273,071)
Statement of Consolidated Alterations of Equity from 1 January 2008 to 31 December 2009
Adjust- ments Fair Currency Retained Share of share value Legal conversion Profits profits Minority Values in Thousand Euros Capital holdings reserves Reserve reserves retained year Total interests
Total
Equity on 1 January 2008 15,000 - (2,929) 1,785 (2,385) 60,699 21,906 94,076 7,417 101,493 Adjustments and corrections with retroactive effects - - - - - (13,450) - (13,450) - (13,450) Equity on 1 January 2008 restated 15,000 - (2,929) 1,785 (2,385) 47,249 21,906 80,626 7,417 88,043 Application of net income for 2007 - - - 1,215 - 20,691 (21,906) - - Transposition of financial statements of foreign participated companies - - - - 12,441 - - 12,441 - 12,441 Dividends paid by subsidiaries to minority interests - - - - - - - - (3,042) (3,042) Fair value of derivative financial instruments* - - 461 - - - - 461 - 461 Other movements - - - - - - - - (53) (53) Net income for the year - - - - - - (288,394) (288,394) 2,474 (285,920) Equity on 31 December 2008 15,000 - (2,468) 3,000 10,056 67,940 (288,394) (194,866) 6,796 (188,070) Application of net income for 2008 - - - - - (288,394) 288,394 - - Transposition of financial statements of foreign participated companies - - - - (17,479) - - (17,479) - (17,479) Dividends paid by subsidiaries to minority interests - - - - - - - - (3,634) (3,634) Fair value of derivative financial instruments* - - 6,816 - - - - 6,816 - 6,816 Other movements - (2,260) - - - - - (2,260) - (2,260) Net income for the year - - - - - - (3,542) (3,542) 3,543 1 Equity on 31 December 2009 * Net deferred taxes, if applicable
15,000
(2,260)
4,348
3,000
(7,423) (220,454)
(3,542) (211,331)
6,705 (204,626)
Consolidated Financial Statements
ANNUAL REPORT | 2009
113
Consolidated Cash Flow Statement as at 31 December 2009 and 2008
Values in Thousand Euros
Notes
2009
OPERATING ACTIVITIES Receipts from customers 1,887,849 Payments to suppliers (1,466,669) Payments to staff (386,927) Flows from operations 34,253 (Payments)/receipts of income tax (3,497) Other (payments)/receipts related to operating activity 148,132 Flows from operating activities (1) 178,888
2008 2,253,424 (1,866,569) (417,055) (30,200) (9,325) 15,309 (24,216)
INVESTMENT ACTIVITIES Receipts from: Financial investments - Tangible fixed assets 4,469 Assets available for sale - Loans granted - Interest and similar income 5,550 10,019 Payments relative to: Financial investments - Tangible fixed assets (31,979) Loans granted (35,000) (66,979) Flows from investment activities (2) (56,960)
310 51,161 15,406 66,877 (4,043) (78,710) (82,753) (15,876)
FINANCING ACTIVITIES Receipts from: Loans obtained 10,000 Payments relative to: Loans obtained (65,931) Amortisations of financial leasing contracts (90,338) Interest and similar costs (49,751) Dividends (3,989) (210,009) Flows from financing activities (3) (200,009) VARIATION IN CASH AND EQUIVALENT (1)+(2)+(3) (78,081) EFFECT OF EXCHANGE RATE DIFFERENCES 11,920 CASH AND EQUIVALENT AT THE BEGINNING OF THE YEAR 182,298 PERIMETER VARIATION 36 - CASH AND EQUIVALENT AT THE END OF THE YEAR 31 116,137
178,632
(138,943) (71,386) (68,819) (2,516) (281,664) (103,032) (143,125) 241 321,070 4,112 182,298
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Consolidated Financial Statements
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Index to the Notes to the Consolidated Financials Statements 1. Summary of the main accounting policies 1.1 Basis of Presentation 1.2 Comparability 1.3 Basis of Consolidation 1.3.1 Subsidiaries 1.3.2 Associates 1.4 Reporting by segments 1.5 Currency conversion 1.5.1 Functional and reporting currency 1.5.2 Balances and transactions expressed in foreign currency 1.5.3 Group companies 1.6 Intangible Assets 1.7 Goodwill 1.8 Tangible fixed assets 1.9 Investment properties 1.10 Impairment of non-current assets 1.11 Financial investments 1.12 Derivative financial instruments 1.13 Income tax 1.14 Inventories 1.15 Current receivables 1.16 Cash and equivalent 1.17 Share capital and own shares 1.18 Remunerated liabilities 1.19 Financial costs on loans 1.20 Provisions 1.21 Defined benefit pension plans 1.22 Current payables 1.23 Subsidies 1.24 Leases 1.25 Distribution of dividends 1.26 Revenue recognition and the accrual basis 1.27 Contingent assets and liabilities 1.28 Subsequent events 1.29 New standards, amendments and interpretations of existing standards 2. Risk Management 3. Relevant accounting estimates and judgements 3.1 Goodwill impairment 3.2 Income tax 3.3 Actuarial assumptions 3.4 Recognition of provisions and adjustments 4. Reporting by segments 5. Other operating revenues 6. Costs and losses 7. Remuneration of the members of the corporate bodies 8. Depreciation, amortisations and impairment losses 9. Appropriation of net income of associates 10. Net financial results 11. Income tax 12. Net income per share 13. Minority interests 14. Application of the net income for the previous year 15. Goodwill 16. Other intangible assets
116 116 116 117 117 117 118 118 118 118 118 118 118 119 119 119 120 121 121 121 122 122 122 122 122 122 123 123 123 123 124 124 124 125 125 126 130 130 130 131 131 131 132 133 134 134 134 134 135 135 135 136 136 137
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17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.
Tangible fixed assets Investments in associates Other financial assets Investment properties Other non-current assets Current asset impairments Inventories Current accounts receivable State Share capital and own shares Reserves Deferred taxes Pensions and other post-employment benefits Provisions Remunerated liabilities Accounts payable Advances from customers - tickets to be used Derivative financial instruments Balances and transactions with related parties Alterations to the consolidation perimeter Number of employees Commitments Contingent assets and liabilities Details of financial assets and liabilities Quotations used Subsequent events Companies included in consolidation Differences between the Portuguese Accounting Standards (POC) and the IFRS in 2009
Consolidated Financial Statements
115
138 139 140 140 140 141 141 141 142 143 143 144 146 149 151 154 155 156 156 157 158 158 159 160 161 161 161 162
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Notes to the Consolidated Financial Statements of the Financial Year of 2009
(In these notes, all amounts are expressed in thousands of euros, unless indicated otherwise.)
The TAP group (“Group”) is formed by TAP – Transportes Aéreos Portugueses, SGPS, S.A. (“Company” or “TAP SGPS”) and its subsidiaries (Note 43). TAP–Transportes Aéreos Portugueses, SGPS, S.A. is a state-owned limited company, with registered headquarters in Lisbon. It was incorporated on 25 June 2003, under Decree-Law No. 87/2003, of 26 April, and its share capital was fully subscribed and paid up in kind by Parpública Participações Públicas, SGPS, S.A. (“Parpública”), by delivery of the shares representing the total share capital of Transportes Aéreos Portugueses, S.A. (“TAP”). Registered Headquarter: Aeroporto de Lisboa, Edifício 25 Share Capital: 15,000,000 Euros Taxpayer Number: 506 623 602 The corporate object of the Company is the management of shareholdings in other companies as an indirect form of carrying out economic activities. TAP operates in the air passenger, cargo and mail transport industry, operating scheduled flights on the Portuguese mainland and in the Autonomous Regions of Madeira and the Azores, as well as across Europe, Africa, the North Atlantic, Mid-Atlantic and South Atlantic. It has representative offices in 18 foreign countries. Apart from air transport, TAP also carries out maintenance and engineering work in Portugal. The remaining subsidiaries essentially operate in the areas of air transport, management of commercial zones in airports (duty-free shops), aviation catering and maintenance and engineering in Brazil. These consolidated financial statements were approved by the Board of Directors on 9 April 2010. The members of the Board of Directors that have signed this report declare that, to the best of their knowledge, the information provided herein was drafted in conformity with the applicable Accounting Standards, presenting a true and adequate view of the assets and liabilities, the financial situation and the results of the companies included in the Group’s consolidation perimeter.
1. 1. Summary of the main accounting policies The main accounting policies applied in the elaboration of these consolidated financial statements are described below.
1.1 Basis of Presentation These consolidated financial statements of the Group were prepared in conformity with the International Standards on Financial Reporting adopted by the European Union (ISFR - previously designated as International Accounting Standards - IAS), issued by the International Accounting Standards Board (IASB), and Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC), in force at the date of preparation of the said financial statements. The enclosed consolidated financial statements were prepared under the assumption of the continuity of the Company’s activity, based on the books and accounting records of the companies included in the consolidation (Note 43), and based on historical cost, with the exception of the financial instruments and customer loyalty programmes recorded at fair value. The preparation of the financial statements requires the use of relevant estimates and judgements in the application of the Group’s accounting policies. The main statements that involve a more significant level of judgement or complexity, or the more significant assumptions and estimates for the preparation of the said financial statements, are disclosed in Note 3.
1.2 Comparability The values contained in the consolidated financial statements for the period ended on 31 December 2008 are comparable in all significant aspects with the values for 2009. The financial statements were restated, as described in Note 1.29, by application of IFRIC 13.
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1.3 Basis of Consolidation 1.3.1 Subsidiaries Subsidiaries are all the entities over which the Group has power to decide on financial and operating policies, normally represented by more than half of voting rights. The existence or effect of potential voting rights that are currently exerciseable or convertible are considered in the evaluation of whether the Group has control over another entity. Equity and net income of subsidiary companies corresponding to third party shareholdings are presented under the minority interests items, respectively, in the consolidated balance sheet (in a separate item of equity) and in the consolidated profit and loss statement. The companies included in the consolidated financial statements are detailed in Note 43. The purchase method is used to record the acquisition of subsidiary companies. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interests. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as Goodwill, which is detailed in note 15. Subsidiaries are consolidated by the method of full integration from the date on which control is transferred to the Group. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired (negative Goodwill), the difference is recognised directly in the profit and loss statement in the Other operating revenues item. Internal transactions, balances, unrealised gains on transactions and dividends distributed among Group companies are eliminated. Unrealised losses are also eliminated, unless the transaction reveals evidence of impairment of a transferred asset. The accounting policies of subsidiaries were changed whenever necessary, so as to guarantee consistency with the policies adopted by the Group. 1.3.2 Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% to 50% of voting rights. Investments in associates are accounted for using the equity method. In accordance with the equity method, shareholdings are recorded by their acquisition cost, adjusted by the value corresponding to the Group’s shareholding in the variations of associates’ equity (including net income) and dividends received. The differences between acquisition cost and the fair value of assets, liabilities and identifiable contingent liabilities of the associate at the acquisition date are recognised as Goodwill and maintained in the Investment in associates item. If those differences are negative they are recorded as revenue of the period in the Appropriation of results in associated companies item. An assessment of the interests in associates is carried out when there are indications that the asset may be impaired, with impairment losses that also exist in that item being recorded as cost. When impairment losses recognised in previous years cease to exist, they are reversed with the exception of Goodwill. When the Group’s share of losses in an associate equals or exceeds its interest in these companies, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the companies. Unrealized gains on transactions with the associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated, unless the transaction reveals evidence of impairment of a transferred asset. The accounting policies of associates are changed whenever necessary, so as to guarantee consistency with the policies adopted by the Group. Interests in associates are detailed in Note 18.
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1.4 Reporting by segments Business segment is a set of Group assets and operations that are subject to different risks and returns than those of other business segments. Five business segments were identified: Air Transport, Maintenance and Engineering, Free Shop, Catering and Others. Geographic segment is an individual area committed to offering products or services in a specific economic environment that is subject to different risks and benefits than that of those segments that operate in other economic environments. The geographic segment is defined based on the country of origin of the goods and services sold by the Group, which in the case of air transport is understood as the ticket issuing country. In the case of free shop, sales and services provided are grouped based on the flight destination country. The accounting policies of the reporting by segments are those used consistently in the Group. All inter-segment income is stated at market prices and is eliminated in the consolidation. The information relative to the identified segments is presented in Note 4.
1.5 Currency conversion 1.5.1 Functional and reporting currency The elements included in the Financial Statements of each one of the Group entities are measured using the currency of the economic environment in which the entity operates (functional currency). The consolidated Financial Statements are presented in thousands of euros, which is the Group’s functional and reporting currency. 1.5.2 Balances and transactions expressed in foreign currency All Group assets and liabilities expressed in foreign currency were converted into euros using the exchange rates in force at the balance sheet date. Currency conversion differences, favourable or unfavourable, arising from differences between the exchange rates in force on the date of the transactions and those applicable on the date of the collections, payments or balance sheet, were recorded as income and costs in the consolidated profit and loss statement for the year. 1.5.3 Group companies The results and financial position of all Group entities that possess a functional currency that is different from its reporting currency are converted into the reporting currency as follows: (i) The assets and liabilities of each Balance Sheet are converted at the exchange rate in force at the date of the Financial statements;
The resulting exchange rate differences are recognised as a separate component in Equity, in the Currency conversion reserves item.
(ii) The income and costs of each Profit and Loss Statement are converted at the average exchange rate of the reporting period, unless the average rate is not a reasonable approximation of the cumulative effect of the rates in force on the dates of the transactions, in which case the income and costs are converted at the exchange rates in force on the dates of the transactions. The resulting exchange rate differences of a monetary item that is part of the net investment in a foreign operating unit are recognised in a separate component of equity and recognised in results when the net investment is sold or the amounts are settled.
1.6 Intangible Assets Intangible assets are recorded at acquisition cost minus depreciation and impairment losses, using the straight line method over a period that varies between 5 and 10 years.
1.7 Goodwill Goodwill represents the excess of acquisition cost over the fair value of the assets, liabilities and identifiable contingent liabilities of the subsidiaries at the acquisition date. Goodwill is not amortised and is subject to impairment tests, at least once a year. Impairment losses relative to Goodwill can not be reversed. Gains or losses on the disposal of an entity include the value of the corresponding goodwill.
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119
1.8 Tangible fixed assets Tangible fixed assets acquired on or prior to 1 January 2004 (date of transition to IFRS), are recorded at acquisition cost, or revalued acquisition cost in accordance with the accounting principles generally accepted in Portugal until that date, minus depreciation and accumulated impairment losses. In addition, at the date of transition the subsidiary Transportes Aéreos Portugueses, S.A. applied the exception foreseen in IFRS 1 - First-time Application of International Financial Reporting Standards, which allows the fair value of some categories of assets, reported at the transition date (1 January 2004), to be considered at deemed cost. Thus, effective as of 1 January 2004, the assets belonging to the category of buildings of the mentioned subsidiary, were revalued at the corresponding fair value at that date. The fair value of these tangible fixed assets items was determined by an assets evaluation study conducted by an independent specialised entity (Colliers P&I), which also determined the remaining useful life of these assets, at the date of transition. Tangible fixed assets acquired after the date of transition are presented at acquisition cost minus depreciation and impairment losses. The acquisition cost includes all expenditure directly attributable to the acquisition of assets. Subsequent costs are included in the acquisition cost of the asset or recognised as separate assets, as deemed appropriate, only when it is probable that future economic benefits will flow to the company and the respective cost can be measured reliably. Any other expenditure with repairs and maintenance are recognised as a cost in the period in which they were incurred. Depreciation is calculated based on acquisition cost, using the straight line method by twelfths and the rates that best reflect its estimated useful life, as follows: Years of useful life Buildings and other constructions Machinery and equipment: Flight equipment: Aircraft Aircraft under financial leasing Spare engines and other spares Spare engines under financial leasing Other machinery and equipment Transport equipment Tools and dies Administrative equipment Other tangible fixed assets
Final salvage value
50
-
16 16 16 16 7 - 16 4 - 10 8 - 16 5 - 16 10
10% 10% 10% 10% 0 - 10% 0 - 10% -
The residual values of the assets and respective useful lives are reviewed and adjusted, if necessary, at the balance sheet date. If the book value is superior to the recoverable value of the asset, it is readjusted to its estimated recoverable value by registration of impairment losses (Note 1.10). Gains or losses arising from a reduction or sale are determined by the difference between the receipts of sales minus transaction costs and the book value of the asset, and are recognised in the profit and loss statement, as other operating income or costs.
1.9 Investment properties Investment properties are valued at acquisition cost minus depreciation and impairment losses. For those acquired on or prior to 1 January 2004 (date of transition to IFRS), the acquisition cost corresponds to the historical acquisition cost or revalued acquisition cost in accordance with the accounting policies generally accepted in Portugal until that date.
1.10 Impairment of non-current assets Non-current assets that have an indefinite useful life are not subject to amortisation, but are subject to annual impairment tests. Assets subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised as the amount by which the asset’s carrying amount exceeds its recoverable value. The recoverable amount is the higher of an asset’s fair value, less costs to sell, and its value in use.
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To carry out impairment tests, assets are grouped at the lowest level for which it is possible to separately identify cash flows (cash generating units which the asset belongs to), when it is not possible to do so on an individual basis, for each asset. Impairment losses recognised in previous periods are reversed when it is determined that recognised impairment losses no longer exist or have diminished (with the exception of Goodwill impairment losses – see Note 1.7). The reversal of impairment losses is recognised in the profit and loss statement under Depreciation, amortisations and impairment losses, unless the asset has been revalued, in which case the reversal will correspond to a revalued increase. However, an impairment loss is reversed up to the limit of the amount that would be recognised (net of amortisation or depreciation) if the impairment loss had not been recorded in previous periods.
1.11 Financial investments The Group classifies its investments under the following categories: financial assets at fair value through profit and loss, loans granted and accounts receivable, held-to-maturity investments and financial assets available for sale. The classification depends on the purpose for which the investments were acquired. The classification of the investments is determined at initial recognition, being revaluated at each reporting date. All acquisitions and disposals of these investments are recognised on the date of signature of the respective purchase and sale contracts, regardless of the financial settlement date. Investments are initially registered at their acquisition value; the fair value is equal to the price paid, including transaction costs. Thereafter, measurement depends on the category in which the investment is classified, as follows: Loans granted and accounts receivabler Loans granted or accounts receivable are non-derivative financial assets with fixed or determinable payments and are not quoted on an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of negotiating the debt. They are included in current assets, except for maturities in excess of 12 months after the balance sheet date. These are classified as non-current assets. Loans granted and accounts receivable are included in the balance sheet under Current receivables. Financial assets at fair value through profit and loss A financial asset is classified under this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current if they are either held for trading or are expected to be realised within 12 months of the balance sheet date. These investments are measured at fair value through the profit and loss statement. Held-to-maturity Investments Held-to-maturity investments are non-derivative financial assets, with fixed or determinable payments and fixed maturities that the Group has the intention and ability to hold to maturity. Investments in this category are recorded at amortised cost using the effective interest rate method. Financial assets available for sale Financial assets available for sale are non-derivative financial assets that are either designated in this category or not classified in any other categories. They are included in non-current assets, unless management intends to dispose of the investment within 12 months of the balance sheet date (Note 19). These financial investments are recognized at market value, as quoted on the balance sheet date. If there is no active financial market, the Group establishes fair value by using valuation techniques. These include the use of recent commercial transactions, reference to other instruments with similar characteristics, discounted cash-flows analysis and option pricing models modified to reflect the issuer’s specific circumstances. Potential gains and losses thus resulting are recorded directly in fair value reserve until the financial investment is sold, received, or disposed of in any way, at which time the accumulated gain or loss formerly recognised in fair value reserve is included in net income for the year. If there is no market value or if it is not possible to determine one, the investments in question are maintained at acquisition cost. Any loss of value shall be recognised as an impairment loss when justified.
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121
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. If a prolonged decline in fair value of the financial assets available for sale takes place, then the cumulative loss – measured as the difference between acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the profit and loss statement. A recognised impairment loss on financial assets available for sale is reversed if the loss was caused by specific external events of an exceptional nature that are not expected to recur but which subsequent external events have reversed; under these circumstances, reversal does not affect the profit and loss statement, the asset’s subsequent positive fluctuation thus being taken to the fair value reserve.
1.12 Derivative financial instruments The Group uses derivatives with the aim of managing the financial and operating risks to which it is exposed. Whenever expectations of changes in interest rates or jet fuel prices justify, the Group seeks to hedge against adverse movements through derivative instruments, such as interest rate swaps (IRS), jet fuel swaps and options, etc. In addition, the Group seeks to hedge against adverse movements in jet fuel through derivative instruments, such as swaps, forwards and options. In the selection of derivative financial instruments, it is their economic aspects that are the main focus of assessment. Derivative financial instruments are recorded in the balance sheet at fair value. To the extent that they are considered effective hedges, changes in fair value are initially recorded as an offset to equity and subsequently recorded in net financial results at their settlement date. Accordingly, in net terms, costs associated with hedged financings are accrued at the inherent hedging transaction rate contracted. Gains or losses arising from the premature rescission of this type of instrument are recorded in the profit and loss statement at the time they arise. Whenever possible, the fair value of derivatives is estimated on the basis of quoted instruments. In the absence of market prices, the fair value of derivatives is estimated through the discounted cash-flow method and option valuation models, in accordance with prevailing market assumptions. The fair value of derivative financial instruments is included in the Current receivables and Current payables items.
1.13 Income tax Income tax includes current and deferred taxes. Current income tax is determined on the basis of net income, adjusted in accordance with tax law prevailing on the balance sheet date. Deferred tax is calculated on the basis of the liability shown on the balance sheet, on temporary differences between the book value of assets and liabilities and the respective tax base. To determine the deferred tax, the tax rate used is that expected to prevail in the period during which the temporary differences will be reversed. Deferred tax assets are recognised as assets whenever there is a reasonable assurance that earnings will be generated in the future, against which they can be used. Deferred tax assets are reviewed periodically and revised downwards whenever it no longer appears probable that they can be used. Deferred taxes are recorded as cost or income for the period, except if they arise from amounts recorded directly in equity, in which case the deferred tax is also recorded under the same heading.
1.14 Inventories Inventories are valued according to the following criteria: i) Goods and raw materials Goods and raw materials, both subsidiary or in effective use, are valued at the lower of acquisition cost and net realisable value. Acquisition cost includes expenses incurred up to arrival of goods at the warehouse, using the weighted average cost as the method of costing.
Material recovered internally is valued at cost. In the current financial year the subsidiary TAP Manutenção & Engenharia Brasil also adopted this criterion. It was not possible to carry out the quantification of the previous financial year.
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ii) Products and work in progress Products and work in progress are valued at the lower of production cost (which includes the cost of raw materials, labour and general manufacturing costs, based on the normal production level) and the net realisable value.
The net realisable value corresponds to the estimated selling price less estimated finishing and marketing costs. Differences between cost and net realisable value, if the latter is lower, are recorded in Inventories consumed and sold.
1.15 Current receivables Customer balances and other current receivables are recorded at nominal value less impairment losses necessary to place them at their expected net realisable value (Note 24). Impairment losses are recorded when there is objective evidence that the Group will not receive all amounts owed in accordance with the original conditions of the receivables.
1.16 Cash and equivalent The cash and equivalent item includes cash, bank deposits and other short-term investments with original maturities of 3 months or less, which can be mobilised immediately without any significant risk of fluctuations in value. For the purposes of the cash flow statement, this heading also includes bank overdrawn amounts, which are presented in the Balance Sheet, in current liabilities, under the Remunerated liabilities item.
1.17 Share capital and own shares Ordinary shares are classified as equity (Note 26). Costs directly attributed to the issuance of new shares or other equity instruments are shown in equity as a deduction, net of tax, from the value received as a result of the issuance. Costs directly imputable to the issuance of new shares or options, for the acquisition of a business are included in the acquisition cost, as part of the value of the acquisition. Own shares are recorded at their acquisition value, as a reduction in equity, in the “Own shares” item. Gains or losses resulting from their sale are recorded in Other reserves. In conformity with applicable commercial legislation, while own shares are held by the company, a reserve for an amount equal to their acquisition cost is made unavailable.
