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					Annual Report 2010
Index
ANNUAL REPORT 2010
 05      TAP GROUP

 07      Message from the Chairman of the General and Supervisory Board
 08      Interview with the Chairman of the Executive Board of Directors
 11      Shareholder Structure of TAP Group
 12      Corporate Governance
 12      > Corporate Governance Model
 13      > Governing Bodies


 27      MANAGEMENT REPORT TAP, SGPS, S.A.

	 28		   Profile
  30     Key Figures 2010
  32     Sustainable Development of TAP Group
  34     Key Events
  38     Summary of the Performance
  41     TAP Group Key Figures
  42     Analysis of the Economic Climate
  45     Strategy
  47     Performance of TAP Group Companies
  47     TAP, S.A.
  50     > Air Transport Business Unit
  67     > TAP Serviços Business Unit
  72     > Maintenance and Engineering Business Unit
  78     Information Systems and Technological Development
  80     Human Resources
  82     Other Activities of TAP Group
  96     Risk Management
100      Economic and Financial Performance of TAP Group
104      Outlook for 2011
106      History of TAP


111      ACCOUNTING REPORT TAP, SGPS, S.A.

112      Consolidated Financial Statements
168      Audit Report
170      Proposed Application of Results
172      Financial Statements


197      REPORT OF THE GENERAL AND SUPERVISORY BOARD 2010 TAP, SGPS


200      ABBREVIATIONS AND GLOSSARY
TAP Group
6   TAP Group   Annual Report 2010
Message from the Chairman
of the General and Supervisory Board




2010 brutally exposed the vulnerability
of the air transport industry to a diversity
of risks, each of which, per se, are capable of
causing serious disturbance and major losses
to the sector.

A chronic factor of uncertainty in the operating and
financial planning of the activity, the volatility of
the fuel market, after relative calm in 2009, reared its
head once again in 2010, with prices returning to their
irregular upward trend of previous years. This fact alone             TAP adopted a vast additional series of structural actions,
resulted in an aggravation of EUR 142 million in operating             with a view to stimulating and intensifying the respective
costs for TAP.                                                         restructuring processes.

Added to this were the volcanic eruptions in Iceland, the                On the other hand, during 2010, the Company's chronic
harsh winter weather conditions in certain geographical                  situation	of	insufficient	equity	remained	an	open	wound.	
areas,	and	strikes	of	air	traffic	controllers	in	some	countries.	         The perspective of the privatisation of TAP in the near
Leading to the closing of airports and vast zones of air space,            future, recently aired in the public agenda, indicates the
these events of local origin rapidly took on a transnational scale          path towards what might be the most plausible solution
in	their	consequences,	affecting	global	air	traffic	at	a	major	              to the urgent need to recapitalise the Company. In view of
scale, especially in the European space.                                      the important position which TAP has conquered on the
                                                                               market, I believe that various investors or potential part-
TAP, as was the case with other airline companies, was faced in                 ners will show interest in the Group's activities.
2010 – was well as the normal complexity of management in such
a highly competitive Industry as that of air transport – not only with          It	is	my	firm	conviction	that	TAP	currently	has	an	aggre-
the enormous additional challenges that these unpredictable events               gate value which is also recognised by the market. When
posed to the operation, but also the accumulation of the losses                   the conditions are met for the start-up of a new cycle in
resulting thereof.                                                                 the history of the Company, these circumstances can-
                                                                                    not but constitute, for its Employees, Customers and the
However, TAP proved to be capable of responding to these problems,                   Portuguese	in	general,	a	motive	of	pride	and,	also,	confi-
with	flexibility	and	effectiveness,	mobilising	its	resources	and	efforts	             dence in the Company's future.
towards	the	reconfiguration	of	the	profile	of	its	offer,	intensified	imple-
mentation of the cost-cutting plan and reinforcement of sales dynamics,               On behalf of the General and Supervisory Board, I would
in such terms that the air transport business unit was able to close the year          like to express our gratitude to the Management, Workers
with a notable positive net income.                                                     and Employees of TAP for the notable personal contribu-
                                                                                         tion they have given to promoting the economic feasibility
The Group's consolidated net income experienced the effects, however,                     of TAP Group.
  of the unfavourable performance of Groundforce and TAP–Maintenance
and Engineering Brazil, associated companies involved in recovery processes
which have proved to be slower and more complex than had been foreseen
initially. In this context, and after a considered revaluation of the situation,            Manuel Pinto Barbosa
                                                                                             Chairman of the General and Supervisory Board




                                                                                                                                    Annual Report 2010   TAP Group   7
    Interview with Fernando Pinto,
    Chairman of the Executive Board of Directors




      TAP obtained its best result ever in 2010,
      having broken the record for number of
      passengers transported – more than 9 mil-
      lion – and also achieved an occupancy rate
      of	flights	of	74.5%,	6%	more	than	in	the	
      previous year. Is this assessment quite
      positive?                                            also enabled us to have a more diluted fuel consumption per passenger.
                                                           We	also	invested	in	the	substitution	of	old	aircraft	for	new,	more	efficient	
    These	figures	point	towards	a	correct	stratagem	       ones.	The	six	new	A320	brought	about	an	efficiency	gain	of	eight	per-
    of TAP in terms of the maintenance of a growth         cent and we maintained our Fuel Conservation programme, which has
    strategy, in a year in which the European econ-        brought us excellent results and has been fundamental. On the whole,
    omies were slowing down and Portugal was               in	spite	of	the	increase	in	the	fuel	invoice,	we	have	registered	effi-
    showing signs of some weakness. Nevertheless,          ciency gains, through a better planning of routes and of our offer.
    we focused on new destinations (Marrakesh and
    Algiers) and increased the offer on some routes,        Other factors contributed to 2010 almost being a “black year”,
    in line with a policy of continuity always within a     such as the cloud of volcanic ashes that led to the greatest
    growth perspective. Any way, we always sought           commercial aviation blockade in Europe since World War II.
    to grow cautiously, so as to achieve a better use       How did TAP deal with and manage to overcome this                            conquered many “fans” quickly
    of the seats on offer, also competing better on         factor?                                                                      and initiated with them a very
    price,	to	deal	with	an	increasingly	difficult	mar-                                                                                  swift and effective communi-
    ket. The strategy proved to be correct, which is       It was extremely stressful. At the start of the problem, the                cation process. At present, we
    demonstrated by these good results. I would like       cloud	had	no	direct	influence	on	the	air	space	of	Portugal,	               have more than 140 thousand
    to mention that the activity in 2010 was positive      only	Central	Europe.	But	since	the	majority	of	our	traffic	is	            fans on Facebook, the communi-
    not	only	in	terms	of	TAP,	S.A.,	the	majority	of	       connection	traffic,	our	flights	were	not	fed	and	could	also	             cation is very different, within the
    Group companies contributed positively. I must         not distribute our passengers that came from long-haul                   Company a new process has been
    emphasise that, with these results, TAP, S.A.          flights	to	final	destinations.	In	a	second	“wave”,	the	cloud	           set up to enable a quick response to
    returned to a positive net income position and         was already over Portugal and we suffered greater losses               any request, it is a process that has
    that is very important, and so much more so in         and	 added	 difficulties.	 That	 whole	 situation	 caused	            brought greater agility to the Company
    a year in which it is preparing for a privatisation    enormous	losses,	almost	one	thousand	flights	were	                   and greater proximity to customers.
    process.                                               cancelled, but we managed very well the communica-                  TAP, even at an international level, was a
                                                           tion and relations with our passengers. We resorted                pioneer in the use of the social networks,
      The	occupancy	rate	of	74.5%	is	already	in	           to modern and current channels, used Facebook and                 it is something extremely important for
      line with the average of AEA airlines. Is there      other social networks to talk to customers. It was a             us, we are a younger Company.
      room for further improvement?                        worrying time, in which air transport companies
                                                           lost hundreds of millions of euros, but I would say             Within the scope of new technologies,
    We are already very close to the limit that the        that at TAP we handled things quite well in terms              I must also point out that, in 2010, TAP
    Portuguese market and the Lisbon hub allow to          of customer relations. I recall that, in 2010, there          suffered	 a	 major	 transformation	 process	
    be achieved. Other companies in Europe man-            were also other disruptions to operations, such              with the adoption of a new system of reser-
    age to achieve occupancy rates close to 80             as	strikes	of	Spanish	and	French	air	traffic	con-           vations with many new features, which uses
    percent, but are present in markets of a differ-       trollers, snow storms in Europe and then in the            a common platform with STAR Alliance, thus
    ent size, with similar occupancy rates for both        United States … In spite of all that, TAP man-            boosting sales and enhancing its ease-of-use …
    outward	 and	 return	 journeys.	 Ours	 are	 not	       aged to overcome all of these setbacks. These
    that balanced, there is that difference. Some          situations led to huge losses but, thanks to              Condé Nast Traveler distinguished TAP as the
    improvement is possible, although not as much          the good image we were able to ensure, we                 best airline company in the world in 2010 and
    as we would like. We maintain the idea that this       managed to recover.                                      the World Travel Award for the “Best Airline
    year it will be possible to continue to grow with-                                                             Company in the World for South America” was
    out	increasing	the	fleet,	rather	through	its	better	      As you mentioned, TAP managed to                    awarded again to TAP. Do these awards still
    use and a better use of space.                            find	new	channels	to	communicate	                  mean anything?
                                                              with customers. In situations such as
      Fuel costs were responsible for an invoice of           that of the volcano, there is always            They’re very important, that is what we pursue all the
      523	million	euros,	45%	more	than	in	2009.	              a rupture in traditional channels.             time,	having	satisfied	customers	that	choose	TAP	as	
      Nonetheless, the results were quite                     What is your opinion on this                  their favourite airline. The customers also end up being
      frankly better …                                        process and what was your                     partners of the Company and we need to go even further,
                                                              involvement?                                 we need to be among the best companies in the world in
    Precisely because we managed to achieve a                                                             service quality, to stand out. Only that way can we con-
    better use of the seats on offer. We had the pos-      It all took place very quickly.               tinue to have an important participation in an increasingly
    sibility of, with the same offer, have a higher        Facebook initially emerged as a              competitive market.
    quantity of passengers on our planes, and that         promotional channel, but we



8   TAP Group   Annual Report 2010
 Now turning to TAP Group, Maintenance                 higher margins, and we take some TAP services          competitive, serving Europe, South America and
 and Engineering Brazil (TAP M&E Brazil) has           to Brazil, due to the advantages in terms of cost.     Africa. TAP occupies an extremely important
 not yet achieved, in 2010, the desired equi-          We can boost those synergies even better.              position in the South Atlantic and Africa. We
 librium, in spite of some positive data, such                                                                are the largest transporter from Europe to Brazil
 as	the	obtainment	of	the	qualification	of	the	         And what about Groundforce?                           and also very important for Africa. That makes
 Authorised Services Centre from Embraer.                                                                     our positioning in terms of Europe highly strate-
 Is there something still amiss with TAP               Groundforce has improved immensely, initially in       gic. Whoever wants to ally themselves with TAP
 M&E Brazil?                                           the quality of the service provided and in the bag-    will be doing so with one of the most impor-
                                                       gage	area,	in	which	TAP	has	finally	achieved	the	      tant market players in these enormous “niches”.
We have always pointed out that TAP M&E Brazil         European average in terms of general network           It is also important to point out that TAP is well
is a long-term strategic investment and we have        (in the competition between hubs, we are above         organised	and	is	already	one	of	the	most	effi-
always been very careful about the expected            average). In terms of punctuality, TAP is today        cient companies in Europe, in accordance with
results. 2010 was a year of many changes for           better than the European average. We are on the        several indicators. TAP is one of the four most
the company, it was not only the important             right	track.	In	terms	of	efficiency	and	costs,	2010	   efficient	network	companies	in	Europe.	All	of	
recognition by Embraer, but an entire adapta-          brought better operating results. The closure of       that makes TAP very desirable.
tion process, with emphasis on the adoption            the Faro stopover, which took place at the end
of a series of standard procedures followed by         of	the	year,	was	only	reflected	entirely	in	terms	      What message would you like to leave
TAP M&E Portugal and a whole revolution in             of costs in 2010. The balance that that measure         the various stakeholders?
structural terms. We continued with the cost           brings to the company’s accounts shall only take
reduction programme and worked intensively             effect in 2011. We have prepared the sales proc-       Our customers are our reason for existence and
in terms of guaranteeing the quality of the serv-      ess of Groundforce, which we are obliged to do,        are already more than 9 million. I would like to
ices provided, seeking to thus consolidate a solid     and the factors that I have mentioned add value        thank	them	for	the	preference	and	confidence	
customer base, so that customers will stay with        to the company as a whole.                             placed in us. We have worked very hard to con-
the company for many years. That was the main                                                                 tinue to improve the quality of the service and I
investment, which has been made and will con-           What is your opinion of the market in                 have to thank the employees for their dedica-
tinue, and that will make the company viable.           2010?                                                 tion and permanent quest for perfectionism.
I have no doubts that the results of 2011 will                                                                Finally, the entire Company has sought to add
be much better and in 2012 even better, it is a        There was stability in the Portuguese market. The      value to the shareholder, to whom I wish to
process of growth and maturity, the company            competition is increasingly more aggressive, but       express my thanks for all the support they have
is getting better and better. The result does not      that is good and forces us to improve, provided        provided. And a special thanks to the General
show it yet, it also registers extraordinary losses,   there are clear and transparent rules, which is        and Supervisory Board of TAP, in the person of
but it will reach an operational equilibrium.          not always the case.                                   its Chairman, Professor Pinto Barbosa, who has
Today, we are already very proud of the quality                                                               contributed and helped us a lot to improve.
of the service that the company provides, in the        You said recently that TAP was at the right
fulfilment	of	deadlines,	customer	satisfaction	…	       moment to be privatised. Was the year
It is an enormous investment and we can never           2010 decisive for that?
forget that the main reason for it to be done has
to do with our growth limitations here in Lisbon.      If you analyse things from an historical per-
Without	TAP	M&E	Brazil,	we	would	be	reject-            spective, the Company has been improving
ing new customers. Today, we bring customers           at every level, the Lisbon stopover has become
of greater added value to TAP Portugal, with           a reality and has shown itself to be extremely



                                                                                                                                  Annual Report 2010   TAP Group   9
10   TAP Group   Annual Report 2010
Shareholder Structure of TAP Group
December 31, 2010




At the end of 2010, 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.




                                                                                              TAP, SGPS, S.A.
                                                                                                  100% Parpública



                                    100%                                                                                                                                 100%
                                         TAP, S.A.                                                                                                              TAPGER, S.A.

                                                                                                                           100%                      *
                                                                                                                     Portugália, S.A.

                                     TAP–Maintenance                                                                                                                      51%
       TAP–Air Transport                                                TAP Serviços                                                                     CateringPor
                                      and Engineering
                                                                                              99%                1%
                                                                                                                                                                          51%
                                                                                                                                                         Lojas Francas
                                                                                                     Aero-LB, S.A.
                                                                                                                                6% 43.9%      50.1%
                                                                                                                                                                         100%
                                                                                                  98.64%                                SPdH, S.A.         Megasis

                                                                                                 TAP–Maintenace and                                                      100%
                                                                                                                                                             UCS
                                                                                                Engineering Brazil, S.A.




   *   Control held by an independent entity, according to the deliberation of the Competition Authority.




                                                                                                                                                                         Annual Report 2010   TAP Group   11
     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 cor-
                                      porate 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.

                                      The information on the Company's regulations, Articles of
                                      Association and activities of the Governing Bodies is available for
                                      consultation at the website of TAP Group [ www.flytap.com ].




          7                           13                                       8                             10




                                      9                                       12                             11




12   TAP Group   Annual Report 2010
                              1                                            5                                                4




                              6                                            3                                                 2




Governing Bodies

TAP – Transportes Aéreos Portugueses, SGPS, S.A.                     Through deliberation of the General and Supervisory
TAP, S.A.                                                             Board, in a meeting on 26th June, 2009.

 Through deliberation at the General Meeting Committee of 2nd          Specialised Auditing Commission
  June, 2009, for the three-year period 2009-2011.
                                                                         Manuel Soares Pinto Barbosa
   General Meeting Committee                                             João Luís Traça Borges de Assunção
    Chairman Paulo Manuel Marques Fernandes                               Rui Manuel Azevedo Pereira da Silva
    Vice-Chairman António Lorena de Sèves
     Secretary Orlanda do Céu S. Sampaio Pimenta d' Aguiar

                                                                                Specialised Sustainability and Corporate
                                                                                 Governance Commission
        Structure of the Executive Board of Directors,
        the General and Supervisory Board and                                     Manuel Soares Pinto Barbosa
         the Specialised Commissions                                              Carlos	Alberto	Veiga	Anjos
                                                                                   João Luís Traça Borges de Assunção
                                                                                    Luís Manuel dos Santos Silva Patrão
            Executive Board of Directors                                             Maria do Rosário Miranda Andrade Ribeiro Vítor
                                                                                      Rui Manuel Azevedo Pereira da Silva
             Chairman Fernando Abs da Cruz Souza Pinto    1                            Vítor José Cabrita Neto
             Member Fernando Jorge Alves Sobral 2
              Member Luís Manuel da Silva Rodrigues 3
               Member Luiz da Gama Mór 4
               Member Manoel José Fontes Torres 5                                        Company Secretary
                Member Michael Anthony Conolly 6
                                                                                          Through deliberation of the Executive Board of Directors,
                                                                                           in a meeting on 23rd June, 2009.

                    General and Supervisory Board                                           Company Secretary Orlanda do Céu S. Sampaio
                                                                                             Pimenta d' Aguiar
                      Chairman Manuel Soares Pinto Barbosa 7                                  Alternate Company Secretary Alda Maria dos
                       Member	Carlos	Alberto	Veiga	Anjos	 8                                   Santos Pato
                       Member João Luís Traça Borges de Assunção 9
                        Member Luís Manuel dos Santos Silva Patrão 10
                        Member Maria do Rosário Miranda Andrade Ribeiro Vítor   11

                         Member Rui Manuel Azevedo Pereira da Silva 12
                          Member Vítor José Cabrita Neto 13



                                                                                                                                      Annual Report 2010   TAP Group   13
          Meetings of the Board of Directors                                                    Remunerations set for the 2006-2008 period
                                                                                                (in Minute no. 1/2007 of the Remunerations
           During 2010, 16 meetings were held by the Board of Directors of TAP,                 Commission of TAP, S.A.)
            SGPS, S.A. and 23 meetings were held by the Board of Directors of
            TAP, S.A..

                 Main Deliberations of the Boards of Directors in 2010                          By Unanimous Board Decision in Writing on 29 July, 2009,
                                                                                                “(…) for the three-year period 2009-2011 there will be no
                  TAP, SGPS, S.A.                                                               alteration of the remuneration status (…)”.
                     Implementation of the transversal Cost-Cutting Programme
                      for 2010-2012 in all companies of TAP Group
                                                                                                Executive Board of Directors
                        Extinction of Reaching Force, SGPS, S.A. – Merger by incorporation
                         in TAP, SGPS, S.A.                                                     Chairman

                       TAP, S.A.                                                                    Fixed Compensation

                           Organisational restructuring of TAP–Maintenance                      ρ    Fixed remuneration: Gross monthly remuneration of EUR
                           and Engineering Portugal and TAP–Maintenance                              30,000, paid 14 months a year.
                            and Engineering Brazil

                                                                                                ρ    Meal Subsidy: Application of the Labour Agreement for active
                              Cost-cutting Programme for 2010-2012                                   permanent staff.

                                Extinction of AP Tours – Merger by incorporation in TAP, S.A.       Variable Compensation

                                                                                                ρ    Variable Short Term Compensation: Attribution of the variable
                                                                                                     remuneration component in accordance with the fulfilment of
                                                                                                     annually	measurable	objectives,	with	a	maximum	annual	limit	
                                   Supervision of the Company                                        of	75%	of	the	total	Annual	Fixed	Compensation.

                                                                                                ρ    Variable Long Term Compensation: Attribution of the variable
                                    Official Accountant                                              remuneration component in accordance with the fulfilment of
                                                                                                     pluriannual	(mandate)	measurable	objectives,	with	a	maximum	
                                     By Decision in General Meeting                                  limit	of	75%	of	the	total	accumulated	Fixed	Compensation	of	
                                     Committee on June 2, 2009, for the                              the mandate.
                                      2009-2011 period.
                                                                                                    Benefits
                                        Permanent
                                        Oliveira, Reis & Associados represented                 ρ    Life insurance, health insurance and personal accident insur-
                                         by José Vieira dos Reis                                     ance: in force at the Company, according to the model
                                                                                                     applicable to all employees.
                                          Alternate
                                           Fernando Marques Oliveira                            ρ    Vehicle policy: Attribution of a service vehicle up to a maximum
                                                                                                     rental of EUR 1,260, which includes motor insurance and main-
                                             Remuneration Status of the                              tenance costs, for a three year period, and covers the use of via
                                             Governing Bodies                                        verde, parking and fuel (in compliance with the provisions of
                                                                                                     articles 32 and 33 of DL no. 71/2007 of 27 March, the annual
                                                 ρ       The remunerations of the                    maximum limit for fuel expenses was set at EUR 4,000).
                                                         Governing Bodies of TAP are set
                                                          by General Meeting (see Article       ρ    Telephone expenses: Use of the service mobile phone (in com-
                                                          11 of the Statutes of TAP, SGPS).          pliance with the provisions of articles 32 and 33 of DL no.
                                                                                                     71/2007 of 27 March, the annual maximum limit for expenses
                                                     ρ    The members of the Executive               related with mobile phone use was set at EUR 9,000).
                                                          Board of Directors and the
                                                           General and Supervisory Board        ρ    Company credit card: Exclusively to cover documented
                                                            are remunerated, exclusively,            expenses associated with the exercise of functions at the
                                                            for the functions exercised              Company’s service.
                                                             at TAP, S.A., not earning any
                                                              remuneration for functions        Members
                                                               exercised at TAP, SGPS or
                                                                any other company of TAP            Fixed Compensation
                                                                 Group.
                                                                                                ρ    Fixed remuneration: Gross monthly remuneration of EUR
                                                                                                     20,000, paid 14 months a year.