1.18 Remunerated liabilities Remunerated liabilities are recognized initially at fair value, net of transaction costs incurred. Remunerated liabilities are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss statement over the period of the debt, using the effective interest rate method. Remunerated liabilities are classified as current liabilities, unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date (Note 31).
1.19 Financial costs on loans Loan related financial costs are generally recognised as financial costs in accordance with the accrual principle. Financial costs on loans directly related to the acquisition, construction (if the period of construction or development exceeds one year) or fixed assets production, are capitalised, to form part of the asset’s cost. Capitalisation of these charges begins once preparations are begun for the construction or development of the asset and is suspended after its utilisation begins or when the respective project is suspended or substantially concluded. Any revenue directly associated with a specific investment is subtracted from the asset’s cost.
1.20 Provisions Provisions are recognised whenever the Group has a present legal or constructive obligation, as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions for future operating losses are not recognised. Provisions are reviewed on the balance sheet date and are adjusted to reflect the best estimate at that date (Note 30).
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123
The Group incurs expenditure and assumes liabilities of an environmental nature. Accordingly, expenditures on equipment and operating techniques that ensure compliance with applicable legislation and regulations (as well as the reduction of environmental impacts to levels that do not exceed those representing a viable application of the best available technologies, which permit minimizing energy consumption, atmospheric emissions, the production of residues and noise) are capitalised when they are intended to serve the Group’s business in a durable way, as well as those associated with future economic benefits and which serve to prolong life expectancy, increase capacity or improve the safety or efficiency of other assets under Group ownership.
1.21 Defined benefit pension plans Some Group subsidiaries have undertaken to make payments to their employees under the heading of retirement pension supplements covering health care and one-off retirement bonuses, setting up defined benefit pension plans. As mentioned in Note 29, the Group has set up autonomous Pension Funds as a means of financing in part its liabilities for those payments. In accordance with IAS 19, companies with pension plans recognise the costs of providing these benefits pari passu with the services provided by the beneficiaries in their employment. In this way, the total liability of the Group is estimated separately for each plan at least once a year, by a specialised and independent entity in accordance with the projected unit credit method. Past liability costs resulting from the implementation of a new plan, or increases in benefits attributed are recognised immediately in situations where the benefits are to be paid or are past due. The liability thus determined is stated on the balance sheet, less the market value of the funds set up, under the Pensions and other postemployment benefits heading in non-current liabilities. Actuarial variances arising from the differences between the assumptions used for the purpose of determining liabilities and those which effectively occurred (as well as of changes made to same and the difference between the expected return on the assets of the funds and their actual yield) are recognized directly on the profit and loss statement for the period. Gains and losses generated on a curtailment or settlement of a defined benefit pension plan are recognised in the profit and loss statement when the curtailment or settlement occurs. A curtailment occurs when there is a material reduction in the number of employees or when the plan is modified in a way that the benefits are materially reduced.
1.22 Current payables The balances of suppliers and current payables are stated at their nominal value (Note 32).
1.23 Subsidies State subsidies are recognised only after it becomes certain that the Group will comply with the respective conditions and that the subsidies will be received. Operating subsidies, received for the purpose of compensating the Group for costs incurred, are recorded systematically in the profit and loss statement during the periods in which the costs that those subsidies are intended to cover are recognised. The investment subsidies that the Group receives to compensate it for fixed asset investments are included in the Current payables item and recognised in the profit and loss statement throughout the estimated useful life of the respective subsidised asset, by deduction of the amortised value.
1.24 Leases Fixed assets acquired under financial leasing contracts as well as the respective liabilities are accounted for by the financial method. In accordance with this method, the asset cost is recorded in tangible fixed assets, the respective liability is recorded in liabilities under the loans heading, the interest component of lease payments and depreciation of the asset, calculated as described in Note 1.8, are recognised as costs in the profit and loss statement of the respective period. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor, the Group being the lessee, are classified as operating leases. Payments made under operating leases, net of any incentives received from the lessor, are charged to the profit and loss statement over the period of the lease.
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1.25 Distribution of dividends The distribution of dividends to Company shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company shareholders, up to the time of payment.
1.26 Revenue recognition and the accrual basis Income from sales is recognised in the consolidated profit and loss statement when the risks and benefits inherent in the ownership of the respective assets are transferred to the purchaser and the income can be reasonably quantified. Revenues from the sale of passenger and cargo transport are recorded as a liability when the sale is made, under the heading Advances from customers - tickets to be used. When the ticket is used or cancelled, its value is accounted as revenue for the financial year or goes to trade accounts payable, depending on whether the transport is: i) carried out by the Company or the ticket is no longer valid and not subject to reimbursement ii) is made by another airline or the ticket is no longer valid but is subject to reimbursement, usually being accounted as a different amount than that recorded at time of sale. From time to time, the balance of Advances from customers - tickets to be used is analysed to adjust the balance of tickets sold to check for those that have already been used or that are no longer valid and so not suitable for flight or reimbursement. Commissions by the Company on ticket sales are deferred and recorded as costs for the year, according to the distribution of the accounting of the respective transport revenues. In certain predefined conditions and based on previous flights taken, the Group grants free miles and points to customers who join a loyalty scheme known as TAP Victoria and TAP|Corporate Fly. These may be subsequently used by passengers on flights and in the terms set out in the loyalty schemes. In addition, the Company has established agreements with several national companies (“marketing partners”) in which it forecasts the sale of miles to be credited to customers who join the loyalty scheme, as requested by the said partners. Based on the number of miles and points attributed and not used or expired at the end of each financial year, based on the expectation of use and on the unit valuation attributed, the Group defers the revenue corresponding to the estimate of the value perceived by the customer in the attribution of points and miles. For the recognition of the revenue from maintenance contracts, the work completion method was adopted. According to this method, the revenue directly related with the work in progress is recognised in the income statement up to the point at which it is probable that the incurred contract costs will be recoverable. Contract costs are recognised as a cost in the period in which they are incurred. When it is probable that total contract costs exceed the total revenue of the contract, the expected loss is recognised as a cost. The provisional invoicing of maintenance work for third parties that was still underway on 31 December 2009 is recorded under the “Accounts payable” captions. Sales are recognised net of taxes, discounts and other costs inherent to their completion, at the fair value of the sum received or receivable. Interest receivable is recognised according to the accrual principle, taking into account the amount owed and the effective interest rate during the period to maturity. Group companies record their costs and income in accordance with the accrual principle, so that costs and income are recognised as they are generated, irrespective of the time at which they are paid or received. The differences between amounts received and paid and the respective costs and income are stated under the Current receivables and Current payables headings (Notes 24 and 32, respectively).
1.27 Contingent assets and liabilities Contingent liabilities relative to which an outflow of funds to the detriment of future economic benefits is improbable are not recognised in the Consolidated financial statements, they are disclosed in the notes, unless the possibility of an actual outflow of funds affecting future economic benefits is a remote one, in which case they are not disclosed. Provisions against liabilities that satisfy the conditions foreseen in Note 1.20 are recognised. Contingent assets are not recognised in the consolidated financial statements, but are disclosed in the notes when a future economic benefit is probable.
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125
1.28 Subsequent events Events subsequent to the balance sheet date that provide additional information of conditions existing at the balance sheet date are reflected in the consolidated financial statements. Events subsequent to the balance sheet date that provide information on conditions that arose after the balance sheet date are disclosed in the notes to the consolidated financial statement, if material.
1.29 New standards, amendments and interpretations of existing standards a) New standards and interpretations that are mandatory as at 31 December 2009: The interpretations and amendments of existing standards of the IASB identified below are mandatory for financial years that commence on or after 1 January 2009: Passivo remUnerado New Standards in force
31-12-2008
IAS 1 (revised) - Presentation of financial statements IAS 23 (amendment) - Borrowing costs IAS 32 (amendment) - Financial instruments: presentation and consequent amendment to IAS 1 - Presentation of financial statements IFRS 1 (amendment) - First-time adoption of IFRS and subsequent amendment to IAS 27 - Consolidated and separate financial statements IFRS 2 (amendment) - Share-based payments IFRS 7 (amendment) - Financial instruments - Disclosures IFRS 8 - Operating Segments IFRIC 9 (amendment) - Embedded derivatives and IAS 39 - Financial instruments: recognition and measurement IFRIC 13 - Customer loyalty programmes IFRIC 14 - The limit on a defined benefit asset. minimum funding requirements and their interaction Annual improvement of standards in 2008 IAS 16 - Tangible fixed assets IAS 20 - Accounting for government grants and disclosure of government assistance IAS 38 - Intangible assets IAS 40 - Investment properties
The introduction of these interpretations and amendments of the standards previously mentioned did not have a relevant impact on the financial statements of the Group, with exception of IFRIC 13. Due to the adoption of IFRIC 13 as described in Note 1.26, the 2008 values were restated. The impact of this situation on the financial position and results of the Group in 2008 was as follows:
31-12-2008
Values in Thousand Euros restated Retained profits 67,940 Retained profits for the year (288,394) Other 25,588 Equity attributable to the Group (194,866) Provisions 93,980 Accounts payable 447,624 Other 1,887,307 Total Liabilities 2,428,911
31-12-2008
01-01-2008
Restatement restated
01-01-2008
Restatement
- (2,919) - (2,919)
81,390 (285,475) 25,588 (178,497)
47,249 21,906 11,471 80,626
(13,450) - - (13,450)
60,699 21,906 11,471 94,076
(1,219) 4,138 - 2,919
100,812 424,423 1,887,307 2,412,542
15,871 397,416 1,760,737 2,174,024
(5,613) 19,063 - 13,450
21,484 378,353 1,760,737 2,160,574
The impact on the results of the Group in 2009 resulted in a decrease of 3,995 thousand Euros.
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b) New standards and interpretations that are not mandatory as at 31 December 2009: There are new standards, amendments and interpretations of existing standards, which despite having already been published, are only mandatory for the periods commencing after 1 January 2009, since the Group decided not to early adopt them in this financial year:
New Standards approved by the European Commission IAS 27 (revised) - Consolidated and separate financial statements IAS 32 (amendment) - Financial instruments: presentation and consequent amendment to IAS 1 - Presentation of financial statements IAS 39 (revised) - Financial instruments – Items eligible for coverage IFRS 2 (amendment) - Group cash-settled share-based payment transactions IFRS 3 (revised) - Business combinations IFRS 5 (Improved 2008) - Assets held for sale and discontinued operations IFRIC 12 - Service concession arrangements IFRIC 15 - Agreements for construction of real estate IFRIC 16 - Hedges of a net investment in a foreign operation IFRIC 17 - Distributions of Non-cash Assets to Owners IFRIC 18 - Transfer of assets from customers New Standards approved by the European Commission IAS 24 (amendment) - Related parties IFRS1 (amendment) - First-time adoption of IFRS IFRS 2 (amendment) - Group cash-settled share-based payment transactions IFRS 19 - Financial instruments, classification and measurement IFRIC 14 (amendment) - IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction IFRIC 19 - Extinguishing financial liabilities with equity instruments
Date of application * 1 July 2009 1 February 2010 1 July 2009 1 January 2010 1 July 2009 1 July 2009 30 March 2009 1 January 2010 1 July 2009 1 November 2009 1 November 2009 Date of application * 1 January 2011 1 January 2010 1 January 2010 1 January 2013 1 January 2011 1 July 2010
* For financial years commencing on or after the indicated date.
The Group has not concluded the calculation of all the impacts resulting from the application of the abovementioned standards, thus having chosen not to early adopt them. However, it does not expect these to have a materially relevant impact on its asset situation and results.
2. Risk Management The aim of the Group’s risk management is to structure, and monitor, the protection mechanisms relative to the multiple risks the Group is exposed to. From the behaviour of external and internal markets, where it provides its services, to decisive variables such as fuel prices, with a significant impact on the cost structure, passing through salary and financial costs or exchange rate fluctuations, there is a constant need to prevent and react to adverse movements that affect the performance and profitability of the Group.
Price risk The Group’s market risk, related with the Air Transport activity in particular, has intensified, resulting in declining customer prices, which are dependant on the evolution of the purchasing power of consumers, the global performance of economies and the intensity of competition, on the various routes operated and destinations commercialised. The demand for air transport of passengers and cargo is very dependent on the economic dynamic of traffic generating markets, which were hit hard by the economic crisis of 2009. In addition, the proliferation of low cost companies flying to Portugal has forced the company to adjust its management model to deal with this type of competitor, whose focus is on low price and reduced service levels, requiring significant efforts in the management of flights offered and tight cost control. The new competitive environment has led to a declining trend in ticket prices of regular airline companies, mainly on European routes, with the company seeking to increase revenues not through price but rather through growing traffic volumes, since the “low costs” generate themselves an expansion of the actual market. The price policy, and its impact on revenues, is naturally conditioned in terms of costs by the behaviour of fuel, regarding which the mechanism of surcharges is activated in case of sharply rising prices, which did not take place in 2009, since the increase in the price of fuel was limited. In 2009 exchange rate variations had a limited impact on revenue, being negative when the euro appreciated against European and non-European currencies in general, to which the Company is exposed. Many other factors have an impact on route revenue and profitability, such as the connections offered, the integration of the network, the quality of the in-flight service, the number of frequencies, the brand image, the greater or lesser demand for the available destinations in the TAP network, the development of tourist, ethnic or business demand, the opening up of new destinations.
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127
Finally, a significant element in the company’s capacity of reaction to market risk in 2009 was the ability to adjust its offer, both in number of flights and in frequencies or type of equipment, so as to minimise the very strong impact that the economic downturn of 2009 had on air transport and on the demand for flights offered by the company in particular. That element was decisive in enabling the decline in revenue to be offset by a significant reduction of variable costs, such as fuels, for example, whose consumption fell approximately 7% in relation to 2008.
Exchange rate risk The exchange rate exposure of the Group is the result, in terms of revenue, of the geographic distribution of its sales (of air tickets and cargo, as well as of maintenance services), namely in European markets outside the Euro zone and extra-European markets such as Brazil, with sales outside of the national market representing a significant proportion of total ticket sales. In terms of costs, several sources contribute towards a significant exposure to the dollar, be it directly through Operations, as in the case of fuel, or indirectly through investments such as the acquisition of aircraft, with contractual prices denominated in dollars. Although the euro dollar registered very similar levels at the end of 2008 and end of 2009 (ECB reference exchange rates at 31 December of 1.3917 and 1.4406, respectively) and although the annual average was also near those values (at 1.395), throughout the course of the year there was however significant volatility within an interval of 1.25 and 1.50. The performance of the euro dollar throughout the year ended up having a negative impact corresponding to a 6% increase in the cost of fuels relative to the previous year, which counteracted, although in a limited manner, the very significant gains resulting from the low market prices and hedging. In terms of ticket and maintenance revenues, the average performance of the euro dollar had little impact on their result. The specific performance of currencies such as the pound, which devalued slighted, and the Swiss franc, which appreciated slightly, also had a reduced impact on Group revenues. The Brazilian real registered a sharp increase throughout the year (approximately 30%), against the euro and the dollar, having initiated its ascent from a highly devalued level, at the end of 2008, during the height of the international financial storm, and having benefitted progressively from the stabilisation in financial markets and the relatively good performance of the Brazilian economy within the context of the worldwide recession. Given the growing exposure to the Brazilian market, in terms of air transport and investments in TAP Manutenção & Engenharia Brasil, the exchange rate appreciation of the Real and the growing economic affirmation of Brazil should bring long-term benefits to the company. Mention should also be made that, in 2009, no foreign exchange hedging operations were carried out in relation to the exchange rate exposure of the debt, which was maintained almost totally denominated in euros (96,8% of the total at the close of the financial year). In conclusion, it should be noted that the exposure to the dollar, on the costs side, is mainly dependent on fuels and that, provided the total amount of that caption does not suffer significant deteriorations such as those observed in 2008, that same exposure will be substantially offset by the opposite exposure to revenues in dollars in several markets, among which are the revenues in Brazil, where air fares are based on the dollar and where the performance of the real therefore has no direct, linear and full impact on total revenues. The exposure of the Group to exchange rate risk as at 31 December 2009, based on the balance sheet values of the Group’s financial assets and liabilities converted into Euros at the exchange rates in force on the balance sheet date, is presented below: Assets and liabilities in foreign currency Values in Thousand Euros
usd brl
2009 OTHER total
ASSETS Cash and equivalent 18,899 6,064 33,556 Accounts receivable - customers 41,779 76,114 15,489 Accounts receivable - other 2,545 18,251 86 State and other public entities - 54,644 - Deferred costs - 558 - 63,223 155,631 49,131
58,519 133,382 20,882 54,644 558 267,985
LIABILITIES Remunerated liabilities Accounts payable - suppliers Accounts payable - other State and other public entities Accrued costs
41,689 2,935 24,454 - 12,851 81,929
- 12,527 5,380 137,377 10,538 165,822
- 565 349 - 179 1,093
41,689 16,027 30,183 137,377 23,568 248,844
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Assets and liabilities in foreign currency
2008
Values in Thousand Euros
usd brl
OTHER total
ASSETS Cash and equivalent 6,031 32,122 15,149 Accounts receivable - customers 62,421 49,140 18,194 Accounts receivable - other 125 1,104 35 State and other public entities - 6,953 - 68,577 89,319 33,378 LIABILITIES Remunerated liabilities 52,016 - - Accounts payable - suppliers 14,359 20,693 2,804 Accounts payable - other 17,343 4,669 157 State and other public entities - 97,026 - Accrued costs 275 5,161 40 83,993 127,549 3,001
53,302 129,755 1,264 6,953 191,274
52,016 37,856 22,169 97,026 5,476 214,543
Interest rate risk Following the agitated months at the end of 2008, with the threat of bankruptcy of several large financial institutions, the year of 2009 was marked by a progressive stabilisation of financial markets at a worlwide level, to which the monetary policy of the main central banks, namely the FED and ECB, contributed decisively. These two central banks maintained interest rates at levels close to the absolute minimum, at 0%-0.25% (since December 2008) during the entire 2009 financial year in the case of the FED, and at 1% since May 2009 in the case of the ECB. Market rates followed the decrease in central bank reference rates: the medium-term (from 3 to 6 months) Euribor interest rates declined from an average of 4.6% in 2008 to 1.3% in 2009, and the Dollar Libor declined from an average of 3% em 2008 to 0.9% in 2009. Long-term interest rates also reached record bottoms, with 5-year euro swap rates having fallen from a peak of 5% in mid-2008 and 3% levels at the end of 2008 to 2.5% at the end of 2009. In spite of the reduction in interest rates and the progressive stabilisation of monetary markets, corresponding namely to the reduction of the spread between central bank reference rates and interbank rates, the difficulties regarding company financing remained throughout 2009 and credit restrictions were reflected both in terms of the difficulty in negotiating new operations and in terms of the increase in margins in shortterm credit lines that were renewed under progressively more unfavourable conditions. Given the relatively low percentage of short-term debt, of approximately 5%, in the global debt of the Group, the increase in the cost of financing in 2009 did not have a significant impact on global financial costs. However, as it becomes necessary to refinance long term debt, with significantly higher spreads than current ones, financial costs may rise. The exposure to interest rate risk was the object of several actions during the year, following the continuous fall in long term interest rates. It was thus decided to fix the long term interest rates in the leasing contracts of the new A330 aircraft, by competitively using the contractual mechanisms available in the contracts and market contracting. As a result of converting floating rates into fixed rates, the fixed interest rate coverage ratio increased, reaching 60% of total debt at the end of 2009, against 45% at the end of 2008. The additional cost of protection against future interest rate movements consisted in abdicating from indexation to the Euribor, with rates of approximately 1% at the end of the year, and in assuming fixed rates of 2.5 and 3% during the 10 years of the remaining life of these leasings. Within the framework of Remunerated liabilities below, the following assumptions were assumed relative to market interest rates and the euro dollar exchange rate: 3% for the Euribor, 1.75% for the dollar libor, and 1.4377 for the euro dollar. It should be noted that the reference rate for the majority of liabilities, with variable interest rate, is the 3-month or 6-month Euribor. The liability values express the values payable on the respective dates, including the estimate of all contracted cash flows with amortisation and interest, not discounted, until the maturity of the loans. A simplifying assumption of a linear intra-annual amortisation rate to calculate future interest rates was considered:
2009
Values in Thousand Euros
< 1 year
1-2 years
3-5 years
6-10 years
> 10 years total
Loans Financial leasing Total Loans - fixed rate Financial leasing - fixed rate
156,509 143,418 299,927 59,472 93,785
84,609 112,310 196,919 49,243 78,471
250,879 274,676 525,555 147,551 167,173
220,505 245,097 465,602 147,262 162,372
- 6,399 6,399 - 6,399
712,502 781,900 1,494,402 403,528 508,200
Total Fixed Rate
153,257
127,714
314,724
309,634
6,399
911,728
Consolidated Financial Statements
ANNUAL REPORT | 2009
129 2008
Values in Thousand Euros
< 1 year
1-2 years
3-5 years
6-10 years
> 10 years total
Loans Financial leasing Total Loans - fixed rate Financial leasing - fixed rate
130,336 116,897 247,233 49,343 60,415
89,852 142,848 232,700 49,270 66,350
251,292 306,906 558,198 147,623 92,900
304,702 304,627 609,329 196,433 70,287
- 28,140 28,140 - -
776,182 899,418 1,675,600 442,669 289,952
Total Fixed Rate
109,758
115,620
240,523
266,720
-
732,621
Regarding short term liabilities, the amortisation and interest values estimated with a maturity rate of less than 1 year would, according to the abovementioned assumptions, with rates above the current rates, correspond to €121.3 M in the 1st half of 2010 and to €178.6 M in the 2nd half. Extracting from this value the amount of interest, total amortisations with loans and leasings corresponds to €101.0 M in the 1st half of 2010 and €149.2 M in the 2nd half, with the assumption of full settlement of the existing short term financing lines. Note 31 presents details of the remunerated bank debt with indication of the financing entity and respective reference rate.
Fuel price risk The market prices of crude oil started the year at 40 USD/barrel and finished the year at 80 USD/barrel. Moreover, jet fuel prices, which registered slightly less volatility, increased from 500 USD/ton at the start of 2009, to 700 USD/ton at the end of the year. The annual average price of fuel came to 546 USD/ton, a value last registered in 2005. It it important to note that the average jet fuel price (reference CIF NWE of Platts) was 650 USD/ton in 2006, 712 USD/ton in 2007 and 1,007 USD/ton in 2008. In terms of risk management, the contracting of hedging operations was reduced as much as possible in the 1st half of the year. In contrast, in the 2nd half of the year multiple price fixing operations were contracted for the six month of the year in progress and the first half of 2010. Almost all of the operations generated a positive result at settlement or a favourable mark to market as at 31/12/2009 with respect to operations that continued into 2010. The degree of coverage reached was of approximately 55% relative to the fuel consumption actually carried out in the second half of 2009, while the volume of fuel contracted for 2010 approached 66% of the foreseen consumption for the 1st half of 2010. The effect of the sizeable decline in average market prices in 2009 relative to 2008 resulted in an historic reduction of fuel costs in 2009 to practically half of the value of 2008, from 703,493 thousand Euros to 358,641 thousand Euros, regarding which the near zero value of hedging operations in the first half of the year and the timing of the operations in the 2nd half of the year were decisive. The exposure to fuel is one of the most important factors of the Group’s net exchange rate exposure (especially when fuel prices are high) given that the jet-fuel market is denominated in dollars and fuel is the main variable cost item. A considerable fall in fuel prices, in turn, significantly reduces the Group’s net exposure to the dollar. The sensitivity analysis with respect to the cost of fuel for the company was elaborated based on the assumptions below: Standard consumption: 900 thousand tons Variation: 100 USD/ton EUR/USD exchange rate: 1.40 Annual impact on Operations: 90 M USD, 64.3 M €
Credit and liquidity risk The Group’s credit risk resides in the possibility of failure to meet contractual obligations by certain customers, for example with regards to maintenance and engineering services. However, credit risk safeguard and protection mechanisms are consistently implemented (for example, bank guarantees) allowing the risks in question to be minimised. Given the nature of transactions in terms of air transport activity, the amount of risk incorporated in the values to be received from customers is significantly mitigated. In fact, there is a recurringly high balance of customer advances, amounts paid before the flight takes place. It is important to mention that the tickets sold through travel agents are paid to the company through an industry-specific clearing system, coordinated by IATA (International Air Transport Association), which safeguards the credit risk of airline companies through the continuous evaluation of the financial position of agents and through the request, whenever justified, of risk protection instruments, such as bank or shareholder guarantees. The cash position is a critical and determinant variable of the Group’s stability. This variable requires special attention given the susceptibility of liquidity to general economic fluctuations and to oscillations in priority markets such as the oil market. On the other hand, the strong recession that took place in 2009 implied a redoubling of attention towards the regulation of supply in a context of demand retraction, so as to minimise economic and liquidity risk. The significant contraction of credit markets, which intensified the unfavourable global economic context, transformed liquidity management into a key factor of stability. On the other hand, the oil shock of 2008 resulted in an unprecedented destruction of liquidity whose recovery was only partially possible following the counter-shock of low market prices at the end of 2008 and beginning of 2009. The decline in fuel prices took place alongside an unprecedented recession, which led to a significant decline in revenues, which made it impossible to fully recovery from the 2008 losses in 2009.