                                                                                                ρ    Meal Subsidy: Application of the Labour Agreement for active
                                                                                                     permanent staff.




14   TAP Group     Annual Report 2010
                                                                 Remunerations set
                                                                 for the 2006-2008
                                                                 period (in Minute
                                                                 no. 1/2007 of the
                                                                 Remunerations
                                                                 Commission of TAP,
                                                                 S.A.)


                                                                 By Unanimous Board Decision
    Variable Compensation
                                                                 in Writing on 29 July, 2009,
                                                                 “(…) for the three-year period
ρ    Variable Short Term Compensation: Attribution of            2009-2011 there will be no
     the variable remuneration component in accordance           alteration of the remuneration
     with	the	fulfilment	of	annually	measurable	objectives,	     status (…)”.
     with	a	maximum	limit	of	75%	of	the	total	Annual	Fixed	
     Compensation.

ρ    Variable Long Term Compensation: Attribution of the         General Meeting Committee
     variable remuneration component in accordance with
     the fulfilment of pluriannual (mandate) measurable          Chairman: Attendance money, in the
     objectives,	with	a	maximum	limit	of	75%	of	the	total	       gross amount of EUR 640.
     accumulated Fixed Compensation of the mandate.
                                                                 Vice-Chairman: Attendance money, in
    Benefits                                                     the gross amount of EUR 400.

ρ    Life insurance, health insurance and personal accident      Secretary: Attendance money, in the gross
     insurance: in force at the Company, according to the        amount of EUR 330.
     model applicable to all employees.

ρ    Vehicle policy: attribution of a service vehicle up to a
     maximum rental of EUR 865, which includes motor insur-      Official Accountan
     ance and maintenance costs, for a three year period, and
     covers the use of via verde, parking and fuel (in compli-   Remuneration is regulated by the values of the
     ance with the provisions of articles 32 and 33 of DL no.    indicative benchmark recommended by the
     71/2007 of 27 March, the annual maximum limit for fuel      Portuguese Institute of Statutory Auditors (Article
     expenses was set at EUR 4,000).                             60 of DL no. 487/99 of 16 November): Annual
                                                                 amount of EUR 13,800, VAT is added under the
ρ    Telephone expenses: Use of the service mobile phone (in     terms of the law.
     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).

ρ    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 accommo-
dation 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.




                                                                                                                   Annual Report 2010   TAP Group   15
     Remunerations earned in 2010



     General and Supervisory Board                                             Manuel Pinto           Carlos Veiga     João Borges de        Vítor Cabrita       Luís Patrão *      Rui Azevedo Maria do Rosário
                                                                                  Barbosa                    Anjos          Assunção                 Neto                         Pereira da Silva  Ribeiro Vítor
     EUR
                                                                                (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                     –        98,000.00           98,000.00
     1.2. Accumulation of management functions                                              –                    –                   –                   –                   –                  –                   –
     1.3. Supplementary remuneration                                                        –                    –                   –                   –                   –                  –                   –
     1.4. Management prizes (......months)                                                  –                    –                   –                   –                   –                  –                   –
     1.5. Others (identify in detail)                                                      –                   –                  –                  –                    –                 –                       –
                                                                           * Remuneration not received, out of choice.
                                                                           *** The reduction established in Law 12-A/2010, of 30 June, will be presented in the data of the Annual Report for 2011
     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                                              16,092.56            14,994.00           16,092.56           16,092.56                     –        13,350.62                     –
     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                 Yes                 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                 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                  No
     4.6.Usufruct of company house                                                        No                   No                  No                  No                  No                 No                  No
     4.7. Exercise of remunerated functions outside the Group                            Yes                   Yes                 Yes                 Yes                Yes                 Yes                 Yes
     4.8. Others (identify in detail)                                                       –                    –                   –                   –                   –                  –                   –




     Executive Board of Directors                                                                  Fernando Pinto     Michael Conolly            Luiz Mór     Fernando Jorge       Manoel Torres            Luís Silva
                                                                                                                                                                      Sobral                               Rodrigues
     EUR
                                                                                                     (Chairman)             (Member)            (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          280,000.00
     1.2. Accumulation of management functions                                                                   –                   –                   –                   –                  –                   –
     1.3. Supplementary remuneration                                                                             –                   –                   –                   –                  –                   –
     1.4. Management prizes                                                                                      –                   –                   –                   –                  –                   –
     1.5. Others (identify in detail)                                                                            –                   –                  –                    –                    –                  –
                                                                                                *** The reduction established in Law 12-A/2010, of 30 June, will be presented in the data of the Annual Report for 2011

     2. Other benefits and compensation
     2.1. Telephone use expenses                                                                         9,124.34            1,010.84           3,194.59            2,046.57            3,203.28            2,061.12
     2.2. Value of acquisition, by the company, of the service vehicle                                           –                   –                   –                   –                  –                   –
     2.3. Value of fuel spent on service vehicle                                                      ** 3,895.00            1,827.00           1,381.80            1,381.72            2,675.30            3,520.40
     2.4. Travel allowance                                                                                       –                   –                   –                   –                  –                   –
     2.5. Meal subsidy                                                                                   1,062.36            1,043.64           1,081.08              973.44            1,053.00            1,113.84
     2.6. Others (renting of service vehicle)                                                          15,252.36           10,945.14           10,883.72         11,371.93             10,945.14          11,470.74
                                                                                                ** Shared utilization with Support Services to the Governing Bodies
     3. Company Benefit Costs
     3.1. Compulsory social security                                                                   16,092.56           66,500.00           66,500.00           66,500.00           66,500.00          16,092.56
     3.2. Health insurance                                                                                 896.00              896.00              896.00             896.00              896.00              896.00
     3.3. Life insurance                                                                               12,351.57           22,492.10            9,332.42           12,351.57           52,186.93            6,222.00
     3.4. Others (Personal Accident Insurance)                                                             985.65              985.65              985.65             985.65              985.65              985.65


     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                                                  No                  No                  No                  No                  No                 No
     4.8. Others-Payment of Accomodation Expenses in Portugal(net value)                               55,383.72           55,383.72           55,383.72                     –         55,383.72                    –




16   TAP Group       Annual Report 2010
Remuneration 2010


EUR                                                                      Chairman         Vice-Chairman                 Secretary
General Meeting Committee
Attendance Money TAP, SGPS, S.A.                                               640.00                 400.00                  330.00
Attendance Money TAP, S.A.                                                     640.00                 400.00                  330.00


Official Accountant
Contractual Remuneration TAP, SGPS, S.A. (net of VAT)                       13,800.00
Contractual Remuneration TAP, S.A. (net of VAT)                             32,100.00




Company Internal Regulations


Risk management, as a pillar of the corporate culture of the TAP Group, 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:

ρ     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 estab-
      lishes	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;

ρ     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;

ρ     The Financial Directives (Head Office and Representations) – The Company has produced internal regulations for the purpose of guar-
      anteeing 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;

ρ     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	
(Institute of Internal Auditors), regarding compulsory Attribution Standards:

ρ     Standard 1000 – Purpose, Authority and Responsibility

ρ     Standard	1100	–	Independence	and	Objectivity

ρ     Standard 1200 – Proficiency and Professional Dedication

ρ     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.




Code of Ethics


The Group's Code of Ethics is a live document which, as a statement of the principles and guidelines for business between
the workers, Governing Bodies, between the companies of the Group and its stakeholders, requires the ongoing assess-
ment	both	of	its	compliance	and	of	the	matters	to	be	included	or	clarified	in	its	rules.	Hence,	the	Code	of	Ethics	is	
a process of improvement, namely in its adaptation to new realities, such as regarding its action in social networks. It is
expected that the approval of some of these alterations will be concluded in the beginning of 2011. The Code of Ethics
is	available	for	consultation	on	TAP's	official	website		[ www.flytap.com ] (in “TAP Group”).



                                                                                                                                       Annual Report 2010     TAP Group   17
     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 Good                                        Recommendations                                               Degree of      Mention in the Report
       Governance                                                                                                             Compliance
       Mission, Objectives and     Obligation of compliance, respect and dissemination, of the mission,                         Fulfilled   Corporate Governance and
       General Principles of       objectives and policies, for TAP and the associated companies it controls, set in                        Sustainability Report
       Action                      an economic, financial, social and environmentally efficient manner;
                                   Elaboration of budgets in accordance with the resources and sources of fund-                 Fulfilled   Annual Report
                                   ing	available,	taking	into	account	their	mission	and	the	objectives	set;
                                   Adoption of equality plans, so as to attain a definitive equality of treatment               Fulfilled   Corporate Governance and
                                   and opportunities between men and women, eliminating discrimination based                                Sustainability Report
                                   on gender and enabling a balance between professional, family and personal life;                         Code of Ethics

                                   Annual information report issued to regulatory bodies and the general public                 Fulfilled   Corporate Governance and
                                   on	how	the	mission	was	conducted,	degree	of	compliance	with	objectives,	means	                           Sustainability Report
                                   of fulfilment of social responsibility and sustainable development policy and means
                                   of ensuring its competitiveness;
                                   Compliance with legislation and regulations, applicable to the three axes of                 Fulfilled   Corporate Governance and
                                   economic, environmental and social sustainability;                                                       Sustainability Report

                                   Obligation of treating all employees with respect and integrity and con-                     Fulfilled   Corporate Governance and
                                   tribute towards their personal development;                                                              Sustainability Report
                                                                                                                                            Code of Ethics

                                   Obligation of treating customers, suppliers and others with legitimate                       Fulfilled   Corporate Governance and
                                   rights with equity.                                                                                      Sustainability Report
                                                                                                                                            Code of Ethics

       Management                  The governance model must ensure the effective segregation of manage-                        Fulfilled   Annual Report
       and Supervision             ment and supervisory functions;                                                                          Corporate Governance and
       Structures                                                                                                                           Sustainability Report (existence of
                                                                                                                                            a Dualist Management Model)

                                   Companies of a large-scale and complexity must have their accounts                           Fulfilled   According to the
                                   audited by independent entities with identical standards to those practiced by                           report on activities of the General
                                   companies with shares quoted on regulated markets; the members of the super-                             and Supervisory Board
                                   visory 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.
       Remuneration                Annual divulgation of the total remunerations (fixed and variable) earned by                 Fulfilled   TAP website
       and Other Rights            each member of the management body;                                                                      Annual Report

                                   Annual divulgation of the remunerations earned by each member of the super-                  Fulfilled   TAP website
                                   visory body;                                                                                             Annual Report

                                   Annual divulgation of any other benefits (health insurance, use of a vehicle                 Fulfilled   TAP website
                                   and other benefits granted by the company).                                                              Annual Report

       Prevention of conflicts     Obligation of members of corporate bodies to abstain from intervening                        Fulfilled   Code of Ethics
       of interest                 in decisions involving their own interests;                                                              Statutes

                                   Obligation of members of corporate bodies to declare any important share-                    Fulfilled   Communication to the Court of
                                   holdings they hold in the company;                                                                       Auditors, the Constitutional Court
                                                                                                                                            and others, in compliance with legal
                                                                                                                                            obligations

                                   Obligation of members of governing bodies to declare any relevant relation-                  Fulfilled   Code of Ethics
                                   ships maintained with suppliers, customers, ICs or others, which may generate                            Statutes
                                   conflicts of interest.
       Divulgation of              Communicate immediately all information that they have knowledge of,                         Fulfilled   Code of Ethics
       relevant information        which may have a significant effect on the economic, financial and asset
                                   situation of the company;
                                   Make available for divulgation on the site of State-owned companies, in                      Fulfilled   Connection of the TAP website to
                                   a clear, relevant and updated manner, all the abovementioned information, the                            the Parpública website
                                   historical and updated financial information of the company and the identity and
                                   curricular elements of all the members of its governing bodies;
                                   Include in the Management Report a point on corporate governance (internal                   Fulfilled   Annual Report
                                   and	external	regulations	which	TAP	is	subject	to,	information	on	relevant	transactions	
                                   with related entities, remuneration of members of governing bodies, sustainability anal-
                                   ysis and evaluation of the degree of compliance with the principles of good governance).
     Note: The Code of Ethics and Statutes are available on the TAP website



18   TAP Group    Annual Report 2010
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



Supplier                                                   EUR million                %
Petrogal–Petróleos de Portugal                                  208.942              14
Eurocontrol–UE                                                   90.552               6
ANA–Aeroportos de Portugal                                       87.398               6
SPdH, S.A.                                                       79.868               5
Petrobras Distribuidora, S.A.                                    69.697               5




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.


Fernando Jorge Alves Sobral

Executive Director of TAP, S.A.
Non-executive Director of Portugália–Companhia Portuguesa de Transportes Aéreos, S.A. (PGA)

Luís Manuel da Silva Rodrigues

Executive Director of TAP, S.A.
Chairman of the Board of Directors of TAP–Maintenance and Engineering Brazil, S.A. (ex-VEM)
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 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.




                                                                                                          Annual Report 2010   TAP Group   19
                 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.

                 ρ    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)

                 ρ    Holds a degree in Finance from ISCEF, Universidade Técnica de Lisboa.




20   TAP Group       Annual Report 2010
João Borges de Assunção


Nationality: Portuguese | Data of birth: July 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.

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.

ρ   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 | Data 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.

ρ   Holds academic background in Management.




Luís Manuel dos Santos Silva Patrão


Nationality: Portuguese | Data 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	XV	II	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.

ρ   Holds a degree in Law from the University of Coimbra.



                                                                                                                              Annual Report 2010   TAP Group   21
                 Rui Manuel Azevedo Pereira da Silva


                 Nationality: Portuguese | Data 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).

                 ρ    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.




                 Maria do Rosário Mattos


                 Nationality: Portuguese | Data 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. (1998-
                 2002) | 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.

                 ρ    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.




22   TAP Group       Annual Report 2010
Main curricular elements and professional activities undertaken by the Members of the Management
Body Executive Board Of Directors


Fernando Abs da Cruz Souza Pinto


Nationality: Portuguese and Brazilian | Data 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.

ρ   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 manu-
    facturing 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 | Data 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), until February 24, 2010.

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).

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).

ρ   Holds a degree in Electrical Engineering, Electronics and Telecommunications Branch from the Instituto Superior Técnico).




                                                                                                                                Annual Report 2010    TAP Group   23
                 Luís Manuel da Silva Rodrigues


                 Nationality: Portuguese | Data 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; TAP–Maintenance and
                 Engineering Brazil, S.A. (ex-VEM), since February 24, 2010.

                 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 (1999-2000) | 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
                 (1999-2000) | 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.

                 ρ    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 and Brazilian | Data of birth: April 1952

                 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 com-
                 pany) | 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.

                 ρ    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 avia-
                 tion 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 pro-
                 grammes 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.



24   TAP Group       Annual Report 2010
Manoel José Fontes Torres


Nationality: Portuguese and Brazilian | Data of birth: June1947

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.

ρ   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 and Brazilian | Data 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 TAP Group: 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).

ρ   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.




                                                                                                                             Annual Report 2010      TAP Group   25
Management
     Report
      TAP, SGPS, S.A.
     TAP, SGPS, S.A.
     Profile
     TAP will focus on the Air Transport service and its complementary                                                                 TAP, SGPS, S.A. is a Company whose aim is
     activities, consistently aiming at investor return and leadership                                                                 the management of shareholdings in other
                                                                                                                                       companies.
     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                                                                The following contribute to the Group’s results:
     want to use its services and one of the best companies to work for.
                                                                                                                                       ρ   TAP–Transportes Aéreos Portugueses, S.A.
                                                                                                                                           (TAP Portugal), whose main activity is air
     The Company will act in accordance with its                                                                                           passenger and cargo transport, also pro-
     commitment to society and the environment.                                                                                            vides services to third parties through its
                                                                                                                                           Maintenance business, in Portugal and
                                                                                                                                           Brazil;

                                                                                                                                       ρ   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.
       Growth strongly reinforced,
       particularly in external
        market

            Sales and Services
            Rendered                                                                                                                   Demand by Region and Route Network
             EUR million
                                                                                       External Market
                  Internal Market           External Market           Total
                                                                                       Annual compound average growth rate
                                                                                       2003-2010


                                                                                         +13.3%
                 2,500
                                                                               2,316
                                                              2,075
                  2,000
                                                                          1,783
                                                         1,521
                    1,500
                                            1,262

                     1,000
                                          744
                                    518               554              533                                                                            1
                           500                                                                                                                        22

                             0                                                                                                                     4.0%
                                     2003               2009            2010                                                                       1.9%

                                                                                                                                                                                            1

                                                                                                                                                                                        2.2%
                                            REINFORCEMENT OF SALES IN MARKETS ABROAD
                                                                                                                                                                                        0.9%
                                                In 2010, TAP Group strengthened the positioning of its contribution
                                                 to the volume of national exports, with a total contribution of EUR
                                                  1,782.8 million of sales and services rendered in markets abroad,
                                                   17.2% more than in 2009.


                                                    SALES AND SERVICES RENDERED                                   2010        2009     var. (%)
                                                    EUR million
                                                    External market *                                            1,782.8     1,521.0        17.2                                  9
                                                    Internal market                                               532.8       554.0        (3.8)                                  26

                                                    * TAP companies reporting directly to the Bank of Portugal                                                                42.2%
                                                                                                                                                                              15.7%




28   TAP Group   Annual Report 2010
Following its strategic direction, TAP’s priority          At the operating level (before interest and
is	to	fulfil	its	Customers’	expectations,	promot-          taxes), the Company recorded EUR -0.4 million,
ing their loyalty and maintaining strong ties with         around	the	break-even	point,	which	reflects	a	
Portugal, a focus that corresponds to the market           high	capacity	to	respond	in	a	flexible	manner	to	
niche in which its competitive position is most            market alterations and, in this way, enable the
established.                                               absorption of the losses caused by the various
                                                           external impacts which occurred.
TAP Portugal is an international airline company
which operates from its base in Lisbon, a city             Particular note should be made of the fact that
which, due to its geographic location, is a privi-         by the end of 2010, TAP had more than doubled
leged access platform to markets located in other          its size in relation to 2000, with its offer having
Continents, and also operates from Porto airport,          grown	by	approximately	136%	over	this	period.              Portugália, which took place during 2007,
its second operational hub.                                                                                           has	 enabled	 TAP	 to	 attract	 regional	 traffic	 to	
                                                           In the development of its activity, TAP Portugal,          its operation network, creating synergies and
In the development of its network, the Company             together with its partners, as at 31 December,             strengthening its competitive position at an
pursues a niche strategy, connecting Europe to             offered its passengers and cargo customers                 international level, due to the addition of 16
a growing number of destinations located in                access to 163 cities, 64 with its own aircraft, of         aircraft prepared for regional route operations.
Africa, in North, Central and South America, and           which 80 are located in Europe and 56 in the
in	the	latter	is	the	leading	European	air	carrier	fly-     Americas and the rest in other continents. By the          Complementing the above, the TAP–Maintenance
ing to Brazil.                                             end of 2010, the Company had transported 9.1               and Engineering Business Unit provided services
                                                           million passengers and 94.2 thousand tons of               to approximately 40 Third Party Customers, of
The TAP Group ended 2010 with a net income                 cargo and mail.                                            which 28 were airline companies.
around EUR -57.1 million, less EUR 53.6 million
than the EUR -3.5 million registered in the previ-         The	operations	used	a	recent	fleet,	which	by	              During the year, the TAP Group (TAP, S.A. and
ous year.                                                  the end of the year was composed of 56 Airbus              other participated companies) employed an aver-
                                                           aircraft only, of which 16 are prepared for                age of 13,197 persons, ending the year with
                                                           long-haul	flights.	The	acquisition	of	the	company	         13,113 workers.




                                                                                                                 Route Network:
                                                                                                                 TAP Operation
                                                                                                                 Operation by Partner Company
                                                                                                                 % Representativeness of demand by Region (passenger-kilometres)
                                                                                                                 % Representativeness of demand by Region (passengers)




                                                      35
                                                      69

                                                 35.1%
             8
             1                                   58.0%
                        PORTO
          5.2%
          16.9%        LISBOA



                                                                                                                                             5




                                    11
                                    7

                                   11.3%
                                   6.6%                                           Turnover                                                  2010           2009      var. (%)
                                                                                  EUR million
                                                                                  Air Transport (TAP, S.A.)                                1,995.3        1,775.3          12.4
                                                                                  Maintenance – Third Parties Assistance – Portugal          126.5          113.3          11.7
                                                                                  Maintenance – Third Parties Assistance – Brazil             51.3           53.8         (4.6)
  NEW DESTINATIONS IN 2011                                                        Duty Free                                                  134.1          119.2          12.5
  Europe             Africa          North Atlantic        South Atlantic         Catering                                                     6.7            5.7          17.1
  Athens             Accra           Miami                 Porto Alegre           Other Activities of TAP, SGPS, S.A.                          6.1           11.3        (45.5)
  Bordeux            Bamako
  Dubrovnik          Sao Vicente                                                  TOTAL                                                   2,320.1        2,078.6           11.6
  Dusseldorf
  Manchester
  Vienna
                                                                                                                                                Annual Report 2010    TAP Group    29
          Key Figures 2010
            Flight Hours                                               Supply - ASKs                                   Frequency Evolution
            Own aircraft
                                                                       Demand - RPKs                                   Europe
                                                                                                                                          67,742
                                                                       million                                                   66,591




                                                                                           4.4%                        27,359


                                                                         135.6%
                                                                                                                       2000      2009 2010
                                                                                                         32,138
                                        221,472 229,703                                   30,785                                 1.7%

                                                                                                                       147.6%
                                                                                                              23,944
                                                                                              21,076
                                                                                                                                          5,485
                 124,073
                                                                                                                       Africa                        U.S.A.
                                                                        13,643                                                    4,573

                                                                             9,909                                                                   1,333

                                                                                                                                                               869
                                                                                                                                                                       822