130
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The economic conditions of 2008 and 2009 are an example of how treasury and debt management, comprising the financing structure and amortisation schedule, the amount of available short-term financing lines and respective costs, the average margins and reference interest rates, become valuable in a context of financial and credit restrictions and of an unprecedented increase in the costs of liquidity provision. In 2009 cash flow stabilised but it was considered convenient to prepare its future reinforcement through the launch of a request for proposals to financial markets at the end of the year, for the Group to have available at the start of 2010 new capital to guarantee the normal substitution of the debt resulting from scheduled amortisations and the foreseen settlement of some long term aircraft leasing operations. The following table presents elements relative to the Group’s liquidity position as at 31 December 2009 and 2008, as well as balances of accounts receivable, which reflect the credit risk on those same dates: ACCOUNTS RECEIVABLE Values in Thousand Euros
Assets Cash and equivalent (Note 31) Accounts receivable - customers (Note 24) Accounts receivable - others (Note 24)
2009
2008
131,077 192,590 79,453 403,120
182,298 234,747 85,059 502,104
It is noteworthy that more than 2/3 of the total of the “Accounts receivable - customers” caption corresponded in 2009 to credits still not overdue. Regarding overdue credits that are less than 6 months overdue, they represented 1/5 of total overdue credits in 2009. Regarding credits that are more than 1 year overdue, they refer essentially to receivables from several public entities, debts from the SPdH and also to values in debt from customers to TAP Manutenção & Engenharia Brasil as at 31 December 2009. The credit risk, of the counterparts to derivative instruments, presented the following long term ratings from Moody’s: Fuel swaps (nominal value of the contracts): Aa2: USD 49,218,750 A1: USD 155,250,000 Interest rate swaps (nominal value of the contracts): Aa2: €18,735,422 A1: €67,106,855 It is important to point out that all of the counterpart entities have a P-1 short term rating from Moody’s.
3. Relevant accounting estimates and judgements The preparation of the consolidated financial statements requires that the Group’s management carry out judgements and estimates which affect the amounts of the income, costs, assets, liabilities and disclosures on the date of the balance sheet. These estimates are determined by the judgements of the Group’s management, based: (i) on the best information and knowledge of present events, supplemented, in some cases, by reports prepared by independent experts, and (ii) on the actions the Group considers it may develop in the future. However, on the execution date of the operations, their results may be different from these estimates. The estimates and assumptions that present a significant risk of originating a material adjustment in the book value of the assets and liabilities in the following year are presented below:
3.1 Goodwill impairment Every year, the Group conducts a goodwill impairment test, which it records in its balance sheet, in accordance with the accounting policy indicated in Note 1.10. The recoverable amounts of cash generating units are determined based on a value in use calculation. This calculation requires the use of estimates.
3.2 Income tax The Group recognises liabilities for additional liquidations of taxes that may result from reviews carried out by tax authorities. When the final result of these situations is different from the values initially recorded, the differences will have an impact on income tax and provisions for taxes, in the period in which such differences are recognised.
Consolidated Financial Statements
ANNUAL REPORT | 2009
131
3.3 Actuarial assumptions The liabilities with reference to benefit plans attributed to employees with defined benefits are calculated based on specific actuarial assumptions. Changes in these assumptions can have a relevant impact on those liabilities.
3.4 Recognition of provisions and adjustments The Group is involved in several current legal actions for which, based on the opinion of its lawyers, it carries out a judgement to determine whether a provision for these contingencies should be recorded. The adjustments for accounts receivable are calculated essentially based on accounts receivable by age, the risk profile of customers and their financial situation. Inventory adjustments are calculated based on criteria pertaining to the nature, purpose of use, age and turnover of materials.
4. Reporting by segments The information by segments is presented in relation to the business segments identified, namely Air Transport, Maintenance, Free Shop, Catering and others. The results, assets and liabilities of each segment correspond to those that are directly attributable to each segment, as well as those that can be attributable to them based on a reasonable basis.
Business segments The financial information by business segments, of the 2009 financial year, is analysed as follows: Values in Thousand Euros
Air Transport
Maintenance Inter Holdings segmental Portugal Brazil Free shop Catering and Others Annulments Consolidated
INCOME Income 1,854,190 98,642 53,790 119,157 33,665 47,502 (131,936) Operating net income 63,030 13,660 22,276 8,362 1,515 (61,159) - External net financial results (22,333) (1,470) (19,561) 69 41 2,859 - Share of net profits in associated companies - - - - - (29,596) - Income tax (3,691) - - (2,223) (442) (930) - Minority interests - - - 2,997 546 - - Net income for the year 37,007 12,190 2,714 6,207 1,114 (59,231) -
2,075,010 47,684 (40,395) (29,596) (7,286) 3,543 1
OTHER INFORMATION Total segmental assets 2,002,472 - 184,602 18,198 11,942 375,272 (568,091) Investments in associated companies - - - - - - - Total segmental liabilities 2,008,973 - 339,763 10,780 6,822 430,774 (568,091) Amortisations and impairment losses (135,027) - (3,833) (428) (769) (33,524) - EBITDA 198,057 13,660 26,109 8,790 2,284 (27,635) - Remunerated net debt 1,177,749 - (2,017) (4,571) (3,009) 3,309 -
2,024,395 2,229,021 (173,581) 221,264 1,171,461
The financial information by business segments, of the 2008 financial year, is analysed as follows: Values in Thousand Euros
Air Transport
Maintenance Inter Holdings segmental Portugal Brazil Free shop Catering and Others Annulments Consolidated
INCOME Income 2,028,591 145,344 106,520 132,061 35,059 45,929 (130,341) Operating net income (165,894) 13,786 (21,541) 8,181 1,697 (37,223) - External net financial results (57,795) (233) (8,463) 172 48 (13,314) - Share of net profits in associated companies (2,930) - - 77 - (20,101) - Income tax (3,040) - 825 (2,218) (487) (421) - Minority interests - - - (3,042) (614) 1,182 - Net income for the year (226,729) 13,553 (29,179) 3,093 644 (49,776) -
2,363,163 (200,994) (79,585) (22,954) (5,341) (2,474) (288,394)
OTHER INFORMATION Total segmental assets 2,125,472 - 109,176 20,585 13,024 219,994 (247,410) Investments in associated companies - - - - - - - Total segmental liabilities 2,187,478 - 232,284 12,055 7,726 236,778 (247,410) Amortisations and impairment losses (139,995) - (5,295) (507) (618) (2,822) - EBITDA (25,899) 13,786 (16,246) 8,688 2,315 (34,401) - Remunerated net debt 1,230,345 - 4,521 (4,951) (4,028) 4,712 -
2,240,841 2,428,911 (149,237) (51,757) 1,230,599
132
Consolidated Financial Statements
ANNUAL REPORT | 2009
It is important to mention that the financial information by business segments presented with reference to 31 December 2008 was adjusted by the amount of intersegmental annulments that were presented separately. The Maintenance - Portugal segment is included in the structure of the subsidiary TAP – Transportes Aéreos Portugueses, S.A., which is why its assets and liabilities are not presented separately.
Geographic segments 2009 Values in Thousand Euros
Air Transport
Maintenance Inter Holdings segmental Portugal Brazil Free shop Catering and Others Annulments Consolidated
Sales and services rendered: Continent and islands Europe South Atlantic North Atlantic Mid Atlantic South Africa West Africa Other
2008 Values in Thousand Euros
666,002 691,107 270,568 57,866 45,449 84,922 25,469 12,807 1,854,190
Air Transport
98,642 - - - - 53,790 - - - - - - - - - - 98,642 53,790
14,827 80,868 10,120 2,325 1,482 6,828 2,032 675 119,157
33,665 - - - - - - - 33,665
47,236 - - - - 170 96 - 47,502
(131,936) - - - - - - - (131,936)
728,436 771,975 334,478 60,191 46,931 91,920 27,597 13,482 2,075,010
Maintenance Inter Holdings segmental Portugal Brazil Free shop Catering and Others Annulments Consolidated
Sales and services rendered: Continent and islands Europe South Atlantic North Atlantic Mid Atlantic South Africa West Africa Other
735,343 764,142 298,053 70,005 41,409 66,464 33,618 19,557 2,028,591
145,344 - - - - 106,520 - - - - - - - - - - 145,344 106,520
14,926 90,794 11,362 2,610 1,664 7,666 2,282 757 132,061
35,059 - - - - - - - 35,059
45,929 - - - - - - - 45,929
(130,341) - - - - - - - (130,341)
846,260 854,936 415,935 72,615 43,073 74,130 35,900 20,314 2,363,163
5. Other operating revenues As at 31 December 2009 and 2008, the Other operating revenues item is broken down as follows: Values in Thousand Euros Gains in reduction of fiscal debt - Refis (Note 25) Recovered warehouse material Sale of frequent passenger miles Other supplementary revenues Gains from sale of non-current assets Advertising Operating subsidies Commissions and in-flight sales Rental of aircraft Inventory gains - maintenance Other operating revenues
2009
2008
55,734 30,912 17,275 11,165 4,949 3,800 3,559 3,538 2,402 414 444 134,192
4,116 4,931 8,844 11,936 7,361 9,784 3,741 2,625 1,090 10,636 65,064
The year-on-year increase in the recovered warehouse material item is essentially due to the fact that the subsidiary TAP Manutenção & Engenharia Brasil consumed part of its available labour in the recovery of spare parts that will be used in services rendered or sold during its operating activity, resulting in a gain in the current year in the amount of €19,061 thousand. It was not possible to carry out the quantification during 2008. The year-on-year increase in the sales of miles of the TAP Victoria frequent flyer programme caption is due to the commercial renegotiation undertaken with the respective partners. The value in the operating subsidies heading includes revenues corresponding to state compensation, with reference to tickets flown by the Company to the autonomous region of the Azores. The figures for 2008 and 2009 have not yet been audited by the Tax Authorities or approved by the Government; however, no significant corrections to values recorded by the Company are expected.
ANNUAL REPORT | 2009
Consolidated Financial Statements
133
The year-on-year decline in this caption is maily due to the fact that the credits with reference to state compensations on the Madeira route began to be claimed from the State directly by residents and/or students from the second quarter of the previous financial year. As referred to in Note 17, the gains in fixed assets correspond essentially to the result of operations involving the sale of fixed assets conducted by TAP.
6. Costs and losses As at 31 December 2009 and 2008, the Operating costs and losses item is broken down as follows: Values in Thousand Euros
2009
Cost of Sales and Services Rendered Inventories consumed and sold 180,238 Materials and services consumed 1,212,059 Variation in production 14,673 Payroll Expenses Remunerations of Corporate Bodies (Note 7) 3,157 Other remunerations 376,710 Other staff costs 122,740 502,607 Other Operating Costs and Losses Production for own company (1,650) Losses in sale of non-current assets 4,033 Other operating costs 14,602 16,985 Costs related to post-employment benefits (Note 29) 1,843 Inventory and accounts receivable impairments (Note 22) 26,105 Net provisions (Note 30) 3,832
Total Costs and Losses
1,958,342
2008 235,390 1,633,554 5,980
3,883 383,521 123,527 510,931 (798) 1,291 11,228 11,721 11,532 12,505 35,417
2,457,030
Materials and services consumed In 2009 and 2008 the cost of materials and services consumed is detailed as follows: Values in Thousand Euros Fuel Handling services Navigation charges Conservation and repair of flight equipment Specialised work Commissions Landing charges Operating leasing of aircraft (Note 31) Rents and leases Onboard expenses Special sales charges - air transport Conservation and repair of other assets Travel costs of air crew Sub-contracts Chartering of aircraft Advertising Fees Cleaning, hygiene and comfort Communication Surveillance and security Other Total
2009
2008
358,641 146,254 124,180 71,566 61,413 50,249 49,560 46,620 43,145 35,511 30,705 25,098 23,496 12,625 11,883 9,262 3,299 3,090 3,005 2,463 99,994 1,212,059
703,493 146,833 129,977 99,614 69,027 60,111 50,738 38,531 53,637 38,464 44,119 23,490 22,368 7,718 9,669 9,127 3,067 3,163 9,049 2,458 108,901 1,633,554
During the year ended on 31 December 2009, the Group recorded a gain of €10,433 thousand (cost in 2008 of €34,142 thousand) in the Fuel item resulting from the use of derivative financial instruments by the Group to hedge against the price risk in fuel price setting contracts. The decrease in costs is mainly due to the year-on-year decrease in the average jet-fuel price and, in addition, the contraction in air transport activity.
134
Consolidated Financial Statements
ANNUAL REPORT | 2009
7. Remuneration of the members of the corporate bodies As at 31 December 2009 and 2008, the Remuneration of the members of the corporate bodies item is broken down as follows: : 2009
2008
Board of Directors TAP 2,558 Corporate bodies of other Group companies 620 3,178
2,542 1,362 3,904
Values in Thousand Euros
8. Depreciation, amortisations and impairment losses As at 31 December 2009 and 2008, the Depreciation, amortisations and impairment losses item is broken down as follows: Values in Thousand Euros
2009
Depreciation of tangible assets Buildings and other constructions 5,866 Basic equipment 125,948 Transport equipment 361 Tools and utensils 1,059 Administrative equipment 5,534 Other tangible assets 232 139,000 Amortisations of Intangible Assets Research and development costs - Industrial property and other rights 1,980 1,980 Impairment Losses in Tangible Assets Land 1,000 1,000 Impairment Losses in Other non-current Assets Other assets 31,600 31,600
173,580
2008 7,883 121,590 379 592 6,447 657 137,548 13,782 1,993 15,775 606 606 153,929
The Depreciation, amortisations and impairment losses for 2008 came to 153,929 thousand €, with 149,237 thousand € recorded in the actual item and 4,692 thousand € recorded in the Other costs and losses item.
9. Appropriation of net income of associates During the financial year of 2009 and 2008, the Group appropriated the following net income of associates: Values in Thousand Euros SPdH–Serviços Portugueses de Handling,S.A. Other
2009
2008
(29,596) - (29,596)
(17,980) (4,974) (22,954)
10. Net financial results As at 31 December 2009 and 2008, the Net financial results were broken down as follows: Values in Thousand Euros Interest paid Interest received Net exchange rate differences Other financial costs and losses Other financial revenues and gains
2009
2008
(61,089) 6,708 20,511 (7,057) 531 (40,396)
(72,533) 14,289 (9,954) (13,322) 1,935 (79,585)
The Interest paid item includes a cost in the amount of 1,660 thousand € (2008: 166 thousand €), relative to the hedging financial instruments described in note 1.12. The decrease in the Interest paid item is essentially due to the generalised decrease in interest rates. In addition, the increase in favourable currency conversion differences is mainly due to the recovery of the Euro against the USD.
ANNUAL REPORT | 2009
Consolidated Financial Statements
135
11. Income tax The Company and its subsidiaries are separately subject to Corporate Tax (“IRC”) at a normal rate of 25%, plus a municipal tax (Derrama) of 1.5% on taxable profits, which took the overall rate up to 26.5% in 2009. Decree-Law No. 258/98 of 17 August revoked the tax exemptions from which TAP had been benefiting from, which had been established by basis XII annexed to Decree-Law No. 39,188 of 25 April 1953, and Decree-Laws No. 39,673 of 22 May 1954, No. 41,000 of 12 February 1957 and No. 44,373 of 29 May 1962, and TAP ceased to be exempt from payments of tax and other contributions to the State. In accordance with current legislation, tax returns of companies included in the consolidation are subject to review and corrections by the Tax Authorities over a period of four years (five years for Social Security), except when there have been tax losses, when tax benefits have been granted or when inspections, claims or appeals are taking place and whose deadlines may be extended or suspended, depending on the circumstances. Thus, the tax returns of companies included in the consolidation from 2006 to 2009 could still be subject to revision and correction. The Group’s Board of Directors considers that any corrections resulting from reviews/inspections by the tax authorities to these tax returns will not have a significant impact on the financial statements as at 31 December 2009. Under Article No. 81 of the Corporate Tax Code, the Company and its subsidiaries are subject to autonomous taxation on several expenses, at tax rates listed therein. Under the terms of the Corporate Tax Code, the revenues and gains, the costs and losses and asset changes that were recorded using the equity method do not count towards the determination of the corporate tax amount. As at 31 December 2009 and 2008, the “Taxes” item is made up as follows: Values in Thousand Euros
2009
2008
Current tax Deferred tax
7,267 20 7,287
5,263 78 5,341
The current tax for 2009 refers essentially to the current tax of the subsidiaries Cateringpor and Lojas Francas totalling 420 thousand € (2008: 477 thousand €) and 2,221 thousand € (2008: 2,110 thousand €), respectively, and to the autonomous taxation of the daily allowance of the air crew.
12. Net income per share There are no convertible financial instruments relative to TAP shares. As a result, there is no diluted net income per share. Values in Thousand Euros Net income attributable to TAP Shareholders Weighted average number of shares Basic net income per share Diluted net income per share
2009
2008
(3,542) 1,500,000 (0.002) (0.002)
(288,394) 1,500,000 (0.192) (0.192)
13. Minority interests As at 31 December 2009 and 2008, the Minority interests stated in the Profit and Loss Statement are detailed as follows: Values in Thousand Euros
2009
2008
SEAP–Serviços, Administração e Participações, Lda. CATERINGPOR–Catering de Portugal, S.A. L.F.P.–Lojas Francas de Portugal, S.A.
- 546 2,997 3,543
(1,182) 614 3,042 2,474
Values in Thousand Euros
2009
2008
SEAP–Serviços, Administração e Participações, Lda. CATERINGPOR–Catering de Portugal, S.A. L.F.P.–Lojas Francas de Portugal, S.A.
21 2,551 4,133 6,705
21 2,596 4,179 6,796
As at 31 December 2009 and 2008, the Minority interests stated in the Balance Sheet are detailed as follows:
136
Consolidated Financial Statements
ANNUAL REPORT | 2009
14. Application of the net income for the previous year Application of net income for previous year
2008
Values in Thousand Euros
Distribution of dividends Legal reserves Other reserves Retained Earnings (288,394) Net income for the year (288,394) Dividends per share
2007 1,215 20,691 21,906
-
-
Total Equity
15. Goodwill The changes in the goodwill heading in 2009 were as follows: Values in Thousand Euros Net value at the beginning of the year Perimeter variation Exchange rate variation Net value at the end of the year
2009
2008
193,205 - 11,227 204,432
63,099 130,106 193,205
In compliance with IAS 36, Goodwill is subject to impairment tests on an annual basis according to the accounting policy described in note 1.7. As at 31 December 2009 and 2008, Goodwill is detailed as follows:
Entity Year Acquisition
2009
2008
Portugália 2007 AERO-LB 2007 Reaching Force 2007
63,099 49,728 91,605 204,432
63,099 38,501 91,605 193,205
Goodwill is attributed to the cash generating units (CGUs) of the Group, identified in accordance with the business segment and the country of operation, as follows:
2009
Values in Thousand Euros
Air Transport
Maintenance
TOTAL
63,099 - 63,099
- 141,333 141,333
63,099 141,333 204,432
Portugal Brazil
2008
Values in Thousand Euros
Air Transport
Maintenance
TOTAL
63,099 - 63,099
- 130,106 130,106
63,099 130,106 193,205
Portugal Brazil
For the purposes of impairment tests, the recoverable value of the CGUs is determined based on the value in use, in accordance with the discounted cash-flow method. The calculations are based on historical performance and expectations of business development with the current productive structure, in addition to the budget for the following year and estimated cash flows for the next 4 years. As a result of the impairment tests conducted to the different CGUs, no impairment losses in Goodwill were identified. The main assumptions used for the purposes of impairment tests were the following: 2009 Discount rate* Perpetuity Growth Tax Rate
Portugal
Brazil
8.08% 0.00% 26.50%
12.00% 0.00% 34.00%
* Discount rate net of taxes
ANNUAL REPORT | 2009
2008 Discount rate* Perpetuity Growth Tax Rate
Consolidated Financial Statements
137
Portugal
Brazil
8.50% 0.00% 26.50%
12.50% 0.00% 34.00%
* Discount rate net of taxes
16. Other intangible assets The changes in the Other intangible assets heading in 2009 and 2008 were as follows: Research and Industrial property Values in Thousand Euros development costs and other rights
TOTAL
Acquisition cost Balance on 1 January 2008 13,041 11,952 Perimeter variation 7,012 - Acquisitions - - Disposals - - Regularisations, transfers and reductions - - Currency conversion adjustment - - Balance on 31 December 2008 20,053 11,952 Perimeter variation - Acquisitions - - Disposals - - Regularisations, transfers and reductions - - Currency conversion adjustment - - Balance on 31 December 2009 20,053 11,952
Amort. and impairment losses Balance on 1 January 2008 (6,271) (5,864) Perimeter variation - - Amortisations and impairment losses (13,782) (1,993) Disposals - - Currency conversion adjustment - - Balance on 31 December 2008 (20,053) (7,857) Perimeter variation - - Amortisations and impairment losses - (1,980) Disposals - - Currency conversion adjustment - - Balance on 31 December 2009 (20,053) (9,837) Net value on 1 January 2008 6,770 6,088 Net value on 31 December 2008 - 4,095 Net value on 31 December 2009 - 2,115
24,993 7,012 32,005 32,005
(12,135) (15,775) (27,910) (1,980) (29,890) 12,858 4,095 2,115
The Industrial property and other rights item includes a licence, in the amount of 5,000,000 USD, valid for 10 years and granted by CFM International, S.A. (“CFMI”), which ensures TAP the opportunity of supplying technical information and support, relating to aircraft engines, to third parties. This license will be amortised in constant quotas over the period of the mentioned license, with a net value of 1,851 thousand €. This item also includes the entrance fee paid to Star Alliance, totalling 10,000,000 USD, which will be amortized in constant quotas over a 5-year period, with a net value of 264 thousand €.