                                                                                                                       1,419


                     2000                2009       2010                  2000              2009           2010        2000      2009 2010           2000      2009 2010

                                                                                                                                 19.9%                        -5.4%

                                        3.7%                                               13.6%                       286.5%                        -38.3%

                  85.1%                                                  141.6%
                                                                                                                       Venezuela                     Brazil            6,479
                                                                                                                                                               5,879

                                                                                                                                  512
                                                                                                                                           432

             229,703                                                   32,138                        23,944             346


             hours                                                     million ASKs                  million RPKs                                    1,676


             The number of flight hours by the TAP fleet                 The capacity of the operation increased by      2000      2009 2010           2000      2009 2010
             came to a total of approximately 230                      4.4%, with demand having increased in a
             thousand, 3.7% more than in 2009.                         significantly higher proportion, by approxima-             -15.6%                       10.2%
                                                                       tely 13.6%.                                     24.9%                         286.6%




            Maintenance Revenues                                       Cargo Revenues                                  Passenger Revenues
                                                                                                                       (000)

                                                   126,541                                               124,871                                              1,843
                                        113,315                                                                                                    1,648
                                                                                             98,166
                  85,730
                                                                            78,471


                                                                                                                                840




                     2000                2009       2010                    2000              2009        2010                 2000                2009       2010


                                        11.7%                                                27.2%                                                 11.8%

                  47.6%                                                     59.1%                                             119.4%




            126,541                                                    124,871                                         1,843
             EUR thousand                                              EUR thousand                                    EUR million

             The total Sales and Services Rendered by                  In 2010 there was a trend towards the           Passenger revenues increased by 11.8%,
             TAP–Maintenance and Engineering Portugal                  recovery of the normal pattern of growth of     reflecting the increase in demand, namely,
             increased by 11.7%, reflecting the improved                the volume of air cargo transported, leading    to the routes of the South Atlantic and
             efficiency of the sales process and increased              to an increase of 27.2% in the respective       Africa regions.
             number of units submitted for intervention.               income.
             Note: Values for 2009 and 2010 in accordance with
             the IFRS (International Financial Reporting Standards).




30   TAP Group    Annual Report 2010
Ticket Sales                                            Operating Revenues                        Human Resources                           Fuel
2010                                                    and Gains                                 TAP, S.A. + PGA, S.A.
                                                        (000)                                                                                                           724 USD
                                                                                                     Total        Ground Staff                                            p/ton.
   South       Rest of
   Atlantic    the world       Others
   21.0%       0.2%            0.4%
                                                                                                                               7,683                       567 USD
                                                                                       2,351                       7,626                                                    522,933
                                                                           2,199                  7,290                                                      p/ton.
Mid
Atlantic
2.1%                                                                                                  4,957                                 295 USD
                                             Portugal                                                                                                           358,641
                                             30.8%                                                                     4,169       4,200      p/ton.

North                                                    1,235
Atlantic
3.1%
                                                                                                                                            156,007

    Africa                         Europe
    6.6%                           35.8%
                                                         2000              2009        2010         2000             2009        2010         2000               2009         2010


2009                                                                       6.9%                                     0.7%                                         45.8%

    South                                                90.5%                                      5.4%                                      235.2%
    Atlantic   Rest of
    15.7%      the world          Others
               0.4%               0.4%
Mid
Atlantic
2.7%
                                                        2,351                                     7,683                                      522,933
                                                        EUR million                               Employees                                  EUR thousand
                                             Portugal
                                             31.8%
                                                        The operating revenues and                In view of the growth in the               Once again on an upward
North
Atlantic                                                gains of Group companies as a             development of the business                trend, the behaviour of the
3.1%                                                    whole reflected the effect of              since 2000, the evolution of the           jet-fuel price was reflected in
                                                        the increase in demand levels.            Staff of TAP, S.A. + PGA, S.A.             TAP, S.A. fuel costs.
                                                        Note: Values for 2009 and 2010 in         reflects the general increase in
 Africa                                                 accordance with the IFRS (International   the Company's productivity
                                   Europe               Financial Reporting Standards).
 6.4%                              39.5%                                                          levels.




EBITDAR                                                 Operating                                 Net Income                                Debt
                                                        Net Income                                                                          (000)

                           278,661                                                                                                              Total Debt              Net Debt
                                                                          52,173
                                                                                                                   -3,542
                                        192,412                                                                                                                 1,303        1,277
                                                                                      -421                                     -57,103


                                                                                                                                                948              1,171
 78,856                                                                                                                                                                      1,054
                                                                                                   122,082
                                                                                                                                                902
                                                        -61,730

  2000                     2009            2010           2000             2009       2010          2000             2009       2010


                           -31.0%                                          -100.8%                                   -1,512.2%
                                                                                                                                               2000              2009        2010
  144.0%                                                 99.3%                                    53.2%




192,412                                                 -421                                      -57,103                                   1,277
EUR thousand                                            EUR thousand                              EUR thousand                               EUR million

The net operating cash flow to deal                      The operating income of the               In spite of some retrocession, in          The total debt reflects the
with financial and investment costs                      Group reached EUR -0.4 million,           2010, the trend of the Company's           continuous effort placed in the
for the companies of TAP Group as a                     standing practically at the               recovery is visible, supported by          reduction of the Company's
whole decreased by EUR 86.2                             break-even point.                         the increased efficiency that it has        indebtedness.
thousand.                                               Note: Values for 2009 and 2010 in         achieved over the last few years.
                                                        accordance with the IFRS (International   Note: Values for 2009 and 2010 in
                                                        Financial Reporting Standards).           accordance with the IFRS (International
                                                                                                  Financial Reporting Standards).




                                                                                                                                                  Annual Report 2010               TAP Group   31
     Sustainable Development
     of TAP Group




     Social responsibility

     The quality of the product sold by TAP arises from   This attitude which, in turn, is directly related    Externally,	the	objectives	defined	for	2010,	as	the	
     the daily investment made by each Employee in        to the Employees’ perception on what the             European Year for Combating Poverty and Social
     the Company.                                         Company represents to him or her, is deter-          Exclusion, are included in TAP's agenda of con-
                                                          minant for an external image of the offer of a       cerns, both in its ethical conduct and respect for
                                                          service of recognised excellence, making the         its stakeholders.
                                                          Company a preferential choice for the Customer.
                                                                                                               When, in February 2010, a group of employ-
                                                          However, the best company in which to work           ees formed a TAP Pool of Volunteers, on their
                                                          is, at any given time, the combined result of the    own initiative, called Voluntários com Asas
                                                          quality of the human resources which operate         (Volunteers with Wings), the Company sup-
                                                          therein and the existing working conditions.         ported and greatly encouraged this initiative,
                                                          It is in this sense that TAP's internal conduct is   right from the very beginning.
                                                          guided, promoting processes to welcome new
                                                          employees, which is fundamental in the proc-         Also of impact on the external side, regular
                                                          ess of their adaptation and future performance,      actions are organised in favour of the surround-
                                                          by	encouraging	their	interest	and	confidence.	       ing community or in the context of voluntary
                                                          The investment in human capital is thus carried      work. Particular note should be made of vari-
                                                          out, in an intensive manner, through policies        ous initiatives, such as blood donation, the
                                                          of development, recognition, encouragement           collection of articles for charities and the con-
                                                          of creativity and compensations, which result        stitution of a group to support situations of
                                                          in a stable and motivated staff, in each of the      emergency or humanitarian assistance. It is also
                                                          markets in which the Company operates, both          important to highlight the permanent integra-
                                                          in Portugal and abroad.                              tion of disabled persons, who hold positions
                                                                                                               which are suitable to their capacities inside the
                                                          The processes of individual development,             Company. Also noteworthy is the Ganhar Asas
                                                          through	training	which	is	specific	or	aimed	at	      (Gaining Wings) programme which, through an
                                                          functional enrichment, simultaneously with           organised	programme,	helps	people	with	flight	
                                                          personalised career management, through              phobia syndrome.
                                                          the monitoring of professional performance
                                                          and	continuously	adjusted	retribution,	or	with	      For all these reasons, TAP is considered, today,
                                                          facilities which promote wellbeing (the inter-       as a reference company in terms of employ-
                                                          nal medical clinic, life and health insurance,       ability, and with a status which is recognised as
                                                          and others), as well as attractive social bene-      responsible, in the social context.
                                                          fits	(travel	and	accommodation,	or	rent-a-car,	
                                                          museums and child-care facilities, amongst
                                                          others) are determinant factors in the effec-
                                                          tive management of the Company's human
                                                          resources.




32   TAP Group   Annual Report 2010
Environmental
Responsibility
                                                       Environmental license in the
                                                       Maintenance activity
CO2 Emissions Compensation Programme
                                                       In 2010, TAP–Maintenance and Engineering
TAP continued its CO2 Emissions Compensation           maintained	the	objective	of	compliance	with	
Programme (Carbon Offset), launched in June            the requirements of the Environmental License
2009, in partnership with IATA.                        which it holds for its activity of maintenance
                                                       and repair of aircraft, including the surface treat-
This    programme         is   available     at        ment of metals and plastic materials, which uses
[ www.flytap.com ] and allows its passen-              an electrolytic or chemical process, concentrat-
gers to decide if they would like, voluntarily,        ing its efforts towards the appropriate meeting of
to compensate the carbon emissions resulting           all the requirements for the Environmental License.
from	their	journey,	by	contributing	to	emission	       For this purpose, the various monitoring campaigns               CO2Emissions Compensation
reduction	projects	and	to	the	reduction	of	the	        defined	by	the	Environmental	License	were	carried	out	           Programme
carbon footprint.                                      and the four periodic reports were submitted, which               Carbon Offset
                                                       constitute the mechanisms accompanying the License,
The participation of the passengers in the CO2         to the regulating entity, the Portuguese Environmental
emissions compensation programme, during               Agency. At the same time, new initiatives were carried              The site provides all the informa-
2010,	exceeded	the	objective	and	has	permitted	        out with a view to the progressive improvement of the                tion relative to the value of carbon
obtaining the following accumulated results            environmental performance, by the Business Unit. In this              dioxide (CO2) emitted by each
                                                                                                                              passenger on each flight, as
since the beginning of the programme:                  context, particular note should be made of the implementa-
                                                                                                                               well as the cost correspond-
                                                       tion of the labels identifying the waste. This practice, started
                                         Result                                                                                 ing to the compensation of
                                                       in July 2010, allows for better supervision of the production             this emission and informa-
Years                              (compensated        of	waste	in	each	area,	and	also	enables	more	efficient	control	            tion	 on	 the	 project	 which	
                                          tons)        by the internal manager, as well as by the TAP Serviços Business            is supported and in which
2009 (June to December)                     2,508      Unit, relative to the provision of the waste management service.             the money resulting from
2010 (January to December)                  4,278                                                                                     each contribution will be
                                                       Note	should	also	be	made	of	the	undertaking	of	the	first	inter-                 invested.
TOTAL                                       6,788
                                                       nal audit of the Environmental License. This audit, carried out
                                                       in October/November, revealed some Non-Conformities which,                       Due to the uniqueness
                                                       in	view	of	their	specificity,	were	transformed	into	a	single	Special	             of this programme,
Training on the Environment                            Project,	to	be	started	in	2011.                                                   transversal to the avi-
                                                                                                                                          ation Industry, TAP
In order to stimulate the environmental culture of     During the last quarter of 2010, the process of implementation of                   was distinguished
the Employees, TAP's Environment area has car-         an Environmental Management System for the Business Unit was                         by UNESCO with
                                                                                                                                            the Planet Earth
ried out actions of training on the Environment,       resumed. The system will be created in accordance with the require-
                                                                                                                                              Award 2010.
covering not only workers already holding posi-        ments of the Standard NP EN ISO 14001, so that, once in operation, its
tions in the Company but also new workers,             certification	may	be	requested.	The	first	activities	involved	the	survey	and	
during their initial entry phase.                      description	of	the	reference	situation,	through	the	identification	of	the	
                                                       environmental aspects associated to the Maintenance and Engineering
During 2010, 24 editions of the training on the        activity. Simultaneously, the drafting of new procedures was begun, which
Environment course were held, where 334 work-          is to be included in the Manual of Maintenance Technical Standards, and
ers were trained from the different Business Units     will serve to support the Environmental Management System.
or Companies of TAP Group.