138
Consolidated Financial Statements
ANNUAL REPORT | 2009
17. Tangible fixed assets The changes in tangible fixed assets, as well as their amortisation and impairment losses, in 2009 and 2008 were as follows: Land and Buildings Trans- Tools Adminis- Other Fixed Advances natural and other Basic port and trative tangible assets on tangible Values in Thousand Euros resources constru. Equip. Equip. utensils Equip. assets underway assets
Total
Acquisition cost Balance on 1 January 2008 47,115 347,094 2,054,263 5,518 19,072 70,888 11,191 23,208 Perimeter variation - 1,218 24,868 60 3,636 15,607 - 4,187 Acquisitions 1,131 532 309,058 105 1,180 1,684 524 4,347 Disposals (13) (49) (244,684) (125) (6) (258) (1) (194) Regularisations, transfers and reductions - 1,393 (4,462) (66) (16) (1,539) (58) (22,360) Currency conversion adjustment (197) (243) (4,670) (17) (812) (3,160) - (1,086) Balance on 31 December 2008 48,036 349,945 2,134,373 5,475 23,054 83,222 11,656 8,103 Perimeter variation - - - - - - - - Acquisitions - - 25,949 72 969 1,223 242 3,312 Disposals - (40) (18,308) (168) (6) (497) (15) - Regularisations, transfers and reductions (2) (1,471) 1,393 (112) (4,646) (20,293) (109) (10,622) Currency conversion adjustment 271 347 19,611 15 974 5,874 - 1,330 Balance on 31 December 2009 48,305 348,781 2,163,018 5,282 20,345 69,529 11,774 2,123
64,410 2,642,759 - 49,576 2,695 321,256 - (245,330) (57,718) (84,826) - (10,185) 9,387 2,673,250 - - 31,767 - (19,034) (3,066) (38,928) - 28,422 6,321 2,675,477
Acc. amort. and impairment losses Balance on 1 January 2008 - (207,385) (1,140,009) (4,287) (12,573) (61,357) (10,165) - Perimeter variation - (347) (13,563) (30) (1,562) (8,974) - - Amortisations and impairment losses (606) (7,883) (121,590) (379) (592) (6,447) (306) (352) Disposals - 25 221,103 91 17 1,119 32 - Regularisations, transfers and reductions - 3 126 96 2 318 8 - Currency conversion adjustment - 86 3,028 10 312 2,258 54 62 Balance on 31 December 2008 (606) (215,501) (1,050,905) (4,499) (14,396) (73,083) (10,377) (290) Perimeter variation - - - - - - - - Amortisations and impairment losses (1,000) (5,866) (125,948) (361) (1,059) (5,534) (232) - Disposals - 12 16,492 156 3 472 15 - Regularisations, transfers and reductions - 2,112 (7,630) 101 2,119 20,312 122 290 Currency conversion adjustment - (104) (5,638) (12) (367) (5,748) - - Balance on 31 December 2009 (1,606) (219,347) (1,173,629) (4,616) (13,700) (63,581) (10,472) - Net value on 1 January 2008 47,115 139,709 914,254 1,231 6,499 9,531 1,026 23,208 Net value on 31 December 2008 47,430 134,444 1,083,468 976 8,658 10,139 1,279 7,813 Net value on 31 December 2009 46,699 129,434 989,389 666 6,645 5,948 1,301 2,123
- (1,435,776) - (24,476) - (138,155) - 222,387 - 553 - 5,810 - (1,369,657) - - (140,000) - 17,150 - 17,425 - (11,869) - (1,486,951) 64,410 9,387 6,321
1,206,983 1,303,593 1,188,526
The increase of 25.949 thousand € under the caption “Basic equipment” essentially refers to the acquisition of an engine in the amount of 13,405 thousand €, of spare parts in the amount of approximately 6,000 thousand € and of equipment in the amount of approximately 4,250 thousand €. The decrease of 18,308 thousand € under the caption “Basic equipment” essentially refers to the sale of two engines in the amount of 17,098 thousand €, which generated a gain of approximately 2,677 thousand €. The land on which the headquarters are located, buildings and other constructions were transferred to the Company’s ownership under DecreeLaw No. 351/89 of 13 October. The Lisbon municipality appealed, in previous financial years, to the Supreme Administrative Court against the decision by the Portuguese Government, as set out in Decree-Law No. 351/89 of October 13, to transfer to Company ownership, the land, buildings and other constructions, located next to Lisbon Airport and used by TAP. At the same time, a civil action was also filed and its result depends on the outcome of the abovementioned case. The Company believes the outcome of these judicial actions will have no significant impact on the Company.
Consolidated Financial Statements
ANNUAL REPORT | 2009
139
As at 31 December 2008 and 31 December 2009, the caption “Basic equipment” was broken down as follows:
Gross Accumulated value amortisations
2009 Net value
Gross Accumulated value amortisations
2008 Net value
Basic equipment: Flight equipment: Aircraft 607,860 (381,944) 225,916 556,533 (305,140) Spare engines 46,026 (21,127) 24,899 64,808 (34,197) Spare parts 147,803 (108,809) 38,994 161,588 (107,043) 801,689 (511,880) 289,809 782,929 (446,380) Flight equipment under financial leasing: Aircraft 1,202,316 (550,423) 651,893 1,253,703 (533,500) Spare engines 6,867 (1,352) 5,515 6,867 (966) 1,209,183 (551,775) 657,408 1,260,570 (534,466) Machines and misc. equipment (owned by TAP) 152,146 (109,974) 42,172 90,874 (70,059) 2,163,018 (1,173,629) 989,389 2,134,373 (1,050,905)
251,393 30,611 54,545 336,549
720,203 5,901 726,104 20,815 1,083,468
As at 31 December 2009 and 2008 the aircraft fleet is broken down as follows: Own tap Airbus A340 Airbus A310 Airbus A330 Airbus A319 Airbus A320 Airbus A321 Fokker 100 Embraer 145
4 - 3 4 - - - - 11
Financial Leasing
2009
Operational Leasing TOTAL Own tap
- - 8 11 5 2 6 8 40
- - 1 4 13 1 - - 19
4 - 12 19 18 3 6 8 70
4 - 3 4 - - - - 11
2008
Financial Leasing
Operational Leasing
TOTAL
- - 8 15 5 2 6 8 44
- 1 1 4 10 1 - - 17
4 1 12 23 15 3 6 8 72
The “Advances on tangible fixed assets” item in the amount of 6,321 thousand € refers to an advance made to Airbus for the future acquisition of aircraft.
18. Investments in associates The changes in this heading in 2009 and 2008 were as follows: Values in Thousand Euros Initial balance Alteration of consolidation method Appropriated net income (Note 9) Other movements
2009
2008
(20,085) - (29,596) (22,424) (72,105)
258 (118) (22,954) 2,729 (20,085)
The negative balance presented as at 31 December 2009 and 2008 is recognised in liabilities in the “Provisions - provisions for financial investments” item (Note 30). The balance as at 31 December 2009 refers to the provision for negative equity of SPdH (68,405 thousand €), in addition to 3,700 thousand € relative to capital supplements granted to SPdH, recorded in the “Other non-current assets” caption (Note 21). Details of other movements for the year in the amount of 26,125 thousand € are as follows: Values in Thousand Euros
2009
Reclassification of value recorded in the Provisions - Others item in 2008 Other variations in equity of associated companies Capital supplements to SPdH
20,165 2,260 3,700 26,125
140
Consolidated Financial Statements
ANNUAL REPORT | 2009
In March 2009, a consortium of three banks (BIG, Banif and Banco Invest) transferred the shareholding in SPdH (50.1%) to TAP for 31.6 million Euros. On the same date and during the period in which the concentration process at the Competition Authority was pending, TAP transferred the exercise of its voting and supervision rights, whilst majority shareholder of SPdH, to an independent entity of Grupo TAP. The Competition Authority (“CA”), on 19 November 2009, following an in-depth investigation, decided to adopt a prohibition decision relative to the concentration operation that consisted in the acquisition, by TAP, of exclusive control of SPdH, via the acquisition of a 50.1% stake of the share capital of SPdH. The CA thus imposed the obligation of separation of SPdH via the sale, by Grupo TAP, of the shares relative to at least 50.1% of the share capital of SPdH. Until the sale, the regulator imposed that SPdH be administered by a trustee, who acts on behalf of the Competition Authority, managing SPdH independently from Grupo TAP. Thus, the present financial statements include provisions to cover the appropriation of the total losses and net worth of SPdH.
19. Other financial assets The changes in this heading in 2009 and 2008 were as follows: Values in Thousand Euros
2009
2008
Fair value at the beginning of the year Acquisitions Other movements Fair value at the end of the year
1,135 - 2,260 3,395
692 443 1,135
Values in Thousand Euros
2009
2008
SITA Group Foundation Bank deposits in Mozambique Loan SalvorHotéis Moçambique Other
474 443 2,260 218 3,395
474 443 218 1,135
As at 31 December 2009 and 2008, the fair value of Other financial assets were broken down as follows:
The amount presented with reference to SITA Group Foundation refers to 437,070 non-quoted certificates of the said company, set up by Société International de Télécommunications Aéronautiques. The loan to SALVORHOTÉIS Moçambique came, in 1997, from the local funds of the Company that could only be used for investment in Mozambique. As at 31 December 2008, the said amounts were totally adjusted due to the restrictions regarding the transfer of funds abroad. At the start of 2010, the company received 3,250 thousand USD which represents an amount of 2,261 thousand €. The remainder, in the amount of 1,788 thousand €, remains adjusted.
20. Investment properties The balance of the “Investment properties” item corresponds to the value assigned to two buildings in Maputo (Mozambique), one of which is leased to third parties. No differences are estimated between the book value of these buildings and their corresponding market value.
21. Other non-current assets Values in Thousand Euros Advances for purchase of financial inv. SPdH - Sociedade Portuguesa de Handling, S.A. Security deposits Judicial deposits - Brazil Retained deposits Other
2009
2008
- 3,700 3,805 14,749 3,533 876 26,663
31,600 3,700 5,666 7,825 3,914 52,705
The variation occurred in the amount of advances for purchase of financial investments corresponds to the impairment loss recorded in the current year related with the associate SPdH (Note 8).
Consolidated Financial Statements
ANNUAL REPORT | 2009
141
22. Current asset impairments The changes under the current asset impairments heading in 2009 and 2008 were as follows: Values in Thousand Euros Initial balance Jan08 Perimeter variation Increase Reversions Utilisations Currency conversion adjustment Final balance Dec08 Perimeter variation Increase Reversions Utilisations Currency conversion adjustment Final balance Dec09
Inventories
Customers c/a
Other Debtors
Total
38,600 21,054 210 (742) (6,254) (4,160) 48,708 - 9,618 (957) (61) 2,582 59,890
31,486 5,586 19,947 (1,010) (221) (2,881) 52,907 - 17,820 (376) (499) 1,354 71,206
6,834 - 119 - - - 6,953 - - - - 385 7,338
76,920 26,640 20,276 (1,752) (6,475) (7,041) 108,568 27,438 (1,333) (560) 4,321 138,434
Net income for 2009 came to 26,105 thousand €, which was recorded in the “Inventory and accounts receivable impairments” item. Net income for 2008 came to 18,524 thousand €, of which 12,504 thousand €, was recorded in the “Inventory and accounts receivable impairments” item and 6,020 thousand € was recorded in the “Other costs and losses” item.
23. Inventories As at 31 December 2009 and 2008, the Inventories item was broken down as follows: Values in Thousand Euros Raw materials, subsidiary or in effective use Products and work in progress Goods
2009
2008
107,689 8,131 10,851 126,671
69,661 22,823 21,656 114,140
Note: The values presented are net of impairment losses (Note 22)
The Products and work in progress item corresponds to the value of materials and hours spent on aircraft maintenance works in progress for third parties at the closing date of the financial year. Raw materials, subsidiary materials and consumables refer to technical material for use in the maintenance and repair of own and third party aircraft. The year-on-year increase in the inventories item is essentially due to the fact that the subsidiary TAP Manutenção & Engenharia Brasil consumed part of its available labour in the recovery of spare parts that will be used in services rendered or sold during its operating activity. The impact of this situation came to 19,061 thousand € (Note 6).
24. Current accounts receivable As at 31 December 2009 and 2008, the “Current receivables” item is broken down as follows: Values in Thousand Euros Customers Other debtors Accrued income Deferred costs
2009
2008
192,590 79,453 11,324 7,827 291,194
234,747 85,059 3,244 7,347 330,397
2009
2008
78,836 20,932 12,999 79,823 192,590
90,091 46,088 15,678 82,890 234,747
Note: The values presented are net of impairment losses (Note 22)
As at 31 December 2009 and 2008, the “Customers” item is broken down as follows: Values in Thousand Euros Travel agencies Airline companies Related parties (Note 35) Other
142
Consolidated Financial Statements
ANNUAL REPORT | 2009
As at 31 December 2009 and 2008, the “Other debtors” item is broken down as follows: Values in Thousand Euros Consortium of Financial Institutions Interline, Tour operators and other invoicing Staff Related parties (Note 35) Insurance companies Airbus Other receivables from suppliers VAT of Representations Other
2009
2008
- 7,524 9,608 36,223 2,167 6,529 5,972 1,346 10,084 79,453
31,600 7,825 3,950 412 3,744 11,984 9,283 1,704 14,557 85,059
As at 31 December 2008, the value of 31,600 thousand € corresponds to the entitlement that the Group held before a consortium of Financial Institutions with respect to the commitment to purchase the shares of SPdH, which took place at the beginning of 2009. As at 31 December 2009 and 2008, the Accrued income and Deferred costs items were detailed as follows: 2009
Values in Thousand Euros
Accrued income Hedging of fuel 8,927 Interest receivable 75 Rental of space and advertising - Related parties (Note 35) 439 Other 1,883 11,324 Deferred costs Commissions 3,523 Rents and leases 2,066 Other 2,238 7,827
2008 1,134 909 902 299 3,244 4,310 1,947 1,090 7,347
19,151
10,591
Values in Thousand Euros
2009
2008
Fair value of jet fuel swaps (Note 34) Accrual-based accounting
6,285 2,642 8,927
-
The value of 8,927 thousand €, recorded in the hedging of fuel item is broken down as follows:
As at 31 December 2008 the result of the hedging of fuel represented a loss of approximately 10 million € which was recorded in Current accounts payable. The “Commissions” caption includes commissions paid to agents for tickets sold but not used and which had not expired by 31 December 2009.
25. State The balances with these entities are detailed as follows: Values in Thousand Euros State and Other Public Entities Compensation Corporate Income Tax (IRC) Personal Income Tax (IRS) Value Added Tax Social Security Payments State - Brazil (Note 30) Remaining Taxes
2009
2008
Current Assets
Current Liabilities
Current Assets
Current Liabilities
14,566 504 - 4,043 - 5,352 349 24,814
- 2,745 7,843 203 12,788 88,602 510 112,691
21,737 1,059 - 2,934 - 6,954 413 33,097
770 7,791 208 12,849 97,081 607 119,306
143
Consolidated Financial Statements
ANNUAL REPORT | 2009
The amount recorded under “Compensation”, as at 31 December 2009, includes part of the tariff supported by the State for the Autonomous Region of the Azores routes with reference to part of the 2008 financial year and the 2009 financial year, totalling 8,681 thousand €. These amounts correspond to tickets sold by TAP for TAP or other airline flights. This caption also includes an amount of 5,885 thousand € to be received from the State, relating to flights between the islands of the Autonomous Region of the Azores. The year-on-year decline in this caption is maily due to the fact that the credits with reference to state compensations on the Madeira route began to be claimed from the State directly by residents and/or students from the second quarter of 2008. As at 31 December 2009 and 2008 the “State - Brazil” caption was broken down as follows: Values in Thousand Euros Refis Other
2009
2008
Current Assets
Current Liabilities
Current Assets
Current Liabilities
- 5,352 5,352
52,279 36,323 88,602
- 6,954 6,954
97,081 97,081
The subsidiary TAP Manutenção & Engenharia Brasil joined in 2009 the tax refinancing programme, denominated as “Refis”, such that it compensated part of the interest and contingency fines related with rent tax and deferred social security contributions, of the total tax losses and negative social security contribution base. In addition, a value of 21,523 thousand € (Note 30), also related with the Refis programme, is recorded in the “Provisions” item. The subscription to the tax refinancing programme had a favourable impact of 55,734 thousand € in net income for the current year (Note 5).
26. Share capital and own shares As at 31 December 2009 and 2008, the share capital of TAP SGPS was totally subscribed and paid up, represented by 1,500,000 shares with a nominal value of 10 Euros each. As at 31 December 2009 and 2008 the share capital of the Company was entirely owned by Parpública, Participações Públicas (SGPS), S.A.
27. Reserves As at 31 December 2009 and 2008, the “Fair value reserve”, “Currency conversion reserve” and “Other reserves” captions were broken down as follows: 2009
2008
Fair value of financial instruments 4,348 Total fair value reserves 4,348 Currency conversion reserve (7,423) Legal reserve 3,000
(2,468) (2,468)
Values in Thousand Euros
Total reserves
(75)
10,056 3,000
10,588
Fair value of financial instruments The amount of 4,348 thousand € presented in the Fair value of financial instruments item, corresponds to the fair value of financial instruments classified as hedging instruments of the subsidiary TAP (Note 34), accounted for in accordance with the policy described in note 1.12.
Currency conversion reserve Entity SEAP: Conversion of the financial statements VEM and AERO-LB: Conversion of the financial statements Extension of the net investment in AERO-LB
Initial Balance
Increases
Reductions
Final Balance
(2,383)
-
(2)
(2,385)
18,281 (5,842) 10,056
1,588 13,340 14,928
(32,405) - (32,407)
(12,536) 7,498 (7,423)
144
Consolidated Financial Statements
ANNUAL REPORT | 2009
The increase of 14,928 € essentially refers to the favourable exchange rate differences from the medium and long term financing granted to AERO-LB Participações, S.A., whose liquidation is unlikely to occur in the predictable future, and is thus, in substance, an extension of the Group’s net investment in this foreign entity. The decrease of 32,407 thousand € refers to the appropriation by the Group of the exchange rate differences resulting from the conversion of the financial statements of companies that operate outside of the Euro zone, essentially in Brazil and Macau.
Legal reserves The commercial legislation establishes that at least 5% of the annual net income for the year has to be assigned to the legal reserve until these reach 20% of total share capital. This reserve cannot be distributed, except in case of the Company’s liquidation, but can be used to absorb losses after other reserves have been exhausted, or incorporated into the share capital.
28. Deferred taxes As mentioned in Note 1.13, the Group recorded in its financial statements the tax effects of temporary differences between assets and liabilities for accounting and tax purposes. To calculate that amount the following aggregate tax rates were used: 25% for deferred tax assets relating to reportable fiscal losses, and 26.5% for other deferred tax assets and liabilities (34% in Brazil). Although the temporary assets differences are significantly higher than those for liabilities, the Company has only recorded temporary assets differences up to the amount of the temporary liabilities differences, as there is no real expectation of sufficient future tax profits to use them beyond those amounts. Thus, on the date of each balance sheet a re-appreciation of temporary differences related to deferred tax assets is made, in order to identify deferred tax assets that were not previously recorded because they did not fulfil the conditions to be registered and/or to reduce the amount of deferred tax assets recorded based on the current expectation of their recovery in the future. The main temporary differences between accounting and taxable amounts as at 31 de December de 2009 and 2008, the corresponding deferred tax assets and liabilities and the respective effect on equity and net income for 2009 are as follows: On 1 January Values in Thousand Euros of 2009 Deferred tax assets Deductible tax losses Related to post-employment benefits Impairment losses in inventories Taxed provisions Deferred tax liabilities Revaluation of fixed assets Difference in the tax base due to alteration of the useful life of buildings Deferred exchange rate differences
PROFIT and On 31 December loss Statement of 2009
1,062 15,651 8,176 - 24,889
2,437 (3,177) 72 - (668)
3,499 12,474 8,248 24,221
21,424
(1,423)
20,001
3,288 - 24,712
775 - (648)
4,063 24,064
On 1 January PROFIT and On 31 December Values in Thousand Euros of 2008 loss Statement of 2008 Deferred tax assets Deductible tax losses Related to post-employment benefits Impairment losses in inventories Taxed provisions Deferred tax liabilities Revaluation of fixed assets Difference in the tax base due to alteration of the useful life of buildings Deferred exchange rate differences
profit and loss statement
2,933 15,925 8,037 72 26,967
(1,871) (274) 139 (72) (2,078)
1,062 15,651 8,176 24,889
23,353
(1,929)
21,424
2,522 837 26,712
766 (837) (2,000)
3,288 24,712
Consolidated Financial Statements
ANNUAL REPORT | 2009
145
Reportable fiscal losses without deferred tax assets The fiscal losses regarding which the Group considers, as at 31 December 2009, that it is not possible to deduct from future taxable profits, and therefore without deferred tax assets, are detalied as follows: 1 January 2009
2003
2004
2005
2006
2007
2008
2009
TAP–Transportes Aéreos Portugueses, SGPS, SA TAP–Transportes Aéreos Portugueses, S.A. Portugália–Companhia Portuguesa Transportes Aéreos, S.A. VEM–Manutenção e Engenharia, S.A.
671 - 5,356 - 6,027
1,853 1,109 14,400 41,137 58,499
1,040 8,428 34,070 25,915 69,453
4,085 - 39,340 26,137 69,562
2,331 - 28,085 - 30,416
1,765 214,382 156 - 216,303
n/a n/a n/a n/a n/a
Use of reportable fiscal losses in 2009
2003
2004
2005
2006
2007
2008
2009
- - - - -
- (1,109) - - (1,109)
- (8,428) - - (8,428)
- - - - -
- - - - -
- (42,610) - - (42,610)
n/a n/a n/a n/a n/a
TAP–Transportes Aéreos Portugueses, SGPS, SA TAP–Transportes Aéreos Portugueses, SA Portugália–Companhia Portuguesa Transportes Aéreos, SA VEM–Manutenção e Engenharia, SA
2003 2004 2005 2006 2007 2008 2009 31 December 2009 Provisional TAP–Transportes Aéreos Portugueses, SGPS, SA TAP - Transportes Aéreos Portugueses, S.A. Portugália - Companhia Portuguesa Transportes Aéreos, S.A. VEM - Manutenção e Engenharia, S.A. Deduction deadline
n/a n/a n/a n/a - n/a
1,853 - 14,400 41,137 57,390 2010
1,040 0 34,070 25,915 61,025 2011
4,085 - 39,340 26,137 69,562 2012
2,331 - 28,085 - 30,416 2013
1,765 171,772 156 - 173,693 2014
2,064 2,064 2015
In 2006, the subsidiary TAP – Transportes Aéreos Portugueses, S.A. carried out, under the terms of Decree-Law No. 453/99, of 5 November, a securitisation operation of future loans, in which Deutsche Bank acted as lead manager. The future receivables were acquired by Tagus – Sociedade de Titularização de Créditos, S.A. As a result of this operation, and due to No. 1 of Article 2 of Decree-Law No. 219/2001, of 4 August, the amount of 230,000 thousand € was added for the purpose of setting TAP’s taxable income for 2006. It should be noted that the losses posted in the 2000 and 2001 financial years were deducted from the calculated taxable income. The Company’s liabilities, which correspond to the value received from the sale of future receivables, in the amount of 230,000 thousand €, and which were received net of expenses totalling 779 thousand €, will be repaid between March 2009 and December 2016, as the receivables are handed over to Tagus. The financial cost associated to the liability created with the sale of these receivables is in line with market rates. The report elaborated by the Tax Authorities in 2008, presents a divergent understanding of that proclaimed by the Group, based essentially on the non-application of Decree-Law No. 219/2001, of 4 August. The Tax Authorities consider that the said operation constitutes a financial liability, thus not resulting, on its own, in a calculation of any taxable (IRC) income or result, concluding that a correction to the taxable income of 2006, in the amount of 230,000 thousand €, is required. The Board of Directors, supported in its decision by its lawyers and tax consultants, is of the opinion that the procedure adopted was correct and as such will exercise its legitimate right to contest. We point out that the abovementioned correction has been deducted from the reportable fiscal losses.
146
Consolidated Financial Statements
ANNUAL REPORT | 2009
29. Pensions and other post-employment benefits As mentioned in Note 1.21, the Group attributes its employees several post-employment benefits. As at 31 December 2009 and 2008, the liabities stated in the Balance Sheet are detailed as follows:
2009
Bonuses Pensions Before Medical Retirement Values in Thousand Euros viva 1997 assets actions pension
Represent. England brazil total
Liabilities from past services Assets 3,389 - - Pre-retirement - - 1,247 Retired 6,723 44,606 - Market value of the funds (15,149) - - Insufficiency / (excess) (5,037) 44,606 1,247
- 115 3,356 -
37,214 - - (22,988)
15,638 - - (13,130)
- 60,419 - (33,656)
56,241 61,781 54,685 (84,923)
3,471
14,226
2,508
26,763
87,784
2008
Bonuses Pensions Before Medical Retirement Values in Thousand Euros viva 1997 assets actions pension
Represent. England brazil total
Liabilities from past services Assets 7,219 - 2,843 Pre-retirement - - 1,064 Retired 10,568 44,139 - Market value of the funds (8,819) - - Insufficiency / (excess) 8,968 44,139 3,907
- 136 3,362 -
32,641 - - (18,154)
15,638 - - (13,130)
- 40,436 - (20,775)
58,341 41,636 58,069 (60,878)
3,498
14,487
2,508
19,661
97,168
The excess financing recorded as at 31 December 2009 at Pensões Viva, in the amount of 5,037 thousand €, under the terms of the law, is reimbursable and/or allows for exemption from future contributions, under the terms of the law.
Evolution of liabilities relating to pensions and other post-employment benefits stated in the balance sheet The evolution of the assumed liabilities, reflected in the consolidated balance sheet as at 31 December 2009 and 2008, are as follows:
2009
Bonuses Pensions Before Medical Retirement Values in Thousand Euros viva 1997 assets actions pension
Represent. England brazil total
Liabilities at the beginning of the year 17,787 44,139 3,907 3,498 32,642 15,638 40,436 Perimeter variation - - - - - - - Exchange rate variation - - - - - - 12,541 Values recorded in net income for the year: Current services 391 - - - 2,571 - 211 Cost of interest 774 2,428 215 192 1,921 - 5,687 Actuarial deviations (8,840) (1,961) (2,875) (219) 81 - 4,678 Benefits paid - - - - - - (3,135) Alterations to plans - - - - - - - Liabilities at the end of the year 10,112 44,606 1,247 3,473 37,215 15,638 60,418
158,047 12,541 3,173 11,217 (9,136) (3,135) 172,707
2008
Bonuses Pensions Before Medical Retirement Values in Thousand Euros viva 1997 assets actions pension
Represent. England brazil total
Liabilities at the beginning of the year 14,248 44,457 9,137 4,883 Perimeter variation - - - - Exchange rate variation - - - - Values recorded in net income for the year: Current services 391 - 718 - Cost of interest 801 2,223 457 244 Actuarial deviations 2,347 (2,541) (6,405) (1,629) Benefits paid - - - - Alterations to plans - - - - Liabilities at the end of the year 17,787 44,139 3,907 3,498
18,682 - -
15,638 - -
- 45,181 (9,919)
107,045 45,181 (9,919)
2,526 1,403 3,077 - 6,954
- - - - -
278 5,281 2,387 (2,772) -
3,913 10,409 (2,764) (2,772) 6,954
32,642
15,638
40,436
158,047
Consolidated Financial Statements
ANNUAL REPORT | 2009
147
Costs with pensions and other post-employment benefits The costs relative to pensions and other post-employment benefits are detailed as follows:
2009
Bonuses Pensions Before Medical Retirement Values in Thousand Euros viva 1997 assets actions pension
Represent. England brazil total
Current services 391 - - - Cost of interest 774 2.428 215 192 Reversal of plan assets (1,150) - - - Actuarial gains/(losses) (2,628) (1,961) (2,875) (219) Alterations to plans - - - -
2,571 1,921 (620) 81 -
- - - - -
211 5,687 (7,853) 4,678 -
3,173 11,217 (9,623) (2,924) -
3,953
-
2,723
1,843
(2,613)
467
(2,660)
(27)
The costs with pensions and other post-employment benefits are recorded in the “Costs with post-employment benefits” item.
2008
Bonuses Pensions Before Medical Retirement Values in Thousand Euros viva 1997 assets actions pension
Represent. England brazil total
Current services 391 - 718 - Cost of interest 801 2,223 457 244 Reversal of plan assets 1,080 - - - Actuarial gains/(losses) 2,347 (2,541) (6,405) (1,629) Alterations to plans - - - - 4,619 (318) (5,230) (1,385)
2,525 1,404 (500) 3,077 6,954
- - - - -
278 5,281 (3,719) (1,454) -
3,912 10,410 (3,139) (6,605) 6,954
13,460
-
386
11,532
The costs with pensions and other post-employment benefits of 2008 are recorded as follows: (i) €11,532 thousand € in the “Costs with post-employment benefits” item and 3,848 thousand € in the “Staff costs - others” (Note 6) item.
Pensions - Transportes Aéreos Portugueses, S.A. In accordance with current Company rules, employees who joined the company before 31 May 1993 are entitled to receive the difference between the state retirement pension paid by the Social Security System, due to age limit or incapacity for work, and a minimum amount, guaranteed by the Company. This amount corresponds to a fixed percentage of the pensionable salary at the time of retirement, multiplied by each year of Company service, up to a maximum of 20 years, as follows: Flight Deck Crew (pilots and flight technicians) Ground staff and cabin crew
■ ■
3.2% 4%
per year of service per year of service
In addition, the Company has undertaken to pay pre-retirement pensions ranging from 75% to 100% of the working salary its employees would receive if they were still in service. In October 2008, the agreement between the Company and SPAC was changed. The main changes were: (i) Pilots admitted before 31 May 2007: the pension plan presupposes the bonus of the service period guaranteed by the State (of 15% or 10%, according to the start date of the contributory career) and the possibility of an additional bonus (up to 25% or 30%) as an option of the beneficiary at the time of retirement (this aditional bonus of up to 25% is paid by the Company); (ii) Pilotos admitted from June 1, 2007: the pension plan comprises a defined contribution scheme, of 7.5% of the base remuneration (14 times a year), of which 80% is paid by the Company. The Company’s pension liabilities with past services, in connection with pension supplements and pre-retirement instalments, with reference to the defined benefit scheme, are fully recorded in its accounts. The quantification of liabilities took into consideration that, under the terms of the collective regulations that establishes the abovementioned pension plan, the total pension guaranteed by the Company, in other words, the social security pension and pension supplement, will never exceed the monthly salary, net of individual income tax (IRS) and social security payments during employment. This premise is not applicable, since it is not established in the collective regulations relative to flight deck crew, for whom this limit does not apply and the pensionable salary is made up of the base salary set out in the pay scale, plus monthly earnings in the financial year and annuities.
148
Consolidated Financial Statements
ANNUAL REPORT | 2009
Pension - Brazil (a) Benefit Scheme II - TAP Manutenção & Engenharia Brasil (Defined benefits component) The subsidiary sponsors a pension plan for its employees, managed by the Instituto AERUS de Seguridade Social and designated as Benefit Scheme II - TAP Manutenção & Engenharia Brasil. In spite of being a “defined contribution” benefit scheme, it also offers invalidity and death benefits under the concept of “defined benefits”, in addition to guaranteeing special benefits to a group of employees from VARIG that were integrated in the staff of the subsidiary when the operations of this company were demerged. From 1 January 2002 onwards, the subsidiary became one of the sponsors of the Instituto AERUS de Segurança Social (“AERUS”), by means of the complementary (defined contribution) pension scheme, designated as Benefit Scheme II - TAP Manutenção & Engenharia Brasil. In 2008 the subsidiary requested the transfer of the manager of the benefits fund of its employees from the entity AERUS. This process was refused by the holding company of the AERUS fund, which alleged that TAP Manutenção & Engenharia Brasil had debts that were not recognised in the transfer of obligations with post-employment benefits, since it was co-responsible for the pension fund deficits of other sponsors. TAP Manutenção & Engenharia Brasil is contesting the legal validity of the abovementioned debt and the Board of Directors, supported by preliminary opinions of its lawyers and external consultants, believes that the debt is not its responsibility, which is why it did not constitute a provision to deal with the respective process. Therefore, only the previously mentioned defined benefit component is recorded in the “Pensions and other post-employment benefits” item.
Retirement bonus – Flight Deck Crew Under the agreement signed between TAP and the Civil Aviation Pilots’ Union (SPAC), TAP undertakes to pay, in addition to a pension scheme, a one-off retirement bonus to every pilot on the day of their retirement, at the pensionable age which entitles them to a full pension. This is funded by the capital accumulated in a collective insurance policy set up by the Company for the pilots. The main conditions of the collective retirement policy agreed with the insurance company that describe this retirement scheme for pilots are as follows: (i) Admission conditions: Pilots who are still in active service; (ii) Normal retirement age: 60 years; (iii) Guarantees: Each participant is entitled at normal retirement age to an amount 16 times the last earned gross monthly salary. The financing of the benefit scheme is made through an insurance policy that is backed by contributions (premiums) paid by the Company and by income obtained from investments made by the insurance company in an independent fund that supports this type of insurance. In October 2008, the agreement between the Company and SPAC was changed. The main changes were: Pilots admitted before 31 May 2007: The one-off retirement bonus is maintained, but it shall only be paid if the date of retirement coincides with the pensionable age at which full pension entitlement is attributed, with the possibility of increasing the capital for every additional year of service after the full pension age has been reached; ■ Pilotos admitted from June 1, 2007: there is no entitlement to a one-off retirement bonus. ■
Health Care The Company ensures that both pre-retired and early-retired employees, below the age of 65, are provided with a health plan providing access to medical care at reduced prices. Additionally, the Company provides its retired staff with access to UCS medical services, as a freely granted benefit, for which they pay a portion of the cost of the service with the remainder being subsidised by the Company. Granting its former, pre-retired, early-retired and retired staff with access to the health care services provided by UCS (a Group company) is not seen by the Company as constituting an obligation but a freely granted benefit at each moment in time; therefore, the company assumes no accounting liability regarding providing health care services to current employees after they cease working for the Company. As such, at the present time, the existing provision covers the total responsibility for medical treatment with pre-retired, early retired and retired staff. The total responsibility was calculated based on an independent actuarial evaluation.
Consolidated Financial Statements
ANNUAL REPORT | 2009
149
ASSUMPTIONS USED IN THE EVALUATION OF LIABILITIES The actuarial studies conducted by independent entities, with reference to 31 December 2009 and 2008, for the purposes of calculating liabilities from past services on those dates, were based on the following assumptions: 2009
Portugal Incapacity Tables Mortality Tables Salary growth rate Pensions growth rate Discount rate
EKV 1980 TV 88/90 2.50% 1.50% 5.50%
2008
Brasil
Portugal
BRAzIL
IAPB - 57 AT83 6.28% 4.20% 10.19%
EKV 1980 TV 88/90 2.50% 1.50% 5.50%
RRB 1944 AT83 6.59% 4.50% 12.34%
FUNDS RELATED TO BENEFIT SCHEMES WITH PENSIONS In 2009 and 2008 the fund assets evolution was as follows:
2009
Bonuses Bonuses Pensions Retirement Represent. Pensions Retirement Represent. Values in Euros viva pension England brazil total viva pension England Initial balance 8,819 18,154 13,130 20,775 60,878 9,900 13,631 13,130 Perimeter variation - - - - - - - Exchange rate variation - - - 6,534 6,534 - - - Allocation made in the year 5,180 4,214 - 1,628 11,022 - 4,214 - Income from the funds in the year 1,150 620 - 7,853 9,623 (1,081) 500 - Benefits paid - - - (3,134) (3,134) - - - Redemption - - - - - - (191) - Final balance 15,149 22,988 13,130 33,656 84,923 8,819 18,154 13,130
2008
BRAzIL total - 23,913 (5,120) 1,034 3,724 (2,776) -
36,661 23,913 (5,120) 5,248 3,143 (2,776) (191)
20,775
60,878
30. Provisions During the 2009 and 2008 financial years, the following changes occurred under the provisions headings: Provisions Provision Securities to for financial Provisions for for current associated investments contingencies Values in Thousand Euros lawsuits companies (Note 18) - Brazil 1 January 2008 Perimeter variation Increases Reversions Utilisations Currency Conversion Adjustment 31 December 2008 Increases Reversions Utilisations Other movements Currency Conversion Adjustment 31 December 2009
7,511 - 2,338 (188) (57) - 9,604 867 - (234) - - 10,237
2,132 - - (1,650) - - 482 - (95) - - - 387
4,591 - 17,980 - (2,486) - 20,085 29,596 - - 22,424 - 72,105
- 65,849 11,543 (4,898) (784) (30,885) 40,825 8,993 (6,055) (174) (6,879) 12,808 49,518
Other - Brazil Other - 6,308 965 - (5,689) (434) 1,150 - - (1,249) - 99 -
1,521 - 20,345 (34) - 2 21,834 138 (16) - (20,164) - 1,792
Total 15,755 72,157 53,171 (6,770) (9,016) (31,317) 93,980 39,594 (6,166) (1,657) (4,619) 12,907 134,039
Net income for 2009, with the exception of the provision for negative equity which is recorded in the “Appropriation of net income of associated companies” (Note 9) caption, which came to 3,832 thousand €, was recorded in the “Provisions” item. Net income for 2008, with the exception of the provision for negative equity which is recorded in the “Appropriation of net income of associated companies” caption (Note 9), came to 28,421 thousand €, of which 35,417 thousand € was recorded in the “Provisions” item and a reversion of provisions in the amount of 6,996 thousand € was recorded in the “Other costs and losses” item.
150
Consolidated Financial Statements
ANNUAL REPORT | 2009
Current legal actions Provisions for current legal actions are made according to risk assessments carried out by Group companies and their legal advisors, based on historical success rates by legal action nature and unfavourable outcome probability for the Company. The existing provision on 31 December 2009, for the amount of 10,237 thousand €, is to cover the cost of various court cases against the Company, in Portugal and abroad.
Provisions for financial investments The provision for financial investments is detailed in note 18.
Other - Brazil (a) Provision for restructuring - AOG Plan The AOG Plan, developed in 2007, aims to conclude the restructuring project, which in addition to several actions to reduce structural expenses, also contemplated a 30% reduction of the staff structure. (b) Changes in the provision for restructuring: Balance on 31 December 2008
1,150
“AOG Plan” payments made
(1,249)
Exchange rate variation
99
-
Balance on 31 December 2009
Liabilities for contingencies - Brazil (a) Details of contingencies - Brazil The subsidiary presents the following liabilities, which are related with the judicial deposits described in Note 21, related with the contingencies: Values in Thousand Euros
2009
2008
Labour contingencies Tax contingencies
26,121 75,676
14,624 109,989
101,797
124,613
2009
2008
26,121 23,397 49,518
14,624 26,201 40,825
52,279 101,797
83,788 124,613
The amounts presented in the table above are recorded in the following items: Values in Thousand Euros Provisions Provisions for labour contingencies - Brazil Provisions for tax contingencies - Brazil State Miscellaneous - Brazil (Note 25)
(b) Provision for labour contingencies - Brazil The subsidiary is involved in labour, civil and tax actions underway, both in the administrative and judicial sphere and which, when applicable, are guaranteed by judicial deposits and/or seizure of assets. The provisions for possible losses resulting from these legal actions are estimated and updated by Management, based on the opinion of its legal consultants, recording the respective provisions for the processes with the possibility of probable loss. The changes occurred during 2009 were as follows: Balance on 31 December 2008 Reinforcement of provision Reduction for payments made Reversion due to estimate review Exchange rate variation Other movements Balance on 31 December 2009
14,624 8,213 (4,020) 4,853 2,451
26,121
ANNUAL REPORT | 2009
Consolidated Financial Statements
151
As at 31 December 2009, there were 1,842 labour claims against the subsidiary (1,260 claims as at 31 December 2008). The subsidiary is a solidary debtor of the labour liabilities regarding the migration of employees from VARIG to TAP Manutenção & Engenharia Brasil in 2001 and 2002. There are labour claims from former employees of VARIG against the subsidiary and against TAP due to the dismissal of VARIG employees following the judicial auction of the sale of the production unit of VARIG which took place in July 2006. (c) Provision for tax contingencies - Brazil 26,201
Balance on 31 December 2008 Reinforcement of provision Reduction for payments made Reversion due to estimate review Exchange rate variation Other movements
780 (174) (2,035) 7,955 (9,330)
23,397
Balance on 31 December 2009
In 2009, the subsidiary joined the REFIS tax refinancing programme, which divided the total contingencies up until that date. As at 31 December 2009, the amount recorded in the “Provision for tax contingencies - Brazil” item relative to REFIS came to 21.523 thousand €. Other The amount recorded in Provisions - Others essentially refers to additional liabilities incurred by the Group in other subsidiaries.
31. Remunerated liabilities As at 31 December 2009 and 2008, the remunerated net debt is detailed as follows: Values in Thousand Euros Remunerated third parties’ debt Non-current Current Cash and equivalent Cash Overnight bank cash deposits Other cash investments
Remunerated net debt
2009
2008
1,037,208 265,330 1,302,538
1,219,560 193,337 1,412,897
200 130,877 - 131,077
389 181,909 182,298
1,171,461
1,230,599
2009
2008
Current and non-current remunerated debt As at 31 December 2009 and 2008, the non-current remunerated net debt is detailed as follows: Values in Thousand Euros
Non-current Securitisation of future credit 181,646 Bank loans 304,328 Remunerated bank debt 485,974 Financial Leasing 551,234 Other remunerated debt 551,234 Total remunerated debt 1,037,208
206,146 348,159 554,305 665,255 665,255 1,219,560
152
Consolidated Financial Statements
ANNUAL REPORT | 2009
As at 31 December 2009 and 2008, the current remunerated net debt is detailed as follows: 2009
2008
24,592 111,056 135,648
23,075 82,045 105,120
129,682 129,682
88,217 88,217
265,330
193,337
2009
2008
Reference Rate
4,867
5,000
Euribor 3m
Values in Thousand Euros Current Securitisation of future credit Bank loans Remunerated bank debt Financial Leasing Other remunerated debt Total current remunerated debt
Remunerated bank debt As at 31 December 2009 and 2008, the current and non-current remunerated bank debt is detailed as follows: Values in Thousand Euros
Non-current TAP SGPS BCP bank loan TAP Tagus–Sociedade de Titularização de Créditos, S.A. Deutsche Bank bank loan Misc. - Aircraft financing
181,646 297,453 2,008 485,974
206,146 Euribor 3m 333,182 Fixed rate 9,977 Various 554,305
Current TAP SGPS BCP bank loan 142 TAP, S.A. Bank overdraft 14,940 Tagus–Sociedade de Titularização de Créditos, S.A. 24,592 BCP credit line 40,161 Deutsche Bank bank loan 37,966 Commercial Paper Banco Popular 10,000 Misc. - Aircraft financing 7,847 135,648
Balance at the end of the year
621,622
-
Euribor 3m
- Various 23,075 Euribor 3m 40,000 Euribor 30 d 34,252 Fixed rate - Fixed rate 7,793 Various 105,120
659,425
The amount of 181,646 thousand € and 24,592 thousand €, recorded in non-current and current debt, respectively, corresponds to a liability generated as part of a securitisation operation of future loans, carried out by TAP in December 2006, under the terms of Decree-Law No. 453/99, of 5 November. Deutsche bank acted as lead manager on that operation and Tagus – Sociedade de Titularização de Créditos, S.A. acquired the future receivables (Note 28). The repayment schedules relative to the balance recorded in loans obtained, in the medium and long-term, are detailed as follows: Values in Thousand Euros 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years
The total amount of liabilities plus interest is presented in the chapter on Interest rate risk.
2009
2008
65,822 67,058 70,423 74,016 208,655 485,974
68,324 65,821 67,059 70,424 282,677 554,305
ANNUAL REPORT | 2009
Consolidated Financial Statements
153
The analysis by maturity of debt by type of interest rate is detailed as follows: Values in Thousand Euros Variable rate up to 1 year 1 to 2 years 2 to 3 years Over 3 years Fixed rate up to 1 year 1 to 2 years 2 to 3 years Over 3 years
2009
2008
87,682 28,527 28,115 131,878 276,202
70,955 32,595 28,527 160,001 292,078
47,966 37,295 38,943 221,216 345,420
34,164 35,729 37,295 260,159 367,347
621,622
659,425
The loans obtained by functional currency are detailed as follows: Loans in EUR Loans in USD
2009
2008
617,804 3,818 621,622
651,519 7,906 659,425
2009
2008
Financial leasing debt As at 31 December 2009 and 2008, the current and non-current financial leasing debt is detailed as follows: Values in Thousand Euros
Non-current Aircraft 551,234 Other Fixed Assets - 551,234 Current Aircraft 129,682 Other Fixed Assets - 129,682 Total debt due to financial leasing 680,916
665,254 1 665,255 88,211 6 88,217 753,472
The financial leasing, by functional currency, is detailed as follows: Values in Thousand Euros Financial leasing in EUR Financial leasing in USD
2009
2008
643,046 37,870 680,916
709,363 44,109 753,472
The repayment schedules of the medium and long term debt of the Group with reference to financial leasing is detailed as follows: Values in Thousand Euros 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years
2009
2008
90,305 79,723 76,312 70,272 234,622 551,234
114,450 89,382 71,404 84,884 305,135 665,255
The total amount of liabilities plus interest is presented in the chapter on Interest rate risk. As at 31 December 2009 and 2008, bank loans granted and not drawn totalled 750 thousand € and 7,500 thousand €, respectively.
154
Consolidated Financial Statements
ANNUAL REPORT | 2009
Operational leasing As mentioned in note 1.24, these liabilities are not recorded in the Balance Sheet of the Group. These contracts have different durations, of between 4 and 10 years, and can be extended by the consent of the contracting parties. As at 31 December 2009, the operational leasing debt contracted comes to 383,171 thousand USD (278,105 thousand €). The repayment schedules of the Group’s debt with reference to operational leasing, to which is added the respective interest at normal market rates, are detailed as follows: Values in Thousand Euros Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years Over 4 years
2009
2008
52,448 46,466 36,578 27,165 115,448 278,105
36,111 28,223 20,395 8,056 710 93,495
There are security deposits associated with these contracts totalling 3,805 thousand € (Note 21), which will be returned to the Group, without interest, when each of these aircraft is handed back to its lessor.
Financial Covenants Certain types of financing operations require the maintenance of specific financial ratios within previously negotiated limits.
32. Accounts payable Non-current As at 31 December 2009 and 2008, the “Other non-current liabilities” caption corresponds to balances payable of Suppliers of fixed assets in the medium and long term.
Current As at 31 December 2009 and 2008, the “Current payables” item is broken down as follows: Values in Thousand Euros Suppliers c/a Suppliers - related parties (Note 35) Other creditors Accrued costs Deferred income
2009
2008
104,221 10,502 51,860 138,820 54,243 359,646
118,546 16,239 93,070 155,706 64,063 447,624
As at 31 December 2009 and 2008, the Other creditors item is broken down as follows: Values in Thousand Euros Suppliers of fixed assets Consortium of Financial Institutions Fees and taxes Other creditors - Brazil Representation Related parties (Note 35) Staff Customer balances payable Other
2009
2008
7,407 - 29,751 953 3,307 3,673 3,661 3,108 51,860
19,184 31,600 26,864 509 71 654 8,140 6,049 93,070
As at 31 December 2008, the value of 31,600 thousand € corresponds to the liability that the Group had assumed on that date before a consortium of Financial Institutions with respect to the commitment to purchase the shares of SPdH, which took place at the beginning of 2009.
ANNUAL REPORT | 2009
Consolidated Financial Statements
155
As at 31 December 2009 and 2008, the Accrued costs and Deferred income items are broken down as follows: Values in Thousand Euros Accrued costs Remuneration Financial costs Special sales charges - commissions Conservation and repair of materials Costs with related parties (Note 35) Booking fees Fuel Navigation taxes Landing charges Duty free shop operating charges Insurance Other Deferred income Work for aviation companies Customer loyalty programme Fuel supplies Other
2009
2008
70,786 - 10,051 2,370 2,451 2,154 3,410 10,430 1,210 1,929 2,290 31,739 138,820
66,002 19,222 12,770 7,734 2,096 11,687 831 2,285 2,300 3,818 26,961 155,706
20,928 28,928 2,625 1,762 54,243
35,314 23,201 3,500 2,048 64,063
Accrued costs As at 31 December 2009, financial costs are presented in the “Current remunerated liabilities” item.