Voluntary Work

The Environment area, together with TAP's group of Voluntários com Asas (Volunteers with Wings), marked the World Environment Day
2010	by	carrying	out	joint	actions	with	social	solidarity	institutions,	relative	to	the	raising	of	awareness	on	the	separation	of	waste,	and	
playing educational games using recycled materials.




                                                                                                                                      Annual Report 2010    TAP Group   33
     Key Events


     Structuring events                                                                                       Main events
                                                                                                              January
     During 2010, the Company continued its
     efforts to maintain a competitive positioning                                                            Participation of TAP in the Lisbon International
     in the global market, with facts of a structur-                                                          Tourism Exhibition (BTL), during which the
     ing nature having taken place.                                                                           Company Loyalty Programme – Victoria – reached
                                                                                                              one million members.
                                                                                                              Under the maintenance contract of TAP–
                                                                                                              Maintenance and Engineering for two A340
     Chronology of the main events                                                                            airplanes of the French Air Force, note should be
                                                                                                              made	of	the	carrying	out	of	10,000	flight	hours,	
     In April 2009, TAP Group launched a tender           the Competition Authority, managing the             where the relevance of the operation, considered
     for the selection of an investment banking           company SPdH independently from TAP.                exemplary, and its reliability at the top of the
     institution for the purpose of promoting the                                                             industry's standards were both highlighted.
     sale, in national and international markets, of      In compliance with these provisions, TAP has
     the	majority	(50.1%)	of	the	share	capital	of	        continued its efforts to sell the position that
     the company SPdH.                                    it	was	forced	to	reacquire,	the	majority	of	the	
                                                          share capital of SPdH, with the corresponding
     The acquisition of the said sharehold-               shares having been submitted to an inde-
     ing occurred in March 2008, by a                     pendent entity, Europartners, which has an
     consortium of three financial institutions           active role in the realization of AdC decision-
     (Banco de Investimento Global (BIG), Banco           making. Therefore, and through deliberations
     de Investimento, S.A. (BANIF) and Banco              of the general meeting of shareholders held
     Invest, S.A.).                                       on 27th January 2010, three representatives
                                                          of Europartners were appointed a seat each in
     The	objective	of	this	operation,	fostered	by	        the Board of Directors of SPdH, one of whom
     TAP, was to create the conditions for the            being	the	chief	executive	officer,	in	the	capac-
     managers of SPdH to promote the necessary            ity of independent operating manager.               February
     changes	for	solving	its	operating	difficulties	                                                          The	company	Lojas	Francas	de	Portugal	opened	
     and,	in	this	way,	achieve	a	significant	improve-     In	order	to	comply	with	the	orders	justified	       a new shop, integrated in the new concept
     ment in the standards of service offered, not        in legal imperatives which rule the handling        Just for Travelers, at Lisbon airport, in an area
     only for TAP but also for the other customers        activity sector and achieve conditions which        dedicated exclusively to Non-Schengen passenger
     of that ground handling company.                     are	favourable	to	the	disposal	of	the	majority	     departures.
                                                          of the respective share capital, SPdH began,
     The market conditions inherent to the                in 2010, a thorough restructuring process, so       TAP–Maintenance and Engineering participated
     present economic crisis did not permit, dur-         as to restore the equity and thus re-establish      in the 2nd edition of the conference organised
     ing the previous twelve months, the sale of          the	solvency	and	financial	autonomy	ratios	         by the Aviation Week in Dubai, of Maintenance
     SPdH to potentially interested parties to be         in accordance with the standards which are          Repair & Overhaul Middle East 2010, the largest
     undertaken.                                          usually acceptable and confer aptitude to           exhibition of Maintenance and Repair in the
                                                          maintain the current license of activity, as well   Middle East.
     Thus, in March 2009, and according to the            as eligibility to apply for its extension, taking
     conditions established with the abovemen-            effect on 1st January 2012.
     tioned banks, the shareholding in SPdH was
     transferred to TAP, with the operation hav-          For this purpose, SPdH presented the reg-
     ing been concluded for the same amount as            ulator with an economic feasibility plan
     the acquisition value. At the same time, TAP         (business plan), through which it demon-
     transferred, on a provisional basis, the con-        strated the transformation of the current
     trol	of	its	stake	in	SPdH	(relative	to	the	50.1%)	   consistently negative results into sustainable
     to an independent company, Europartners.             positive results.
     TAP submitted this operation to the authori-
     sation of the National Competition Authority
     (AdC – Autoridade da Concorrência).

     In November 2009, the AdC issued its deci-                                                               March
     sion, prohibiting the concentration operation                                                            TAP is the first Portuguese company, in the
     between TAP and SPdH, due to considering                                                                 Tourism sector, to have created an official
     that it could create or reinforce a dominant                                                             channel on YouTube – the largest video platform
     position of the handling company in ground                                                               at	a	worldwide	level	–,	with	the	provision	of	films	
     handling services at airports, and, therefore,                                                           on various destinations and services such as
     that	TAP	must	sell	the	majority	of	the	share	                                                            online check-in, online booking and personalised
     capital of the handling operator, as well as                                                             attendance, amongst others, as well as the Flash
     nominate a trustee to act in the interests of                                                            Mob carried out at airports in Portugal and Brazil.




34   TAP Group   Annual Report 2010
                                                                                                               Distinctions and Awards
                                                                                                               TAP, S.A.

                                                                                                               Best Aviation Company – TAP was chosen as the
                                                                                                               best aviation company, by the international company
                                                                                                               Condé Nast Traveller, which valued aspects such as the
                                                                                                               punctuality,	comfort,	flight	frequency,	network	of	desti-
                                                                                                               nations,	in-flight	service	and	safety;	


The migration of the booking and inventory                                                                     Trusted Brand – TAP was distinguished, for the 2nd year
                                                                                                               consecutively, as the brand with the best reputation in
system to the Amadeus Altéa platform was
                                                                                                               environmental issues, by the readers of the Selections of
implemented, in order to provide better service                                                                the Reader's Digest;
to the Company's Customers.
                                                                                                               Punctuality Award in the Medium-Haul
                                                                                                               Punctuality category – Nomination made
April                                                                                                          by Brussels Airport, in the context of the Aviation
                                                                                                               Awards,	with	TAP	figuring	amongst	the	best	European	
The Customers were provided with a new                                                                         companies;
application at [ www.flytap.com ] , permitting
the	automatic	issue	of	receipts	for	flights	carried	                                                           3rd Best Airline Company of Southern
out by the Company – thus further simplifying its      July                                                    Europe – Positioning of TAP in the context of the
relations with Customers.                                                                                      SkyTrax awards, attributed since 1999, which result from
                                                       Inauguration of operations with the offer of            a selection made by approximately 18 million passengers,
TAP Cargo participated in the 16th edition of          three	weekly	flights	to	the	Airport	of	Viracopos,	      in 100 countries;
Intermodal, South America, the largest and             in Campinas, in the State of Sao Paulo, with the
most important fair of Southern America, in            Company's operation to Brazil thus covering             Best Airline Company 	–	Classification	received,	for	
the logistics, transport and international trade       a total of nine destinations.                           the 7th year consecutively, in the context of the Publituris
                                                                                                               Travel Awards, which recognises the best companies of
sectors.
                                                                                                               the Tourism sector;
                                                       August
May                                                                                                            European Business Awards – TAP was selected
                                                       With	the	August	edition,	TAP's	in-flight	magazine	      as the national representative, in the context of the 4th
The company TAP–Maintenance and Engineering            UP	 launched	 a	 specific	 version	 for	 iPad,	 thus	   edition of this competitive event sponsored by the HSBC
Brazil received the qualification, attributed          becoming	 the	 first	 Portuguese	 publication	 to	      Bank, in recognition of the adoption of principles con-
                                                                                                               sidered fundamental, such as innovation, business
by the manufacturer Embraer, as an Embraer             provide a format through this mean. UP is the
                                                                                                               excellence and sustainability;
Authorised Service Centre – EASC in Brazil.            largest vehicle of promotion of the destination
                                                       Portugal in the entire world, being read, on a
                                                                                                               UP as an Essential Read	–	The	TAP	in-flight	maga-
                                                       monthly basis, by over one million readers.             zine was distinguished by the British magazine Monocle
                                                                                                               and was also highlighted by the Chinese publication
                                                                                                               MING	 as	 one	 of	 the	 best	 in-flight	 magazines	 of	 the	
                                                                                                               world. Recognitions which distinguish Portugal and its
                                                                                                               national values, as well as the different destinations of the
                                                                                                               Company, which are widely publicised in its magazine;


                                                                                                               International Award for the TAP stand at
                                                                                                               ABAV – Distinction given in the context of the largest
                                                                                                               Tourism fair of the Americas, for the creativity and quality
                                                                                                               of	the	design	of	the	project,	which	focused	on	some	of	the	
                                                                                                               most modern symbolic areas of Lisbon;
TAP	 was	 responsible	 for	 the	 return	 flight	 to	
Rome of His Holiness Pope Benedict XVI, on the                                                                 World Leading Airline Company for
occasion of his Apostolic Journey to Portugal,         September                                               Southern America – Special mention, for the 2nd
using the aircraft A320 –200 Columbano                                                                         year consecutively, in the context of the 17th edition of
                                                       The new site of TAP Cargo is made available,            the World Travel Awards;
Bordalo Pinheiro.
                                                       with a more modern image and user-friendly
                                                       navigation, as a means of strengthening the             STAR CEO Award 2010 – Distinction received
                                                                                                               from STAR Alliance, in the context of the CEO Award
                                                       strategy of communication with the Customer.            2010, for TAP's contribution to the development of the
                                                                                                               2D	Barcode	Project,	carried	out	in	partnership	with	STAR	
                                                                                                               Alliance;
                                                       November
                                                       The process was begun relative to the migration         TAP Cargo, Best Air Cargo Company in three
                                                                                                               categories (Best Air Cargo Company for
                                                       of the former Departure Control system to the
                                                                                                               Europe, for the Americas and for Africa) –
                                                       new Departure Control system platform (DCS) of          Special mention attributed by the periodical Transportes
                                                       Amadeus, with the start-up of operation of the          & Negócios.
                                                       system at the Porto stopover.