Deferred income The amount of 20,928 thousand €, recorded under the “Maintenance work for airline companies” caption, refers to provisional invoicing of maintenance work for third parties that was still underway on 31 December 2009. As mentioned in Note 1.29, in 2009 the Company proceeded with the application of IFRIC 13 - Customer loyalty programmes. In this context, the attribution of miles and points to customers who join a loyalty scheme known as TAP Victoria and TAP|Corporate Fly, is now recorded as deferred income based on the value of the mile/point. The amount of 2,625 thousand € is due to the capital contribution received in 2008 for the aviation fuel supply contract between 2009 and 2012.
33. Advances from customers - tickets to be used The Group’s liabilities relating to unused issued tickets as at 31 December 2009 and 2008 were as follows: Values in Thousand Euros Passengers Cargo
2009
2008
206,560 424 206,984
228,375 91 228,466
During 2009 and 2008, after analysis of the account “Advances from customers – tickets to be used” (see Note 1.26), revenues from passengers and cargo were adjusted by 59,310 thousand € and 54,675 thousand €, respectively, resulting from items that are more than 18 months overdue. These adjustments corresponded to approximately 5% (2008: 2.8%) of flown revenues, which were recognised in the services rendered item.
156
Consolidated Financial Statements
ANNUAL REPORT | 2009
34. Derivative financial instruments As at 31 December 2009 and 2008, the fair value of the derivative financial instruments is broken down as follows: Values in Thousand Euros
Start
Maturity
2009
2008
Net
Net
Coverage Interest rate swaps (SWAPs) TTA 15.09.2000 15.09.2009 - TTB 15.09.2000 15.09.2009 - TTG 16.11.1999 05.11.2010 (194) TTH 16.11.1999 26.11.2010 (214) TTI 18.06.1999 22.12.2010 (254) TTK 15.06.2000 15.06.2011 (431) TNG 18.06.1999 17.02.2011 (183) TNI 22.05.2000 22.05.2011 (558) TOL 26.11.2009 26.11.2019 (103) Swaps de jet fuel 6,285 4,348
(87) (87) (305) (327) (235) (494) (308) (625) -
(2,468)
Changes in the Derivative Financial Instruments caption The fair value of the derivative financial instruments is included in the “Current payables” caption and Other non-current liabilities” caption, when negative, and in the “Current receivables” caption, when positive (Note 40). Other financial assets These values are recognised at fair value, corresponding to their market value, minus any impairments (Note 19). Credit and Receivables These values are recognised at fair value, corresponding to their nominal value, minus any impairments identified during the analysis of the credit risks of the credit portfolios held (Notes 2, 22 and 24). Other financial liabilities These values are recognised by their amortised cost, corresponding to the value of the respective cash flows, discounted by the effective interest rate associated with each liability (Note 31).
35. Balances and transactions with related parties As at 31 December 2009 and 2008, the balances with related parties are broken down as follows:
2009
Assets Liabilities Other Accruals and Accruals and Other Values in Thousand Euros Customers Debtors deferrals Suppliers deferrals creditors Shareholder Parpública, Participações Públicas (SGPS), S.A. - - - - - Associated companies SPdH–Sociedade Portuguesa de Handling, S.A. 7,042 36,222 2 (2,968) (796) Other related entities ANA–Aeroportos de Portugal, S.A. 5,957 1 437 (7,534) (1,655)
Total
12,999
36,223
439
(10,502)
(3,307) -
(2,451)
(3,307)
2008
Assets Liabilities Other Accruals and Accruals and Other Values in Thousand Euros Customers Debtors deferrals Suppliers deferrals creditors Shareholder Parpública, Participações Públicas (SGPS), S.A. - - - - - Associated companies SPdH–Sociedade Portuguesa de Handling, S.A. 11,117 303 430 (8,562) (210) Other related entities ANA–Aeroportos de Portugal, S.A. 4,561 109 472 (7,677) (1,886)
Total
15,678
412
902
(16,239)
(2,096)
(71) (71)
Consolidated Financial Statements
ANNUAL REPORT | 2009
157
The value of Other debtors with reference to the associate SPdH includes a loan contract in the amount of €35,000 thousand € with a repayment schedule of less than 1 year and earming interest at normal market rates. As at 31 December 2009 and 2008, the transactions with related parties are broken down as follows:
2009
Costs related to Other operating Sales and Other operating Values in Thousand Euros services consumed costs services rendered revenues Shareholder Parpública, Participações Públicas (SGPS), S.A. - - - Associated companies SPdH–Sociedade Portuguesa de Handling, S.A. 77,278 21 10,293 Other related entities ANA–Aeroportos de Portugal, S.A. 62,525 118 1,213 TOTAL
139,803
139
2,342 74
11,506
2,416
2008
Costs related to Other operating Sales and Other operating Values in Thousand Euros services consumed costs services rendered revenues Shareholder Parpública, Participações Públicas (SGPS), S.A. - - - Associated companies SPdH–Sociedade Portuguesa de Handling, S.A. 82,004 7 6,906 Other related entities ANA–Aeroportos de Portugal, S.A. 36,880 58 13
Total
118,884
65
6,919
2,376 1,808 4,184
36. Alterations to the consolidation perimeter Alterations to the perimeter in 2009 There were no alterations to the perimeter in 2009.
Entries in the perimeter in 2008 As at 31 December 2007, since at this time it had been the intention of the Board of Directors to proceed with the divestiture of VEM – Manutenção e Engenharia, S.A. (“VEM”), the assets and liabilities of the subsidiaries Reaching Force, AERO-LB and VEM were recorded in non-current assets held for sale and in non-current liabilities of assets held for sale, totalling €263,790 thousand € and 226,314 thousand €, respectively. In 2008, as a result of the current international situation and strategic interest of the abovementioned shareholding, the Board of Directors decided to unify the management of the maintenance units of Portugal and Brazil and continue the restructuring of the company. As a result of this decision, TAP derecognised the said investment, classified in 2007 as a non-current asset held for sale, and in conformity with IFRS 5 represented the profit and loss statement so as to present the results of the said investment in each one of the profit and loss statement items.
158
Consolidated Financial Statements
ANNUAL REPORT | 2009
As such, the table below summarises the impacts of the presentation of the assets and liabilities of the said subsidies, line by line of the balance sheet, which in 2007 were stated in non-current assets held for sale and in non-current liabilities of assets held for sale: Values in Thousand Euros
Jan 2008
Non-current assets Goodwill (Note 15) Intangible Assets (Note 16) Tangible fixed assets (Note 17) Other non-current assets Current assets Inventories State Other current receivables Cash and cash equivalent Assets held for sale Non-current liabilities Provisions (Note 30) Pensions and other post-employment benefits (Note 29) Other non-current payables Current liabilities Remunerated liabilities State Other current payables Passivos detidos para venda
130,106 7,012 25,100 893 50,283 6,138 40,145 4,112 (263,790) (72,157) (21,268) (99,718) (33,171) 226,314
37. Number of employees As at 31 December 2009 and 2008, the number of employees at the service of the various Group companies, broken down by business segment and location, is detailed as follows:
2009
Values in Thousand Euros Portugal Brazil Other
Air Transport
Maintenance
Free shop
Catering
Other
Total
4,506 112 411 5,029
1,938 2,393 10 4,341
329 - - 329
478 - - 478
843 - - 843
8,094 2,505 421 11,020
2008
Values in Thousand Euros Portugal Brazil Other
Air Transport
Maintenance
Free shop
Catering
Other
Total
4,501 117 417 5,035
1,919 2,572 9 4,500
318 - - 318
444 - - 444
827 - - 827
8,009 2,689 426 11,124
38. Commitments As at 31 December 2009 and 2008, the guarantees provided by the Group are broken down as follows: Values in Thousand Euros
2009
Bank guarantees provided by the Head Office of TAP Portuguese State - Agreement covering the Azores routes 4,910 Natwest - “Acquiring” relative to credit cards 5,855 Labour Court 2,522 Aircraft 6,636 Fuel 3,116 Syrian Airlines - Airbus A310 sub-leased to White - Other 3,883 Bank guarantees provided by LFP, S.A. Duty free shop operating license concession contracts 6,699 Bank guarantees provided by other Group Companies 387 Guarantees and comfort letters provided to associated companies 3,666 Securities provided to insurance companies 742
38,414
2008 4,910 5,855 3,372 2,611 2,157 3,974 5,596 1,535 3,900 1,549 35,459
ANNUAL REPORT | 2009
Consolidated Financial Statements
159
The reinforcement undertaken during the current financial year with respect to bank guarantees provided by Grupo TAP relative to aircraft is essentially due to the new operational leasing contracts.
Purchase commitments As at 31 December 2009 there were financial commitments assumed by the Company relative to operating leasing contracts for aircraft, totalling 278,105 thousand € (93,495 thousand € as at 31 December 2008), to which interest at normal market rates is added. In addition, a contract has been signed with Airbus for the future acquisition of twelve Airbus A350, with the option of three more additional aircraft, to be received between 2014 and 2018.
39. Contingent assets and liabilities Contingent liabilities The Brazilian subsidiary TAP Manutenção & Engenharia Brasil is involved in taxation, civil and labour claims, involving risks of loss classified by Management as possible, based on the evaluation of its legal consultants, for which no provision was constituted. These are broken down as follows: A) Labour claims FGTS not deposited between 2002/ 2004 and Hazard/Unfitness Value: 81,973 thousand € The main labour claim involves a legal action filed by the syndicate laying claims to the deposit of the FGTS between 2002 and 2004 of all the employees of Porto Alegre. The other legal action refers to the request for additional payment regarding insalubrity and hazard for all employees who exercise the function of aircraft maintenance auxiliary in Porto Alegre. Following analysis of the expert’s report, it was concluded that the activities exercised are not characterised as dangerous or insalubrious. The Union has filed an appeal and the legal action is now at the TST (Brasília) awaiting judgement. Based on information provided by its lawyers, TAP believes that these legal actions will have no materially relevant impact on its financial statements as at 31 December 2009. B) Tax claims Notice of Infraction of IRPJ/CSLL/PIS/COFINS Value: 60,862 thousand € The notice of infraction was instituted against the subsiduary in April 2007, in which the Federal Revenue Office claims tax credits of IRPJ, CSLL, PIS and COFINS, from 2002, in which it claims: (i) the alleged omission of revenues; and (ii) deduction of undocumented costs by the subsidiary, which should thus not have been deducted by the company. In addition, a fine is charged resulting from differences between the values in the accounting documents and those declared by the subsidiary in its DCTF and DIPJ declarations. The subsidiary presented its administrative defence arguing that there was no omission of revenues and that the costs and expenses not accepted by the Tax Authorities were efectively proven during the tax inspection. Trial is pending at the Administrative Court of First Instance. Based on information provided by its lawyers, TAP believes that these legal actions will have no materially relevant impact on its financial statements as at 31 December 2009. Tax foreclosure relative to obligation of payment by ICMS - Tax on import of goods Value: 61,808 thousand € In March 2009, legal proceedings were brought against TAP Manutenção & Engenharia Brasil regarding the supposed obligation of payment by ICMS, relative to the import of goods. The subsidiary challenged the legal proceedings and its arguments were considered well founded. In December 2009, the appeal of the State was considered well founded by the Taxpayers’ Council. According to the lawyers of this subsidiary, the probability of loss is likely in the administrative sphere and remote in the judicial sphere. Tax foreclosure relative to accessory obligations of ICMS - Tax on import of goods Value: 4,913 thousand €
160
Consolidated Financial Statements
ANNUAL REPORT | 2009
In December 2007, the subsidiary was notified within the scope of a tax foreclosure, executed by the National Treasury of the State of Sao Paulo (Guarulhos), relative to accessory obligations of ICMS. The subsidiary carried out the seizure of 2% of invoicing, and suspended execution by arguing for a review of the tax foreclosure. The subsidiary is currently awaiting a decision by the Judge in relation to the suspension of the execution. The probability of success on the part of the subsidiary is considered likely. Notice of Infraction of II/IPI/PIS/COFINS - Import Value: 11,089 thousand € The subsidiary was notified by the Federal Reserve Office, on 16 October 2007, which considered that the exemption of II and IPI and the 0% rate of PIS and COFINS are not applicable to the import operations of the subsidiary. The subsidiary’s defence has been filed and awaits trial. Based on information provided by its lawyers, TAP believes that this legal action will have no materially relevant impact on its financial statements as at 31 December 2009. It is also important to mention that the Lisbon municipality appealed, in previous financial years, to the Supreme Administrative Court against the decision by the Portuguese Government, as set out in Decree-Law No. 351/89 of October 13, to transfer to TAP ownership of the land, buildings and other constructions, located next to Lisbon Airport and used by the Company. At the same time, a civil action was also filed and its result depends on the outcome of the abovementioned case. TAP believes the outcome of these legal actions will have no significant impact for the Company.
Contingent assets As at 31 December 2009 and 2008, Grupo TAP holds no contingent assets.
40. Details of financial assets and liabilities The reconciliation of the consolidated balance sheet as at 31 December 2009 and 2008 with the several categories of the financial assets and liabilities included therein, are detailed as follows:
2009
Derivative financial Credit instruments designated and other Financial assets Other financial Values in Thousand Euros as hedging instruments receivables available for sale liabilities
Total
Non-financial Assets / Liabilities
Assets Assets available for sale - - 3,395 - - 3,395 Other non-current assets - 26,663 - - - 26,663 Current receivables 6,285 346,305 - - 12,866 365,456 Cash and equivalent - 131,077 - - - 131,077 Total Assets 6,285 504,045 3,395 - 12,866 526,591 Liabilities Non-current remunerated liabilities - - - (1,037,208) - (1,037,208) Other non-current liabilities (1,275) - - - - (1,275) Current remunerated liabilities - - - (265,330) - (265,330) Current payables (662) - - (535,044) (193,063) (728,769) Total Liabilities (1,937) - - (1,837,582) (193,063) (2,032,582)
2008
Derivative financial Credit instruments designated and other Financial assets Other financial Values in Thousand Euros as hedging instruments receivables available for sale liabilities
Total
Non-financial Assets / Liabilities
Assets Assets Available for Sale - - 1,135 - - 1,135 Other non-current assets - - - 52,705 - 52,705 Current receivables - 352,903 - - 10,591 363,494 Cash and equivalent - 182,298 - - - 182,298 Total Assets - 535,201 1,135 52,705 10,591 599,632 Liabilities Non-current remunerated liabilities - - - (1,219,560) - (1,219,560) Other non-current liabilities - - - (4,758) - (4,758) Current remunerated liabilities - - - (193,337) - (193,337) Current payables (2,468) - - (416,611) (353,116) (772,195) Total Liabilities (2,468) - - (1,834,266) (353,116) (2,189,850)
Consolidated Financial Statements
ANNUAL REPORT | 2009
161
41. Quotations used The assets and liabilities of the subsidiaries and foreign associated companies were converted into euros, at the exchange rate on 31 December 2009. The net income for the year items were converted at the average exchange rate of the period. The differences resulting from the application of these rates in comparison with previous values were reflected in the “Currency conversion reserves” item in Equity. The quotations used in 2009 and 2008, against the Euro, were the following:
Appreciation/
2009
2008
(devaluation)
BRL (Brazilian reais) Average exchange rate for the year Exchange rate at the end of the year
2.7642 2.51 €
2.67 € 3.24 €
(3.38%) 22.58%
MOP (Macau pataca) Average exchange rate for the year 11.1481 11.802 Exchange rate at the end of the year 11.506 11.109
5.54% (3.57%)
USD (American dollar) Average exchange rate for the year 1.3963 1.4708 Exchange rate at the end of the year 1.4406 1.3917
5.06% (3.51%)
GBP (pound sterling) Average exchange rate for the year 0.8900 0.7963 Exchange rate at the end of the year 0.8881 0.9525
(11.76%) 6.76%
42. Subsequent events As at 10 January 2010 the Venezuelan Government decided to devalue the Bolívar Forte (VEF) from 1 USD = 2.3 VEF to 1 USD = 4.6 VEF (a 100% devaluation). Subsequently, the Venezuelan Government also authorized the transfer of funds relative to sales between August and November of 2009 at the exchange rate of 1 USD = 2.6 VEF. Consequently, the effect of the exchange rate variation between 31 December 2009 and the date of approval of the accounts by the Board of Directors is unfavourable by about 12 million €, which minus the favourable impact related with the abovementioned transfer of funds from sales, in the amount of approximately 4 million €, resulted in a total unfavourable impact of approximately 8 million €.
43. Companies included in consolidation direct and indirect % of capital held denominação social Subsidiárias: TAP– Transportes Aéreos Portugueses, SGPS, S.A. TAP–Transportes Aéreos Portugueses, S.A. AIR PORTUGAL TOURS–Programações Turísticas, S.A. TAPGER–Sociedade de Gestão e Serviços, S.A. CATERINGPOR–Catering de Portugal, S.A. L.F.P.–Lojas Francas de Portugal, S.A. MEGASIS–Soc. de Serviços e Engenharia Informática, S.A. U.C.S.–Cuidados Integrados de Saúde, S.A. SEAP–Serviços, Administração e Participações Lda. Reaching Force, SGPS, S.A. AERO-LB, Participações, S.A. TAP–Manutenção e Engenharia Brasil S.A. PORTUGÁLIA–Companhia Portuguesa de Transportes Aéreos, S.A.
Head Office Lisbon Lisbon Lisbon Lisbon Lisbon Lisbon Lisbon Lisbon Macau Lisbon Brazil Brazil Lisbon
Direct 100% 100% - 100% - - - - 75% 100% - - 100%
Indirect - - 100% - 51% 51% 100% 100% - - 100% 98.64% -
Total 100% 100% 100% 100% 51% 51% 100% 100% 75% 100% 100% 98.64% 100%
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44. Differences between the Portuguese Accounting Standards (POC) and the IFRS in 2009 The Group adopted the International Standards on Financial Reporting (ISFR) in 2005, exclusively for the purpose of reporting consolidated financial information to the shareholder Parpública, having observed the provisions of IFRS 1 – First-time Application of International Financial Reporting Standards. The date of transition established for the purposes of determining the impacts resulting from the process of adoption of the International Financial Reporting Standards was, under the provisions of IFRS 1, set at 1 January 2004.
Reconciliation of equity and net income for the 2009 financial year The individual financial statements of TAP – Transportes Aéreos Portugueses, SGPS, S.A. are elaborated in conformity with the generally accepted standard in Portugal, the Portuguese Accounting Plan (POC - Plano Oficial de Contabilidade). If the Group prepared consolidated accounts in conformity with the POC, due to the fact of applying the equity method to its financial shareholdings, Equity and Net income for the year would be equal. In this sense, the table below summarises the reconciliation of consolidated Equity and consolidated Net income for the year between the national standard and the international standard.
Net Income
Other Equity Headings
POC (17,755) (265,342) Revaluation of buildings 714 56,477 Annulment of Goodwill amortisations 10,465 13,019 Derecognition of intangible assets 3,600 (8,212) Derecognition of deferred costs (56) (2,412) Recognition of Derivative FI - 4,348 Other (510) 1,038 IFRS (3,542) (201,084)
2009 Total Equity* (283,097) 57,191 23,484 (4,612) (2,468) 4,348 528 (204,626)
* Includes minority interests
2008
Other Equity Headings
Total Equity*
POC (289,353) Revaluation of buildings (1,395) Annulment of Goodwill amortisations 11,474 Derecognition of intangible assets (7,225) Derecognition of deferred costs 840 Recognition of Derivative FI Other 184 IFRS (285,475)
61,587
(227,766)
57,873 (44) (43) (3,252) (2,466) 119
56,478 11,430 (7,268) (2,412) (2,466) 303
113,774
(171,701)
Net Income
* Includes minority interests
The main differences between the financial statements prepared in conformity with POC and the financial statements prepared in conformity with IFRS are the following:
Tangible fixed assets The Group applied the exception foreseen in IFRS 1 - First-time Application of International Financial Reporting Standards, which allows the fair value of some categories of assets, reported at the transition date (1 January 2004), to be considered at deemed cost. Thus, effective as of 1 January 2004, the assets belonging to the category of buildings were revalued at the corresponding fair value at that date. The fair value of these tangible fixed assets items was determined by an assets evaluation study conducted by an independent specialised entity (Colliers P&I), which also determined the remaining useful life of these assets, at the date of transition, and thus the amortisations of 2004 were recalculated based on that remaining useful life period.
Goodwill In accordance with IFRS, the Goodwill resulting from business concentrations is measured by cost minus any accumulated impairment loss. The systematic amortisation of said goodwill is not carried out.
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Consolidated Financial Statements
163
Intangible assets and deferred costs In accordance with IFRS, certain assets and liabilities considered as such in the financial statements prepared in accordance with local standards do not qualify as assets and liabilities, namely intangible assets, such as set up and research and development expenses and deferred costs, such as conservation and repair expenses and charges, which must be taken directly to profit and loss for the year when they occur.
Recognition of fair value of derivative financial instruments The fair value of derivative financial instruments, which in the Grupo TAP case correspond to interest rate and jet-fuel swaps, which qualify as cash-flow hedging derivatives, were recognised in the consolidated balance sheet in IFRS.
Deferred taxes To the extent that the abovementioned adjustments generated taxable temporary differences and, therefore, the corresponding liabilities for deferred taxes were recognised, deferred tax assets were also recognised, related with tax losses and provisions not accepted for tax purposes, that compensate the deferred tax liabilities in the period of their reversion.
ACCOUNTANT Sandra Candeias Matos da Luz
EXECUTIVE BOARD OF DIRECTORS Chairman Fernando Abs da Cruz Souza Pinto Voting Member Luís Manuel da Silva Rodrigues Voting Member Fernando Jorge Alves Sobral Voting Member Luiz da Gama Mór Voting Member Manoel José Fontes Torres Voting Member Michael Anthony Conolly
164
Audit Report
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Audit Report Introduction 1. We have examined the attached consolidated financial statements of TAP - Transportes Aéreos Portugueses, SGPS, S.A., which include the consolidated Balance Sheet as at 31 December 2009 (that reflects a total of 2,024,395 thousand Euros and total negative equity of 204,625 thousand Euros, which includes total minority interests of 6,705 thousand Euros and a consolidated negative net income of 3,542 thousand Euros), the consolidated Cash Flow Statement for the financial year then ended and the corresponding Annexes to the consolidated financial statements. These consolidated financial statements were prepared in conformity with the International Financial Reporting Standards (IFRS), as adopted by the European Union.
Responsibilities 2. It is the responsibility of the Executive Board of Directors to prepare consolidated financial statements that present a true and appropriate view of the financial position, consolidated result of their operations and consolidated cash flows of the group of companies included in the consolidation, as well as the adoption of adequate accounting policies and criteria and the maintenance of appropriate internal control systems including information on any relevant facts that influenced the activity, financial position or results of the companies concluded in the consolidation perimeter. 3. Our responsibility consists of expressing a professional and independent opinion based on our examination of those financial statements.
165
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Scope 4. The examination we carried out was performed in accordance with the Technical Standards and Directives of Revision/Auditing issued by the Portuguese Institute of Statutory Auditors (“Ordem dos Revisores Oficiais de Contas”), which require that the review be planned and performed with the aim of obtaining an acceptable level of assurance that consolidated financial statements are free from materially relevant misstatements. For this purpose, this examination included the verification of a sample of supporting documentation for the amounts and disclosures included in the financial statements and assessment of estimates based on judgments and criteria defined by the Executive Board of Directors, used in their elaboration, verification of the consolidation operations, assessing the adequacy of the accounting principles used, their uniform application and their disclosure considering the circumstances, verifying the applicability of the going concern concept and the assessment of the adequacy of overall presentation of the consolidated financial statements. 5. We believe that the examination carried out provides an acceptable basis for expressing our opinion.
Reservation 6. The net income for the year has been influenced by the recording of an impairment loss of a financial investment in the amount of approximately € 32 million, as disclosed in the Annexes to the financial statements nos. 8 and 21. Given that the assessment assumptions used were the same as in the previous year, its recognition should have been accounted for directly in equity, in the retained earnings account.
Opinion 7. In our opinion, with exception of the situation described in paragraph 6 above, the aforementioned consolidated financial statements present appropriately and fairly, in all materially relevant aspects, the consolidated financial position of TAP - Transportes Aéreos Portugueses, SGPS, S.A., as at 31 December 2008, consolidated result of their operations and consolidated cash flows for the year then ended, in conformity with the International Financial Reporting Standards as adopted by the European Union.
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Emphasis 8. Notwithstanding the opinion expressed in the previous paragraph, we would like to draw your attention to the following situations: 8.1. More than half of the share capital of the Company has been lost, a situation that falls under Article 35 of the Commercial Companies Code, requiring its rectification in the conditions established therein; 8.2. The Legal Certification of Accounts of TAP, main subsidiary, includes an emphasis on the applicability of the going concern concept.
Lisbon, 14 Abril 2010
OLIVEIRA, REIS & ASSOCIADOS, SROC, LDA. Represented by
José Vieira dos Reis, ROC n° 359
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Annex Proposed Application of Results Financial Statements Balance Sheets Profit and Loss Statements by Nature Profit and Loss Statement by Functions Cash Flow Statement Annex to the Financial Statements
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PROPOSED APPLICATION OF RESULTS The negative net income of 17,754,883 Euros registered by TAP – Transportes Aéreos Portugueses, SGPS, S.A. for 2009, results from the sum of the following values: Operating results Financial results
(7,652,257) (10,102,626)
It is thus proposed that the abovementioned net income for the financial year be fully transferred to retained earnings, in accordance with current legislation and the Company’s statutes. In view of the negative amount of the net income at the end of the year, and since equity is negative by 289,802,431 Euros, and in compliance with the provisions in article 35 of the Commercial Companies Code, the Board of Directors shall propose the following for its coverage: - Entry of cash to the value of 297,500,000 Euros.
Lisbon, 12th March, 2010
EXECUTIVE BOARD OF DIRECTORS Chairman Fernando Abs da Cruz Souza Pinto Voting Member Luís Manuel da Silva Rodrigues Voting Member Fernando Jorge Alves Sobral Voting Member Luiz da Gama Mór Voting Member Manoel José Fontes Torres Voting Member Michael Anthony Conolly
170
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Balance Sheets
as at 31 December 2009 and 2008
Activo
2009
Amortisations Notes Assets gross and adjustments Values in Euros
Assets NET
FIXED ASSETS:: Intangible fixed assets: Goodwill 8 and 10 109,928,597 27,575,306 82,353,291 Financial investments: Shareholdings in group companies 10 47,992,490 - 47,992,490 Loans to group companies 10 5,214,671 - 5,214,671 Shareholdings in associated companies 10 3,700,000 - 3,700,000 Down-payments on financial investments 10 - - - 56,907,161 - 56,907,161 MEDIUM AND LONG TERM DEBTS TO THIRD PARTIES: Other debtors 50 3,532,574 - 3,532,574 Group companies 16 100,576,758 - 100,576,758 104,109,332 - 104,109,332 CURRENT ASSETS: THIRD PARTY SHORT TERM DEBTS: Group companies 16 497 - 497 Associated companies 16 35,002,425 - 35,002,425 State and other public entities 48 7,777 - 7,777 Other debtors 16 and 50 14,985 - 14,985 35,025,684 - 35,025,684 BANK DEPOSITS AND CASH: Bank deposits 20,012 20,012
Total amortisations Total adjustments Total assets 305,990,786
27,575,306 - 27,575,306 278,415,480
2008
89,931,430
50,673,655 5,400,832 3,700,000 31,600,000 91,374,487 30,882,487 30,882,487
502,785 7,159 15,476 525,420 2,545,289
215,259,113
The accompanying notes are an integral part of the balance sheet as at 31 December 2009.
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Equity and liabilities
Values in Euros
Notes
2009
2008
EQUITY:
Capital 36, 37 e 40 15,000,000 Adjustment in group and associated companies 40 (88,770,016) Exchange rate adjustment 40 5,885,554 Legal reserves 40 3,000,000 Retained earnings 40 (207,163,086) Net income for the year 40 (17,754,883) Total equity (289,802,431) LIABILITIES: Provisions: Other provisions 34 303,451,218 MEDIUM AND LONG TERM DEBTS TO THIRD PARTIES: Debts to credit institutions 53 4,866,953 Other creditors 16 e 50 3,475,542 8,342,495 SHORT-TERM DEBTS TO THIRD PARTIES: Debts to credit institutions 53 133,047 Suppliers c/a 16 44,288 Group companies 16 256,162,806 State and other public entities 48 7,518 Other creditors 16 e 50 1,700 256,349,359 ACCRUALS AND DEFERRALS: Accrued costs 49 17,807 Deferred income 57,032 74,839 Total liabilities 568,217,911 Total equity and liabilities 278,415,480
Accountant Sandra Candeias Matos da Luz
Executive Board of Directors Chairman Fernando Abs da Cruz Souza Pinto Voting Member Luís Manuel da Silva Rodrigues Voting Member Fernando Jorge Alves Sobral Voting Member Luiz da Gama Mór Voting Member Manoel José Fontes Torres Voting Member Michael Anthony Conolly
15,000,000 (7,364,032) (7,452,093) 3,000,000 51,606,532 (289,352,800) (234,562,393)
277,515,651
5,000,000 2,260,553 7,260,553 46,436 133,010,120 68,400 31,601,700 164,726,656 281,902 36,744 318,646 449,821,506 215,259,113
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Profit and Loss Statements by Nature for the financial years ended on 31 December 2009 and 2008
COSTS AND LOSSES Notes
2009
2008
External supplies and services 51 66,506 Payroll expenses: Remuneration 52 2,740 Amortisations of tangible and intangible fixed assets 10 7,578,139 7,622,192 Provisions 34 - 7,578,139 20,164,699
45,998
Values in Euros
Taxes 4,872 (A) 7,652,257 Losses in group and associated companies 45 38,982,639 261,138,866 Amortisations and adjustments to financial investments 45 31,600,000 - Interest and similar costs: Relative to group companies 45 4,811,170 4,472,022 Other 45 123,340 75,517,149 299,666 (C) 83,169,406 Extraordinary costs and losses - (E) 83,169,406 Net income for the year (17,754,883) 65,414,523 Operating net income: (B) - (A) (7,652,257) Financial net income: (D-B) - (C-A) (10,102,626) Current net income: (D) - (C) (17,754,883) Pre-tax net income: (F) - (E) (17,754,883) Net income for the year: (F) - (G) (17,754,883)
1,370
27,786,891 50,620 27,884,879
265,910,554 293,795,433 293,795,433 (289,352,800) 4,442,633 (27,542,879) (261,809,921) (289,352,800) (289,352,800) (289,352,800)
The accompanying notes are an integral part of the balance sheet as at 31 December 2009.
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REVENUES AND GAINS Values in Euros
2009
Services rendered - (B) - Gains in group and associated companies 45 63,648,995 Other similar interest and revenues: Relative to group companies 45 1,765,150 Other 45 378 (D) 65,414,523 (F) 65,414,523
Accountant Sandra Candeias Matos da Luz
Executive Board of Directors Chairman Fernando Abs da Cruz Souza Pinto Voting Member Luís Manuel da Silva Rodrigues Voting Member Fernando Jorge Alves Sobral Voting Member Luiz da Gama Mór Voting Member Manoel José Fontes Torres Voting Member Michael Anthony Conolly
2008
Notas 342,000 342,000 3,074,045 1,020,865 5,723 4,442,633 4,442,633
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Profit and Loss Statement by Functions for the years ended on 31 December 2009 and 2008
Values in Euros
Sales and services rendered Cost of the sales and services rendered Gross income Other operating revenues and gains Administrative costs Other operating costs and losses Operating net income Net financing cost Gains from subsidiaries and associated companies Losses in other investments Unusual or not frequent income Current net income Taxes on current net income Net income Net income per share
The accompanying notes are an integral part of the profit and loss statement by functions.
Accountant Sandra Candeias Matos da Luz
Executive Board of Directors Chairman Fernando Abs da Cruz Souza Pinto Voting Member Luís Manuel da Silva Rodrigues Voting Member Fernando Jorge Alves Sobral Voting Member Luiz da Gama Mór Voting Member Manoel José Fontes Torres Voting Member Michael Anthony Conolly
2009
2008
- - - - (7,647,384) (4,872) (7,652,256) (3,168,981) (6,933,646) - - (17,754,883) - (17,754,883)
342,000 342,000 (7,669,560) (20,215,319) (27,542,879) (3,745,100) (258,064,821) (289,352,800) (289,352,800)
(11.84)
(192.90)
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Cash Flow Statement
for the financial years ended on 31 December 2009 and 2008
Cash assets
2009
2008
Values in Euros OPERATING ACTIVITIES: Receipts from customers - 410,400 Payments to suppliers (64,429) (239,152) Payments to staff (2,080) (9,622) Flow from operations (66,509) 161,626 Payment/receipt of corporate income tax (618) 597 Other receipts/payments relative to operating activity (2,378,412) 2,160,617 Flows before extraordinary items (2,445,539) 2,322,840 Flows from operating activities (1) (2,445,539) INVESTMENT ACTIVITIES: Receipts from: Interest and similar income 38,637 141,527 Dividends 2,644,397 2,000,000 Loans granted 500,000 3,183,034 1,590,000 Payments relative to: Financial investments - (12,700,000) Loans granted (89,602,000) (89,602,000) (28,781,000) Flows from investment activities (2) (86,418,966)
2,322,840
3,731,527
(41,481,000) (37,749,473)
FINANCING ACTIVITIES: Receipts from: Loans obtained 190,021,000 190,021,000 95,012,000 Payments relative to: Loans obtained (102,162,000) (55,802,000) Interest and similar costs (1,519,772) (103,681,772) (1,514,784) Flows from financing activities (3) 86,339,228
(57,316,784) 37,695,216
Change in cash and its equivalents (4)=(1)+(2)+(3) (2,525,277) Effect of exchange rate differences - Cash and its equivalents at the beginning of the year 2,545,289 Cash and its equivalents at the end of the year 20,012
2,268,583 276,706 2,545,289
The accompanying notes are an integral part of the cash flow statement.
Accountant Sandra Candeias Matos da Luz
Executive Board of Directors Chairman Fernando Abs da Cruz Souza Pinto Voting Member Luís Manuel da Silva Rodrigues Voting Member Fernando Jorge Alves Sobral Voting Member Luiz da Gama Mór Voting Member Manoel José Fontes Torres Voting Member Michael Anthony Conolly
95,012,000
176
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Annex to the Cash Flow Statement for the financial years ended on 31 December 2009 and 2008
2. Breakdown of the treasury components and their equivalent: Cash assets
2009
Overnight bank cash deposits Cash and deposits as stated in the balance sheet
20,012 20,012
2008 2,545,289 2,545,289
As at 31 December 2008 the bank deposits item included the value of € 2,260,553, which in 2009 was no longer presented as cash equivalent due to the fact that it is no longer readily convertible into cash.
TÉCNICO OFICIAL DE CONTAS Sandra Candeias Matos da Luz
Conselho de Administração Executivo Presidente Fernando Abs da Cruz Souza Pinto Vogal Luís Manuel da Silva Rodrigues Vogal Fernando Jorge Alves Sobral Vogal Luiz da Gama Mór Vogal Manoel José Fontes Torres Vogal Michael Anthony Conolly
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Annex to the Financial Statements as at 31 December 2009 (Amounts in Euros)
Introductory Note TAP–Transportes Aéreos Portugueses, SGPS, S.A. (“Company” or “TAP SGPS”) is a state-owned limited company with head office in Lisbon. It was incorporated on 25 June 2003, under Decree-Law number 87/2003, of 26 April, and its share capital was fully subscribed and paid in kind by Parpública–Participações Públicas, SGPS, S.A., by delivering the shares representing the total share capital of Transportes Aéreos Portugueses, S.A. (“TAP S.A.”). The corporate object of the Company is the management of shareholdings in other companies as an indirect form of carrying out economic activities. The attached financial statements were obtained from the Company’s accounting records, which were prepared in conformity with the provisions in the Official Portuguese Accounting Plan (POC - Plano Oficial de Contabilidade) and the accounting directives issued by the Accounting Standardization Committee (Comissão de Normalização Contabilística). The following notes comply with the numbering sequence defined in the POC. The notes that are absent from this annex are not applicable to the Company or their presentation is not relevant for the assessment of the attached financial statements. Except when specifically indicated, all the values presented are expressed in Euros. In March 2009, a consortium of three banks (BIG, Banif and Banco Invest) transferred the shareholding in SPdH–Serviços Portugueses de Handling, S.A. (“SPdH”) (50.1%) to TAP S.A. for 31.6 million Euros. On the same date and during the period in which the concentration process at the Competition Authority was pending, TAP S.A. transferred the exercise of its voting and supervision rights, whilst majority shareholder of SPdH, to an independent entity of Grupo TAP. The Competition Authority (CA), on 19 November 2009, following an in-depth investigation, decided to adopt a prohibition decision relative to the concentration operation that consisted in the acquisition, by TAP S.A., of exclusive control of SPdH, via the acquisition of a 50.1% stake of the share capital of SPdH. The CA thus imposed the obligation of separation of SPdH via the sale, by the Grupo TAP, of the shares relative to at least 50.1% of the share capital of SPdH. Up until the sale, the regulator imposed that SPdH be administered by a trustee, acting on behalf of the Competition Authority, managing SPdH independently from Grupo TAP. Thus, the attached financial statements include provisions to cover the appropriation of the total losses and net worth of SPdH.
2. Comparability with the Previous Year During 2009, TAP S.A. changed the accounting policy associated to the customer loyalty programmes – TAP Victoria and TAP|Corporate Fly, valuing the miles attributed to customers that are members of the fair value scheme. Up until the financial year under analysis, the subsidiary value the miles attributed to member customers according to the costs incurred with the provision of these preferential conditions. The said change in accounting policy resulted in an increase of the liabilities towards the abovementioned programmes in the amount of 16,367,901 Euros (Note 40) and an increase in losses for the year of 3,995,495 Euros.
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3. Basis of Presentation and Main Valuation Criteria The attached financial statements were prepared under the assumption of the continuity of the operations, based on the Company’s books and accounting records, kept in accordance with generally accepted accounting principles in Portugal, and which may differ from those used in other countries. These financial statements only reflect the individual accounts of TAP – Transportes Aéreos Portugueses, SGPS, S.A., prepared under the legal terms for approval at the General Meeting of Shareholders and for publication. The main valuation criteria used in the preparation of these financial statements were the following:
a) Goodwill The intangible fixed assets are recorded at acquisition cost and essentially include goodwill occurred in the acquisition of the financial holdings, which are amortised by the straight-line method, during the periods disclosed in Note 8. The determination of these periods took into account the activity of the participated companies and the estimated period of useful economic life of their main intangible fixed assets. Furthermore, the goodwill calculated for the subsidiaries in foreign currency, is considered an asset of these subsidiaries and is in this way transposed at the end-of-year exchange rate.
b) Financial shareholdings Financial investments in group and associated companies are recorded through the equity method, with shareholdings initially being recorded at acquisition cost (Note 16). According to this method, financial shareholdings are adjusted annually by the value corresponding to the respective stake in the net income of the group’s companies and counterbalanced by profits or losses in the financial year (Note 45). Shareholdings are also adjusted by the value corresponding to the share in other changes in the equity of these companies, against the heading “Adjustment to shareholdings in subsidiaries and associated companies”. In addition, the dividends received from these companies are recorded as a deduction from the balance of the “Financial investments” heading, in the year when they are attributed. The differences between the acquisition cost of investments in group and associated companies and the proportional value of the Company’s share in the equity of these companies, on the acquisition date, were recorded in the intangible fixed assets heading under “Goodwill”. Financial investments in incorporated and/or acquired companies for subsequent sale are recorded at their acquisition cost, which cannot be greater than the respective market value of these investments. Other financial investments, namely those recorded under the heading Loans to group companies, are recorded at nominal value. The estimated losses incurred from financial shareholdings and loans are itemised under the heading “Adjustments to financial investments”. The financial statements of the group and associated companies expressed in foreign currency, including the fair values of the assets and liabilities attributed on the acquisition date, are converted to Euros at the following exchange rates: Historical exchange rate: for equity, except the net income for the year; Exchange rate on the balance sheet date: for assets and liabilities; Average exchange rate of the period: for the profit and loss statement for the year.
c) Balances and transactions expressed in foreign currency All assets and liabilities expressed in foreign currency were converted into Euros using the respective exchange rates on the balance sheet dates. Currency conversion differences, favourable or unfavourable, arising from differences between the exchange rates in force on the date of the transactions and those applicable on the date of the collections, payments or balance sheet, were recorded as income and costs in the profit and loss statement, with the exception of the exchange rate differences arising from financing granted for the medium and long term, to foreign entities (Aero-LB, Participações, S.A.) whose liquidation is not likely to occur in the predictable future, and are thus, in substance, an extension of the Company’s net investment in that foreign entity. These differences were recorded in the Company’s equity under the heading “Exchange Rate adjustment” (Note 40).
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d) Adjustments to assets and provisions The adjustments to the financial investments are constituted by the difference between the acquisition cost and the recoverable amount, whenever the latter is less than the former. Adjustments to third parties debts are calculated based on the forecast risks relative to collection at the end of each year. The provisions are constituted for the purpose of recognising liabilities whose nature is clearly defined and whose occurrence are probable or certain, on the date of the balance sheet, but whose value or date of occurrence are uncertain.
e) Use of estimates A preparação de demonstrações financeiras exige que a gestão da Empresa efectue julgamentos e estimativas que afectam os montantes de proveitos, despesas, activos, passivos e divulgações à data do balanço. Estas estimativas são determinadas pelo juízo da gestão da Empresa, baseado: (i) na melhor informação e conhecimento de eventos presentes, suplementada, em alguns casos, em relatos de peritos independentes e (ii) nas acções que a Empresa considera poder vir a desenvolver no futuro. Todavia, na data de desfecho das operações, os resultados das mesmas poderão ser diferentes destas estimativas.
f) Specialisation of years The Company records its revenues and costs in accordance with the principle of specialisation of years, through which the revenues and costs are recorded when they are earned or incurred, regardless of the time when they are received or paid. The differences between the amounts received and paid and the corresponding revenues and costs are recorded under the accruals and deferrals headings.
4. Rates Used for Conversion Into Euros The following exchange rates were used, on 31 December 2009 and 31 December 2008, to convert the main assets and liabilities of the Balance Sheet, expressed in foreign currency: Currency BRL MOP
2009
2008
2.5113 11.5060
3.2436 11.1094
6. Taxes The Company is subject to Corporate Income Tax (“IRC”) at a normal rate of 25% in 2009, plus a municipal tax (“Derrama”) of 1.5% on taxable income, resulting in an overall tax rate of 26.5%. In accordance with current legislation, tax returns are subject to review and correction by the tax authorities for a period of four years (five years for Social Security). However, when losses are presented they may be subject to review and liquidation by the tax authorities for a period of ten years. The Company’s Board of Directors considers that any corrections resulting from reviews/inspections by the tax authorities to these tax returns will not have significant impact on the financial statements as at 31 December 2009. Under the terms of Article No. 81 of the Corporate Income Tax Code, the Company is additionally subject to autonomous taxation on several expenses at the rates established in the abovementioned article. Under current tax legislation, losses are deductible over up to a six-year period after their occurrence and may thus be subtracted from the taxable profits created over this period. The losses identified by the Company, and which may be used to compensate future taxable profits, in accordance with the tax returns presented by the Company, and the respective carry-over year, are as follows: Year of origin Values in Euros 2004 2005 2006 2007 2008 2009 (estimated)
Reportable value in the period
Reporting year
1,853,167 1,040,318 4,084,748 2,330,580 1,765,228 2,063,825 13,137,866
2010 2011 2012 2013 2014 2015
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Since there are no expectations on the creation of taxable profit in the future and in view of the provisions in Accounting Directive number 28 on the recognition of deferred tax assets related to reportable fiscal losses, the Company did not record the deferred tax assets of this nature. The gains and losses in group companies arising from the application of the equity method, are deducted or added, respectively, to the net income for the year, to calculate the taxable amount or fiscal losses, in accordance with article 46 of the Corporate Income Tax Code. The reconciliation of the effective tax rate is evidenced as follows: 2009
Values in Euros
Net income before taxes (17,754,883) Nominal tax rate 26.50% Expected tax (4,705,044) Permanent differences (a) 4,158,130 Autonomous taxation - (546,914) Effective tax rate 3.08% (a) This value essentially refers to: Effect of the equity method application (Note 45) 6,933,644 Non-deductible provisions - Amortisation not accepted as cost 7,578,139 Financial costs 998,206 Non-deductible adjustments 181,069 15,691,058 Tax impact 26.5% 4,158,130
2008 (289,352,800) 26.50% (76,678,492) 75,994,263 (684,229) 0.24%
258,064,821 18,088,997 7,622,192 1,238,453 1,756,339 286,770,802 75,994,263
7. Number of Employees As at 31 December 2009, the Company did not have any employees (Note 43).
8. Goodwill As referred to in Note 3.a), the differences between the acquisition cost and the amount of equity corresponding to group and associated companies on the acquisition date, after the attribution of the fair value to the acquired assets and liabilities, are recorded under the Goodwill heading, and amortised over the estimated investment pay-back period, as follows. Difference from Amortisation Accumulated Useful life initial purchase for the year amortisation in 2009 Values in Euros (Note 10) (Note 10) (Note 10)
Net value (Note 10)
Transportes Aéreos Portugueses, S.A. 5 TAPGER–Sociedade de Gestão e Serviços, S.A. (“Tapger”) 5 SEAP–Serviços, Administração e Participações, Lda. (“SEAP”) 5 Reaching Force, SGPS, S.A. (“Reaching Force”) 20
918,234 81,435,057 82,353,291
881,059 9,163,191 5,008,553 94,875,794 109,928,597
- (1,832,638) (1,001,711) (4,743,790) (7,578,139)
(881,059) (9,163,191) (4,090,319) (13,440,737) (27,575,306)
10. Changes in Fixed Assets and in Accumulated Amortisations During the year ended on 31 December 2009, the changes in the values of intangible fixed assets and financial investments and in their respective accumulated amortisations were as follows: Values in Euros Initial balance Increases Reductions Intangible fixed assets: Goodwill (Note 8) 109,928,597 - - Financial investments: Shareholdings in group companies 50,673,655 2,631,000 (5,312,165) Loans to group companies 5,400,832 - (186,161) Shareholdings in associated companies 3,700,000 - - Down-payments on financial investments 31,600,000 - (31,600,000) 91,374,487 2,631,000 (37,098,326)
Gross assets Final balance 109,928,597
47,992,490 5,214,671 3,700,000 56,907,161
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ANNUAL REPORT | 2009 Values in Euros Initial balance Increases Intangible fixed assets: Goodwill
19,997,167
181
Amortisations Final balance
7,578,139
27,575,306
The changes occurred during 2009 in the financial investments heading has the following composition: Values in Euros
TAPGER
SEAP
SPdH Reaching Force
Financial investments PGA
Subtotal
31 December 2008 8,159,504 5,400,832 3,700,000 39,846,383 2,667,768 Distribution of net income (2,644,397) - - - - Net income appropriated by applying the equity method (Note 45): Gains 2,631,000 - - - - Losses - - - - - Adjustments to shareholdings in group and associated companies (Note 40): Exchange rate adjustments - (186,161) - - - Other changes in equity Transfers - - - - (2,667,768) 31 December 2009 8,146,107 5,214,671 3,700,000 39,846,383 -
59,774,487
Values in Euros
TAP S.A.