June                                                   December
                                                                                                               Other TAP Group companies
Start of operations to Algiers and Marrakech,          The new TAP shop was inaugurated in the Centro
both	with	a	frequency	of	three	flights	per	week.	      Empresarial Internacional RIO (RB1), representing       Best Aeronautical Maintenance Company
The Company thus reinforced its strategy of            a strategic positioning in a region which will be       (MRO) of Brazil – Award attributed to TAP–
                                                                                                               Maintenance and Engineering Brazil by the principal
growth to Africa, the only sector of the route         privileged during the process of revitalisation of      Brazilian magazine specialised in aviation Avião Revue.
network with continuous growth since 2001.             the entire port area of Rio de Janeiro.




                                                                                                                                   Annual Report 2010          TAP Group       35
36   TAP Group   Annual Report 2010
“With Arms Wide Open„
     Is the theme that celebrates TAP's new signature. In 2010, the
     Portuguese Mariza, the Angolan Paulo Flores and the Brazilian
     Roberta Sá gave voice to this song, that is as an "anthem" to
     the union of the Lusophone cultures. These artists were joined
     in the choir by some of TAP's employees. "With Arms Wide
     Open" illustrates the proximity and complementarity between
     these three people, who share language, culture and history.




                                                            Annual Report 2010   TAP Group   37
     Summary
     of the Performance
     Faced with an exposure to a less favourable European
     context, in addition to the behaviour of the price of oil,
     once again on an upward path, the high capacity of the
     Company, in the development of its activity, in corresponding
     with adjusted flexibility – in terms of the offer of services
     and costs – to market changes is worthy of mention.




                                                                Price of Fuel
                                                                USD/ton.



                                                                1,400                                                                                  1,356.7
     After the fall of Gross Domestic Product (GDP) in          1,300
     2009	by	-0.6%,	following	the	particularly	severe	          1,200
                                                                1,100
     global contraction, 2010 was characterised by              1,000
                                                                  900                                                                                                       828.7
     the generalised recovery of economic activity,               800
                                                                  700
     at	a	worldwide	level,	reflected,	by	the	end	of	              600
     the	year,	by	growth	in	the	order	of	5.0%.	With	              500
                                                                  400
     differentiated rates amongst regions, the                    300   109.9
                                                                  200
     evolution was due, above all, to the robustness              100
                                                                    0
     of the growth of the emerging and developing
                                                                        1999-Mar
                                                                         1999-Jun
                                                                        1999-Sep

                                                                        2000-Mar
                                                                         2000-Jun
                                                                        2000-Sep

                                                                        2001-Mar
                                                                         2001-Jun
                                                                        2001-Sep

                                                                        2002-Mar
                                                                         2002-Jun
                                                                        2002-Sep

                                                                        2003-Mar
                                                                         2003-Jun
                                                                        2003-Sep

                                                                        2004-Mar
                                                                         2004-Jun
                                                                        2004-Sep

                                                                        2005-Mar
                                                                         2005-Jun
                                                                        2005-Sep

                                                                        2006-Mar
                                                                         2006-Jun
                                                                        2006-Sep

                                                                        2007-Mar
                                                                         2007-Jun
                                                                        2007-Sep

                                                                        2008-Mar
                                                                         2008-Jun
                                                                        2008-Sep
                                                                        2008-Dez
                                                                        2009-Mar
                                                                         2009-Jun
                                                                        2009-Sep

                                                                        2010-Mar
                                                                         2010-Jun
                                                                        2010-Sep
                                                                        1998-Dec




                                                                        1999-Dec




                                                                        2000-Dec




                                                                        2001-Dec




                                                                        2002-Dec




                                                                        2003-Dec




                                                                        2004-Dec




                                                                        2005-Dec




                                                                        2006-Dec




                                                                        2007-Dec




                                                                        2009-Dec




                                                                        2010-Dec
     market	economies,	benefiting	from	the	revival	
     of world trade, developments in commodity
     markets and the dynamics of internal demand.
     In turn, for the advanced economies as a whole,
     the economic recovery was modest, with a
     slowdown in the second half of the year due                progression of GDP or an increase in the value of          its business opportunities, pursued its strategy
     to	the	turbulence	in	the	financial	markets,	as	a	          oil, may place in question the desired recovery.           of consolidation of the connections with the
     consequence of the increase in sovereign risk,                                                                        South Atlantic and reinforcement of its growth
     associated	to	the	significant	growth	in	budget	            For the companies of TAP Group, in the presence            in Africa, starting operations to the Airport of
     deficits	and	public	debt.	In	response	to	the	strong	       of the economic scenario described above,                  Viracopos, in Campinas, in the State of São Paulo,
     global demand and, also, due to the imbalances             where, in addition to the behaviour of the price           and to Algiers and Marrakech.
     in supply, relative to certain consumer goods,             of oil, once again on an upward path, and
     prices,	in	particular,	of	oil,	which	finally	stabilised	   hence their great exposure to an unfavourable              Also, the ongoing increase of productivity and
     in 2010 at a value above 80 USD/barrel, as                 European context, action was pursued aimed at              efficiency,	the	adoption	of	best	practices,	the	
     well as non-energy commodities, increased                  increasing	the	profitability	of	the	activities	of	their	   simplification	of	processes	and	the	intensification	
     considerably, to stand at the level of the historic        respective sphere of intervention. In support of           of aggressive sales policies were determinant
     maximums	reached	during	the	first	half	of	2008.            this	objective,	incisive	action	was	continued	on	          factors in the Company's policy, as well as the
                                                                all costs possible, with the implementation of a           continued development of a policy of innovation,
     For the Air Transport Industry, after the                  suitable cost-cutting programme which included             with a view to responding to the Customer's
     largest decrease of demand in the history of               a	diversified	series	of	measures,	to	be	enforced	          needs and increasing the convenience of the
     commercial aviation in 2009, the year of 2010              until 2012, with transversal effects on all the            services provided.
     was	characterised	by	the	return	of	air	traffic	to	         companies of TAP Group.
     previous	profiles	of	behaviour,	with	the	reuptake	
     of air travel, as well as trade relations between the      Likewise, note should be made of the high
     different	regions	of	the	world.	During	the	first	half	     capacity of the Company, in the development of
     of 2010, the recovery was based in the regions             its	business,	to	respond	with	adjusted	flexibility,	
     of	the	Asian	Pacific	and	Americas,	and	became	             in the offer of services and level of costs, to
     more visible in all regions during the second half         market alterations and, in this way, enable the
     of	the	year,	albeit	with	significantly	differentiated	     absorption of the losses caused by the various
     expression. However, the opposite occurred in              external impacts which have occurred, with
     Europe where, in addition to the slow economic             this	 reality	 being	 confirmed	 by	 its	 operating	
     recovery, various external impacts interfered with         performance. In this context, the application
     the	normal	development	of	the	flight	operation,	           was continued, until the month of June, of the
     constituting factors which negatively affected             Contingency Plan, in activity since the Summer
     the performance of commercial aviation in the              period of 2009, and implemented with a view to
     region. In particular, the structural challenges           promoting a rational adaptation of the capacity
     which	lead	to	the	industry's	profitability	being	          to the new levels of demand. As of the month
     inadequate continued, imposing fragility to the            of June, after the restoration of the cancelled
     sector, where any alteration, such as a slower             operation, the Company, seeking to optimise all



38   TAP Group    Annual Report 2010
                                                                                                  Transfer traffic through
                                                                                                   the Lisbon hub
                                                                                                    Growth since 2000


                                                                                                     450%
                                                                                                     400%
                                                                                                      350%
                                                                                                       300%
                                                                                                        250%
                                                                                                         200%
                                                                                                          150%
                                                                                                          100%
                                                                                                             50%
                                                                                                               0%
                                                                                                             -50%
                                                                                                             -100%
                                                                                                                     Europe Europe- Europe- Europe- Europe-       Total
                                                                                                                             North   Mid     South Africa
                                                                                                                              Atl.    Atl.    Atl.




Overall performance                                   Portuguesa de Transportes Aéreos, S.A.. The                       Development of the operating hubs
                                                                                                                        of TAP's route network
of TAP Group                                          company Groundforce Portugal, which adopted,
                                                      as of 1st November 2005, a special taxation period
                                                      from 1st November to 31st October, returned to the                 The consolidation of the intercontinental
                                                      previous period of taxation in 2010, and recorded a                 hub of Lisbon, which supports the operating
The most important aspects of the overall             negative net income of EUR -43.6 million, relative to                network of TAP's routes, was maintained,
performance of TAP Group and of the                   a reporting period of 14 months.                                      with	a	significant	increase	in	the	number	of	
companies that make up its core business in                                                                                 transit passengers having been recorded
2010, are as follows:                                 In March 2009, a consortium of three banks (BIG,                       in relation to the previous year, espe-
                                                      Banif and Banco Invest) transferred the stake owned in                  cially passengers travelling to the South
ρ   In the context of the economic scenario           SPDH	(50.1%)	to	TAP,	S.A.	In	April,	TAP	Group	launched	                  Atlantic.
    described above, the companies of TAP             a tender for the selection of an investment banking                  Ten years after the implementation of
    Group recorded a consolidated net income,         institution with the mission of promoting the sale, in                the strategy to create the Lisbon hub,
    with minority interests, for the year of the      national	and	international	markets,	of	the	majority	(50.1%)	           the total number of passengers in
                                                                                                                              transit through Lisbon exceeded dou-
    value of EUR -57.1 million, that is, EUR 53.6     of	the	share	capital	of	the	company	SPdH.	The	objective	
                                                                                                                               ble	the	initial	figure.
    million less than in 2009.                        of the acquisition of the abovementioned shareholding, in
                                                                                                                                 On the other hand, the operation
                                                      March 2008, fostered by TAP, was to create the conditions
                                                                                                                                 in Porto was continued, as the
ρ   Net operating income (before financing            for the managers of SPdH to be able to promote the necessary
                                                                                                                                  Company’s 2nd operational hub,
    costs and taxes) reached the break-even           changes	for	solving	its	operating	difficulties	and,	in	this	way,	            which began during 2006.
    point of EUR -0.4 million, representing EUR       achieve	a	significant	improvement	in	the	standards	of	service	
    52.6 million less than in 2009.                   offered, not only for TAP but also for the other customers of this
                                                      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
The following factors contributed                     to be undertaken. Thus, in March 2009, and according to the
to this result:                                       conditions established with the abovementioned banks, the
                                                      shareholding in SPdH was transferred to TAP, with the operation
TAP, S.A. and a group of companies carrying           having been concluded for the same amount as the acquisition value.
out activities in areas linked to the Group’s core    At the same time, TAP transferred, on a provisional basis, the control
business and in which TAP, SGPS, S.A. has a stake     of	its	stake	in	SPdH	(relative	to	the	50.1%)	to	an	independent	company,	
in their share capital.                               Europartners. TAP submitted this operation to the authorisation of the
                                                      National Competition Authority (AdC – Autoridade da Concorrência).
Regarding TAP, S.A., the company recorded a           In November 2009, the AdC issued a statement prohibiting the
profit	of	EUR	62.3	million.	This	result,	which	was	   concentration operation between TAP and SPdH, due to considering that
EUR 2.3 million higher than the EUR 60.0 million      it could create or reinforce a dominant position of the handling company
registered in 2009 (in accordance with the IFRS),     in	ground	handling	services	at	airports,	and	that	TAP	must	sell	the	majority	
was the consequence of an improvement in net          of the share capital of the handling operator, as well as nominate a trustee
operating income, of approximately EUR 5.5            to act in the interests of the Competition Authority, managing the company
million, in spite of the penalising effect of the     SPdH independently from TAP.
higher	price	level	of	jet	fuel.
                                                      In compliance with these provisions, TAP continues its efforts to sell the
With respect to SPdH–Serviços Portugueses             position	that	it	was	forced	to	reacquire,	the	majority	of	the	share	capital	of	
de Handling, S.A. (Groundforce Portugal),             SPdH, having the corresponding shares been delivered to an independent
established in 2003 from the demerger of the          entity, Europartners, which holds an active role in the realization of AdC decision
Ground Handling Business Unit of TAP, S.A., TAP,      making. In this sense, and through deliberation of the general meeting of of
SGPS	owns	a	number	of	shares	representing	49.9%	      shareholders held on 27th January 2010, three representatives of Europartners
of the company’s share capital, which includes        were appointed a seat each in the Board of Directors of SPdH, one of whom being
a	stake	of	6%	held	by	PORTUGÁLIA–Companhia	           the	chief	executive	officer,	in	the	capacity	of	independent	operating	manager.