SEAP
SPdH
(2,644,397)
2,631,000 -
(186,161) (2,667,768) 56,907,161
Other provisions (Note 34)
PGA Reaching Force
31 December 2008 (115,587,438) (5,338,293) (17,669,266) - (118,755,955) Distribution of net income - - - - - Net income appropriated by applying the equity method (Note 45): Gains 61,017,995 - - - - Losses - (1,372) (27,819,815) (5,308,165) (5,853,287) Adjustments to shareholdings in group and associated companies (Note 40): Exchange rate adjustments - 184,110 - - - Other changes in equity (17,102,901) - (2,124,786) (135,625) (31,459,490) Transfers - - (20,164,699) 2,667,768 - 31 December 2009 (71,672,344) (5,155,555) (67,778,566) (2,776,022) (156,068,732)
Subtotal (Note 34) Total (Note 16) (257,350,952)
(197,576,465)
-
(2,644,397)
61,017,995 (38,982,639)
63,648,995 (38,982,639)
184,110 (50,822,802) (17,496,931)
(2,051) (50,822,802) (20,164,699)
(303,451,218)
(246,544,058)
The heading “Other provisions”, corresponds to the Company’s proportion in the negative equity of TAP S.A., SEAP, SPdH, PGA and Reaching Force, in the amounts of 71,672,344 Euros, 5,155,555 Euros, 67,778,566 Euros, 2,776,022 Euros and 156,068,732 Euros, respectively. Reaching Force is a Portuguese registered company which was incorporated to acquire a 90% stake (currently 98.64%) in the share capital of TAP Manutenção e Engenharia Brasil S.A. (“TAP–Manutenção Brasil”). This stake is held via a third company, the Brazilian-registered Aero-LB Participações, S.A. (“Aero-LB”), 100% owned by Reaching Force.
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16. Group and Associated Companies Company Values in Euros
Shareholding Income totals % Balance Value total assets Equity for the year revenues
Shareholdings in group companies: Transportes Aéreos Portugueses, S.A. 100 (71,672,344) 1,745,574,728 (64,116,983) 57,354,005 1,980,260,718 a) TAPGER–Soc. de Gestão e Serviços, S.A. 100 8,146,107 17,485,993 8,146,107 2,977,696 4,841,038 Portugália–Comp. Portuguesa de Transp. Aéreos, S.A. 100 (2,776,022) 178,729,738 (2,776,022) (5,135,145) 67,210,687 a) SEAP–Serviços, Administração e Participações, Lda. 75 (5,155,555) 122,090 78,821 (1,829) - a), b) Reaching Force, SGPS, S.A 100 (116,222,349) 51,145,115 (116,222,349) 3,507,597 8,253,273 a) (187,680,163) Loans to group companies: SEAP–Serviços, Administração e Participações, Lda. 100 5,214,671 n/a n/a n/a n/a Shareholdings in associated companies: SPdH–Serviços Portugueses de Handling, S.A. 94 (64,078,566) 27,719,906 (68,404,857) (28,222,545) 117,613,566 a) (246,544,058)
a) The Company’s share of the negative equity of these shareholdings was recorded in the “Other provisions” heading (Notes 34 and 45). b) Values in Euros resulting from the conversion of the financial statements presented in MOP (Macao Patacas) on 31 December 2009. For the effects of the application of the equity method, the net income for the year and equity of TAP S.A., were corrected as follows: Values in Euros TAP S.A. net income for the year Corrections to TAP S.A. Net income: TAPGER Goodwill Amortisation SEAP Goodwill Amortisation LFP and Cateringpor Goodwill Amortisation Net income corrected for equity method effects TAP S.A. equity Corrections to TAP S.A. Net Income: TAPGER gain SEAP gain TAPGER Goodwill Amortisation SEAP Goodwill Amortisation LFP and Cateringpor Goodwill Amortisation Equity corrected for equity method effects
2009 57,354,005 1,832,638 1,001,711 829,641 61,017,995 (64,116,983) (19,948,519) (5,008,553) 9,163,190 4,090,318 4,148,203 (71,672,344)
The “TAPGER Goodwill Amortisation” correction corresponds to the recognition, in 2009, of part of the capital gain TAP S.A. recorded due to the sale of TAPGER to the Company in 2004, which is equivalent to the amortisations of the respective goodwill recorded by the Company in 2009. The “SEAP Goodwill Amortisation” correction corresponds to the recognition, in 2009, of part of the capital gain TAP S.A. recorded due to the sale of SEAP to the Company in 2005, which is equivalent to the amortisations of the respective goodwill recorded by the Company in 2009. The “LFP and Cateringpor Goodwill Amortisation” refers to the appropriation, in 2009, of part of the financial gain recorded by TAP S.A. through the sale of TAPGER to the Company in 2004. This income corresponded to the recognition through profit or loss, by TAP S.A., of the capital gain created through the sale to TAPGER, in 1998, of the financial holdings in the associated companies LFP–Lojas Francas de Portugal, S.A. and Cateringpor–Catering de Portugal, S.A., which was deferred. The recognition through profit or loss was carried out in proportion to the amortisations of the respective goodwill recorded by TAPGER. The appropriated amount of 829,641 Euros corresponds to the amortisation of this goodwill recorded by TAPGER in 2009.
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As at 31 December 2009, the balances with group and associated companies were as follows: Group Group companies and Group companies - MLT companies - ST Other companies - ST (debit balances) (debit balances) Other creditors (credit balances) Other Values in Euros (Note 47) (Note 47) debtors MLT (Note 47) Suppliers creditors Transportes Aéreos Portugueses, S.A. - - 14,191 (3,475,542) (241,527,204) (6,156) Aero-LB, Participações, S.A. 100,576,758 - - - - - TAPGER–Sociedade de Gestão e Serviços, S.A. - - - - (602,824) - Portugália–Companhia Portuguesa - - - - (14,032,778) - de Transportes Aéreos, S.A. Reaching Force - SGPS, S.A. - 497 794 - - - SPdH–Serviços Portugueses de Handling, S.A. - 35,002,425 - - - - 100,576,758 35,002,922 14,985 (3,475,542) (256,162,806) (6,156)
(1,700) (1,700)
The balance payable to TAP includes, on 31 December 2009, the amount of 229,371,000 Euros, relative to a short term loan. The remaining value in debt refers to interest payable and to payments made by TAP on behalf of the Company. On 31 December 2008, the balance payable to TAP S.A. included the amount of 30,000,000 Euros relative to debt issued by the Company, in the form of commercial paper, which its subsidiary TAP fully subscribed. This operation, which was handled by a banking intermediary, reached maturity in October 2009, not having been renewed. The amount receivable from Aero-LB, includes the value of 97,607,188 Euros corresponding to a loan granted to this entity (100% held by Reaching Force), denominated in Reais, and which earns interest at normal market rates. The remainder, to the value of 2,969,570 Euros, refers to the interest receivable from this loan. In December 2009 a loan contract was celebrated with SPdH, in the amount of 35,000,000 Euros, with a repayment schedule of less than 1 year and earning interest at normal market rates. In May 2009 and December 2009, PGA granted short term loans to the Company, in the amounts of 9,000,000 Euros and 5,000,000 Euros, respectively, which will earn interest at normal market rates.
34. Changes in the Provisions During the year ended on 31 December 2009, the following changes occurred under the provision headings: Captions Values in Euros
Decrease
Final balance
Equity method appropriation of equity losses of 257,350,952 20,164,699 87,137,671 (61,202,104) group companies (Note 10) Other provisions 20,164,699 (20,164,699) - - 277,515,651 - 87,137,671 (61,202,104)
Initial balance
Transfers
Increase
303,451,218 303,451,218
36. Composition of the Share Capital The Company’s share capital is totally subscribed and paid up, in accordance with Decree-Law number 87/2003, of 26 April. Its total value is 15,000,000 Euros and consists of 1,500,000 shares with a nominal value of 10 Euros each (Note 40).
37. Corporate Shareholders with more than 20% of the Share Capital As at 31 December 2009, the Company was 100% owned by Parpública - Participações Públicas, SGPS, S.A.
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40. Changes in the Equity Headings During the year ended 31 December 2009, the changes to the equity headings were as follows: Application Values in Euros Initial balance Increases Reductions Transfers of net income Final balance Capital (Note 36) 15,000,000 - - - - Adjustment of shareholdings in subsidiaries and associated companies (Note 10) (7,364,032) - (50,822,802) (30,583,182) - Exchange rate adjustment (Note 10) (7,452,093) 13,339,698 (2,051) - - Legal reserves 3,000,000 - - - - Retained earnings 51,606,532 - - 30,583,182 (289,352,800) Net income for the year (289,352,800) - (17,754,883) - 289,352,800 (234,562,393) 13,339,698 (68,579,736) - -
15,000,000 (88,770,016) 5,885,554 3,000,000 (207,163,086) (17,754,883) (289,802,431)
The changes under the heading “Adjustment to shareholdings in subsidiaries and associated companies” refer to the following variations in the equity of Reaching Force, TAP S.A., SPdH and PGA: Reaching Force Exchange rate update of Aero-LB Impact of equity method application to Reaching Force - Net Income 2008 TAP Customer loyalty programmes (Note 2) Reduction of re-valuation reserve resulting from decrease in fair value of the land SPdH Adjustments to previous years PGA Equity method application to SPdH
(31,459,490) (30,583,182) (62,042,672) (16,367,901) (735,000) (17,102,901) (2,124,786) (2,124,786) (135,625) (135,625) (81,405,984)
Exchange rate adjustment: The increase of 13.339.698 Euros results from the exchange rate difference from the medium and long term financing granted to Aero-LB, whose liquidation is unlikely to occur in the predictable future, and is thus, in substance, an extension of the Company’s net investment in this foreign entity. The minus amount of 2,051 Euros in the “Exchange rate adjustment” caption refers to the currency translation of the financial statements of subsidiary SEAP, based in Macao, which are accounted for in Macanese Patacas (Note 10 and 34). Legal reserves: The commercial legislation establishes that at least 5% of the annual net income for the year has to be assigned to the legal reserve until these reach 20% of total share capital. This reserve cannot be distributed, except in case of the Company’s liquidation, but can be used to absorb losses after other the reserves have been exhausted, or incorporated into the share capital. Through deliberation of the General Meeting of Shareholders held on 19 May 2009, the net loss for 2008 of 289,352,800 Euros was transferred to the “Retained earnings” caption.
43. Remunerations of the Members of the Governing Bodies The following remunerations were attributed to the members of the governing bodies in 2009: Board of Directors (Note 52) Auditing Body (Note 51)
2,740 13,800
In 2007, the responsibility related to the remuneration of the members of the Company’s Board of Directors was transferred to the participated company TAP S.A., hence there were no remunerations attributed to members of the governing bodies in subsequent financial years.
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45. Statement of Financial Net Income Financial net income is composed as follows: 2009
Values in Euros
Costs and losses: Interest paid 4,930,233 Losses in group and associated companies (Note 10) 38,982,639 Adjustment to financial investments (Note 10) 31,600,000 Other financial costs and losses 4,277 75,517,149 Financial net income (10,102,626) 65,414,523 Revenues and Gains: Interest received 1,765,528 Losses in group and associated companies (Note 10) 63,648,995 65,414,523
2008 4,740,529 165,535,175 95,603,691 31,159 265,910,554 (261,809,921) 4,100,633 1,026,588 3,074,045 4,100,633
47. Legally Required Information In compliance with number 4 of article 5 of Decree-Law number 318/94, we inform that the changes included under the group and associated companies headings were as follows: Values in Euros Initial balance Increases Reductions Transportes Aéreos Portugueses, S.A. Aero-LB, Participações, S.A. SPdH–Serviços Portugueses de Handling, S.A. TAPGER–Sociedade de Gestão e Serviços, S.A. Portugália–Companhia Portuguesa de Transportes Aéreos, S.A. UCS–Cuidados Integrados de Saúde, S.A. Reaching Force, SGPS, S.A.
(133,010,120) 30,882,487 - - 568 501,720 497 (101,624,848)
129,791,220 71,838,268 35,002,425 2,657,423 - 10,151 - 239,299,487
(238,308,304) (2,143,997) - (3,260,247) (14,033,346) (511,871) - (258,257,765)
Final balance (Note16) (241,527,204) 100,576,758 35,002,425 (602,824) (14,032,778) 497 (120,583,126)
48. State and Other Public Entities As at 31 December 2009, this heading had the following composition: Debit balances
Credit balances
Corporate Tax: Payments on account 7,701 Withholdings 76 Stamp duty - 7,777
Values in Euros
7,508 10 7,518
49. Accruals and Deferrals As at 31 December 2009 and 2008, these headings were broken down as follows: 2009
2008
Accrued costs: Interest payable 9,113 Other supplies and services payable 8,694 17,807
233,479 48,423 281,902
Values in Euros
As at 31 December 2008, the “Interest payable” heading records unpaid overdue interest relative to the 30,000,000 Euros debt issued in the form of commercial paper, subscribed by TAP S.A., as mentioned in Note 16.
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50. Other Debtors and Creditors As at 31 December 2009, these headings had the following composition: 2009
Values in Euros Other Debtors - MLT Other Debtors - ST Other Creditors - MLT Other Creditors - ST
2008
3,532,574
-
14,985
15,476
3,475,542 1,700
2,260,553 31,601,700
The medium and long term debt, as at 31 December 2008 and 2009, refers to a security provided on the account of TAP S.A., as a guarantee of the provision of future services to the FAF aircraft (French Air Force). In 2009, the mentioned guarantees are provided through retained deposits in the amount of the anticipated invoicing relative to the maintenances not yet carried out by TAP S.A., which are presented in the “Other debtors - MLT” caption.
51. External Supplies and Services As at 31 December 2009 and 2008, this heading was broken down as follows: 2009
2008
46,206 13,800 6,500 - 66,506
27,307 16,629 357 1,705 45,998
Values in Euros
2009
2008
Fixed remunerations (Note 43)
2,740
1,370
Values in Euros Specialised work Fees (Note 43) Legal and notary costs Other
52. Payroll Expenses As at 31 December 2009 and 2008, this heading was broken down as follows:
53. Loans Drawn As at 31 December 2009 and 2008, this heading presented the following composition: Values in Euros Loans obtained from banking institutions
2009
2008
Short term
Medium and long term
TOTAL
TOTAL
133,047
4,866,953
5,000,000
5,000,000
54. Profit and Loss Statement by Functions The profit and loss statement by functions presents a concept of extraordinary net income which is different from that defined in the Official Portuguese Accounting Plan (POC) for the preparation of the profit and loss statement by nature. However, as at 31 December 2009 and 2008, there were no reclassifications with reference to this statement.
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55. Transition to the New Accounting Standardization System In 2010, following the publication of Decree-Law no. 158/2009 of 13 July, which substitutes the current national accounting standardisation model, the Company must adopt the International Financial Reporting Standards, as a financial reporting base, necessarily with comparatives of 2009. Up until this date, the Company has not yet concluded the quantification of the impact of implementation of the new standard. However, the Company prepared on 31 December 2008 consolidated financial statements in conformity with the International Financial Reporting Standards (“IFRS”), which presented an increase in net worth in the amount of 56,065 thousand Euros. In spite of the different valuation criteria between individual and consolidated accounts and the difference between the transition date of the consolidated and individual accounts, the impacts arising from the transition to the new accounting standard are expected to be similar. It is the firm belief of the Board of Directors that TAP – Transportes Aéreos Portugueses, SGPS, S.A. is prepared to respond to the challenges of the implementation of the new Accounting Standardisation System and that the impacts will not significantly affect the Company’s operations.
ACCOUNTANT Sandra Candeias Matos da Luz
EXECUTIVE BOARD OF DIRECTORS Chairman Fernando Abs da Cruz Souza Pinto Voting Member Luís Manuel da Silva Rodrigues Voting Member Fernando Jorge Alves Sobral Voting Member Luiz da Gama Mór Voting Member Manoel José Fontes Torres Voting Member Michael Anthony Conolly
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General and Supervisory Board Report 2009, TAP SGPS
General and Supervisory Board Report 2009, TAP SGPS 1. The General Meeting of TAP SGPS, held on 02.06.2009, re-elected the same members of the General and Supervisory Board (GSB) for this governing body for the three year period 2009-2011. 2. The GSB held eight meetings during 2009, with the work of the meetings having been documented in the respective minutes. 3. The Chairman of the Executive Board of Directors (EBD) and the Directors responsible for the matters under analysis also took part in the meetings of the GSB. The participation of the executive management in the meetings was extended to the plenary sessions of the EBD for the assessment of the accounts for the financial year of 2008, budget for 2010 and 2010-12 Strategic Plan. In turn, the Chairman of the GSB attended the formal meetings of the Executive Board of Directors and regularly monitored the management of the Company. 4. The GSB took timely note of the deliberations of the EBD which, under the statutory terms, were submitted to them for appreciation, as well as the respective reasoning and clarifications. 5. The GSB supervised the activity of TAP over the year, covering both the current management of the financial year of 2009 and the definition of the financial and strategic guidelines of the Group for the following years. In particular, the GSB participated actively in the debates involved in the process of preparation and subsequent approval of the Budget for 2010 and 2010-12 Strategic Plan, and issued its opinion on these documents. The supervision carried out by the GSB covered all the companies of the Group, in particular the main company in which the Group owns a stake, TAP S.A.. 6. In the performance of its duties, the GSB was assisted by the Specialised Commissions for Auditing (ASC) and for Sustainability and Corporate Governance (SCGSC), which provided the Board with all the information and clarifications relative to the performance of its functions, namely with respect to the verification of compliance with the applicable articles of association and legal precepts. 7. The ASC held regular meetings over the course of the year with the Statutory Auditor and External Auditor, as well as with the Company’s Internal Audit staff, having devoted special attention, amongst other subjects, to the development of the processes, in progress, relative to the restructuring of the companies in which the Group has a stake, namely, Groundforce and TAP M&E Brasil, as well as to the evolution of the liquidity situation of TAP, and to the impact, on the Company’s accounts, of the introduction of new international standards for the valorisation of non-flown miles.
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8. As is standard practice, the SCGSC supervised the process of the preparation of the Corporate Governance and Sustainability Report of 2009. Also within the scope of its duties, the SCGSC analysed and debated, in meetings held with the directors of the associate companies, the situation and evolution of the businesses of TAP S.A., Groundforce, TAP M&E Brasil, Cateringpor, Lojas Francas, Megasis and UCS, from the perspective of the impact of these developments on the Group’s sustainability. 9. Under the scope of corporate governance, note should be made of the entry into force of the new articles of association of TAP SGPS, approved at the General Meeting of 02.06.2009, which, amongst other amendments, determined the expansion of duties of both the GSB and the respective specialised commissions. Hence – and in view of the new duties attributed to the SCGSC on matters of remuneration policy, as well as the new legal provisions established in Law number 28/2009 – this Commission deliberated the appointment, amongst its members, of an ad-hoc working party with the mission to provide the GSB with its qualified assistance in this area. On the other hand, also following the entry into force of the new articles of association, the SCGSC proceeded with the review of the GSB Regulations, in order to ensure its harmonisation with the new statutory framework. 10. In addition to the general context of the Group’s activity, the meetings of the GSB also analysed and extensively debated issues of greater acuity or strategic relevance to the performance of the respective businesses. Amongst others, the following deserved special attention by the General and Supervisory Board: the evolution of TAP’s activity and its competitive position in the context of global air transport; the process of the adjustment of the Company to the recessive circumstances of the sector in 2009, involving measures aimed at cost contention, the strengthening of the sales dynamics, restructuring and temporary resizing of the operation; the evolution of the Company’s financial situation, namely with respect to the monitoring of risks associated to the insufficiency of shareholders’ equity. 11. The Board assessed the management report and accounts for 2009. During this critical year for air transport, where most of the main airline companies incurred vast losses, the GSB highlights, with very great appreciation, the performance of TAP S.A., expressed in a net income unprecedented in the Company’s history, and which can be considered exceptional in the abovementioned context. This net income contributed decisively to the drastic reduction in the value of the Group’s losses registered in the previous year, providing a consolidated net income very close to a breakeven level. In this way, the success of the operating restructuring and shareholder re-composition processes, in progress in the companies in which the Group owns a stake and are still deficient, are of additional relevance for the future sustainability of the Group.
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12. In view of the above, and also taking into consideration of the recommendation of the ASC and the reports of the Statutory Auditor and External Auditor, the GSB – under the terms of the general law governing commercial companies and sub-paragraph n) of Article 23 of the Articles of Association of TAP SGPS – decided to issue a favourable opinion on the abovementioned report on the management and accounts for 2009 of TAP SGPS, recommending its approval by the General Meeting of TAP SGPS. 13. The GSB would like to express its gratitude to the Management, Workers and Employees of TAP, for their personal contribution which has allowed the Company to meet the critical challenges of 2009 with noteworthy success. Lisbon, 22nd April 2010
The General and Supervisory Board Manuel Soares Pinto Barbosa Carlos Alberto Veiga Anjos João Luís Traça Borges de Assunção Luís Manuel dos Santos Silva Patrão Maria do Rosário Miranda Andrade Ribeiro Vítor Rui Manuel Azevedo Pereira da Silva Vítor Cabrita Neto
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Abbreviations and Glossary
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Abbreviations and Glossary
Abbreviations AEA Association of European Airlines APCER Associação Portuguesa de Certificação (Portuguese Certification Association) EASA European Aviation Safety Agency
IATA International Air Transport Association
INAC Instituto Nacional de Aviação Civil (National Civil Aviation Institute)
ISO International Standards Organization
QTC Quick Transfer Center
Glossary
ASK Available seat-kilometres
Total number of seats available for sale multiplied by the number of kilometres flown. Block Hours Number of hours between the departure and arrival of a flight, with time measured between when chocks are placed and removed. Carbon Dioxide (CO2) Gas that is naturally-occurring in the atmosphere and which is also a waste product of combustion of fossil fuels (coal, oil). Increased levels of carbon dioxide in the atmosphere could lead to global warming and subsequent climate changes.
Cargo and Mail RTK Total number of tonnes of cargo and mail multiplied by the number of kilometres flown.
Code-Share Agreement between two companies operating as partners that agree to provide services on the same aircraft, whilst maintaining the respective IATA codes, flight numbers and brands. Global RTK (Revenue Tonne Kilometres) Total number of tonnes of passengers, cargo and mail multiplied by the number of kilometres flown. Hub
Term used to describe an airline’s operating base, where arrivals and departures are coordinated in order to keep transit time to a minimum. TAP’s hub in Lisbon is structured in three daily waves of arrivals and departures in order to increase the number of connection opportunities for TAP Customers.
Hub and Spoke A model of operating that allows for connections between destinations with less traffic flow, through an airport hub whenever a direct flight is not feasible. Multi-hub Systems of operation by connection through several hubs which makes it possible to offer a greater variety of destinations through access to the networks based at each hub. Passenger Load Factor Total number of revenue passenger-kilometres (RPK) divided by the total number of available seat kilometres (ASK).
Passenger Yield Revenue from passenger traffic divided by the number of passenger-kilometres (RPK).
Punctuality Industry standard measured by the percentage of the number of flights departing up to 15 minutes after their scheduled departure time.
Regularity Percentage of flights actually carried out, of the total flights planned.
Revenue Management Technique used for optimisation of revenue from each flight by seeking systematic balance between the flight’s level of occupation and tariff’s offered.
RPK Revenue Passenger-Kilometres
Total number of passengers multiplied by the number of kilometres flown.
ANNUAL REPORT | 2009
TAP SGPS, S.A. | Apartado 50194, 1704-801 Lisbon | Tel. +351 21 841 50 00 - Fax +351 21 841 54 22 | Taxpayer Number 506623602 | Legal Deposit 182.801/10 | July 2010 | Design and graphic PRODUCTION diagonal design | photography diagonal design, TAP Portugal | Print figure 300 Printed copies
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Mensagem do Presidente do Conselho Geral e de Supervisão
ANNUAL REPORT | 2009