                                                                                                                                      Annual Report 2010      TAP Group     39
                                                                In	order	to	comply	with	the	orders	justified	in	legal	imperatives	which	rule	the	handling	activity	sector	and	achieve	
                                                                 conditions	which	are	favourable	to	the	disposal	of	the	majority	of	the	respective	share	capital,	SPdH	began,	in	2010,	a	
                                                                  thorough	restructuring	process,	so	as	to	restore	the	equity	and	thus	re-establish	the	solvency	and	financial	autonomy	
                                                                   ratios in accordance with the standards which are usually acceptable and confer aptitude to maintain the current
                                                                    license of activity, as well as eligibility to apply for its extension, taking effect on 1st January 2012. For this purpose,
                                                                     SPdH presented the regulator with an economic feasibility plan (business plan), through which it demonstrated
                                                                      the transformation of the current consistently negative results into sustainable positive results.

                                                                             Regarding the company TAP–Maintenance and Engineering Brazil, S.A. (former VEM), TAP pursued, in 2010,
                                                                             significant	efforts	towards	its	recovery,	involving	a	programme	of	re-structuring	of	systems	and	standardisation	
                                                                              of processes, which are currently entirely altered, and which included the most thorough change in relation to
                                                                               its portfolio of customers. It should be noted that the investment made in this company essentially represents
                                                                                a strategic perspective, permitting the expansion of the maintenance activity into new markets. Hence, by
                                                                                 the	end	of	2010,	it	was	not	yet	been	possible	to	achieve	financial	balance,	with	Aero–LB,	a	company	of	TAP	
                                                                                  Group,	majority	shareholder	of	TAP–	Maintenance	and	Engineering	Brazil,	S.A.,	having	recorded	a	net	
                                                                                   income of EUR -71.8 million.



                                                                                    From an operating point of view


                                                                                     ρ   TAP, S.A. recorded a net operating income of       ρ   Regarding operating performance, and due
                                                                                         EUR	103.3	million,	that	is,	5.6%	more	than	in	         to	the	adoption	of	a	strategy	of	adjusted	
                                                                                         2009. Operating Revenue and Gains reached              flexibility to market alterations, always
                                                                                         a total of EUR 2,180.7 million, representing           aimed at promoting a rational adequacy of
                                                                                         EUR 222.6 million more than in 2009, and               its offer and the effective control of costs,
                                                                                         an	increase	of	11.4%.	Total	Operating	Costs	           the level of offer of the regular operation
                                                                                         and Losses, excluding fuel, reached EUR                increased	 by	 approximately	 4.4%,	 with	
      TAP Group Turnover                                                                 1,430.5 million, that is, EUR 54.7 million             demand	having	increased	by	a	significantly	
                                                                                         more	than	in	2009,	or	an	increase	of	4.0%,	            higher	proportion,	in	the	order	of	13.6%.	
                                                                                         representing an increase lower than that               The overall passenger load factor thus
                                               Maintenance-Third                         recorded in the operation, which stood at              stood	at	74.5%,	representing	6	p.p.	more	
      Air Transport (TAP, S.A.)                Parties Assistance - Portugal
                                                                                         approximately	4.4%.                                    than in 2009. Following the application of
      86.0%                                    5.4%
                                                                                                                                                the strategy described above, the choice
                                                                                     ρ   Regarding the performance of the business              of consolidating Lisbon as the Company's
                                               Maintenance-Third
                                               Parties Assistance - Brazil               of TAP, S.A., the Third Party Customer                 hub was pursued, connecting Europe to a
                                               2.2%                                      segment of Maintenance and Engineering                 growing number of destinations situated
                                                                                         contributed with a notable performance,                in Africa and in the South Atlantic, being
                                               Duty Free (LFP, S.A.)                     having reached a value of EUR 126.5 million,           highlighted, in this region, as the European
                                               5.8%
                                                                                         corresponding	 to	 an	 increase	 of	 11.7%	            airline company with greatest penetration in
                                               Catering (CATERINGPOR, S.A.)              relative	 to	 2009,	 reflecting	 the	 improved	        the Brazilian market.
                                               0.3%                                      efficiency	of	the	sales	process	as	well	as	the	
                                               Other TAP, SGPS, S.A.
                                                                                         increased number of units submitted for
                                               Activities                                intervention.
                                               0.3%
                                                                                     ρ   The Air Transport activity generated a total
                                                                                         of	EUR	1,986.3	million,	that	is,	12.4%	more	
                                                                                         than	in	2009.	This	result	was	significantly	
                                                                                         influenced by the behaviour of revenue
                                                                                         derived from passenger travel, which
                                                                                         reached EUR 1,842.9 million, corresponding
                                                                                         to	 11.8%	 more	 than	 the	 value	 recorded	
                                                                                         in the previous year. This fact was due to
                                                                                         the sharp increase in passenger traffic
                                                                                         demand,	of	13.6%,	expressed	in	RPKs,	albeit	
                                                                                         accompanied by a certain deterioration in
                                                                                         yields. Also contributing to this result was
                                                                                         the Air Cargo business, where TAP registered
                                                                                         an	 increase	 of	 27.1%	 in	 relation	 to	 the	
                                                                                         previous year.




40   TAP Group            Annual Report 2010
TAP Group Key Figures




TAP, SGPS, S.A.                                                                  2010                  2009
                                                                                                                           var.
(Consolidation)                                                             EUR million           EUR million
Operating	Net	Income	(before	financing	costs	and	taxes)                            (0.4)                  52.2        -100.8%
Pre-tax Net Income                                                                (44.4)                   7.3        -709.5%
Net Income of shareholders of the parent company                                  (57.1)                 (3.5)       -1512.2%
    Net Income of TAP, S.A.                                                         62.3                  60.0           3.8%
    Net Income of SPdH–Serviços Portugueses de Handling, S.A.                     (43.6)                (28.2)         -54.3%
    Net Income of Aero LB, Participações, S.A.                                    (71.8)                   2.4       -3091.1%

Total Assets                                                                     2,086.8              2,024.4              3.1%
Shareholders' Equity (including Minority Interests)                              (264.8)              (204.6)            -29.4%

Active Staff of the Group (31 December)                                          13,113                13,397              -284
   TAP, S.A. (excluding subsidiaries)*                                            7,055                 6,986                69
     Air Transport                                                                4,582                 4,489                93
     Maintenance and Engineering                                                  1,942                 1,961               -19
     TAP Serviços                                                                   496                   498                -2
     Other                                                                           35                    38                -3
   SPdH–Serviços Portugueses de Handling, S.A.**                                  2,382                 2,439               -57
   Remaining Companies                                                            3,676                 3,972              -296


* Not including staff who are not placed and not active
** Associate Company




Consolidation methodology


Pursuant	to	the	legal	requirements,	the	companies	in	which	TAP	holds,	directly	or	indirectly,	a	majority	of	vot-
ing rights, which is the case of most, were included in the consolidation through the full integration method. The
equity and net income of these companies corresponding to third party shareholdings, are presented in the minority
interests headings, respectively, in the consolidated balance sheet under a separate heading of equity and in the con-
solidated	profit	and	loss	statement.	The	investments	in	associated	companies	(representing	between	20%	and	50%	of	
the voting rights) are recorded through the equity method. A company in this situation is SPdH–Serviços Portugueses
de Handling, S.A..

The	attached	consolidated	financial	statements	of	the	Group	were	prepared	in	conformity	with	the	International	Financial	
Reporting Standards adopted by the European Union (IFRS – formerly called the International Accounting Standards – IAS)
issued by the International Accounting Standards Board (IASB) and Interpretations issued by the International Financial
Reporting Interpretations Committee (IFRIC) or by the former Standing Interpretations Committee (SIC), in force on the date
of	preparation	of	the	said	financial	statements.




                                                                                                                                  Annual Report 2010   TAP Group   41
     Analysis of the Economic Climate

     Heterogeneous economic recovery, and with strong uncertainty regarding its sustainability, as the
     temporary factors explaining growth disappear, and indicators of a sustained recovery do not
     appear to be emerging, in various advanced economies.




     International Economic Climate


     After the fall of Gross Domestic Product (GDP) in      sharp	recovery,	which	finally	stood	at	+2.8%	
     2009	by	-0.6%,	following	the	particularly	severe	      by the end of 2010. Notwithstanding some
     global contraction, 2010 was characterised by          evident pockets of vulnerability, in particular
     the generalised recovery of economic activity, at a    regarding the housing market, in deceleration
     worldwide	level,	reflected,	by	the	end	of	the	year,	   after the end of some measures of stimulus,
     by	growth	in	the	order	of	5.0%.                        economic activity has been sustained by
                                                            internal demand, with net exports continuing
     With differentiated rates amongst regions, the         to show a negative contribution. Private
     evolution was due, above all, to the robustness        consumption has shown a slight recovery,
     of the growth of the emerging and developing           since mid-2009, but has remained weak,
     market	economies,	benefiting	from	the	revival	         in view of the unfavourable context of
     of world trade, developments in commodity              the	labour	market	and	financial	situation	
     markets and the dynamics of internal demand.           of families. The positive contribution of
     Especially noteworthy, in this context, are the        the variation of stocks has maintained
     Asian countries as well as those of Latin America      a high level, and regarding investment
     and the Caribbean, in particular Brazil, whose         (non-residential) there has been some
     economy	is	forecast	to	expand	by	around	7.5%	          buoyancy, stimulated by external
     in 2010, being positioned as the economy with          demand, by the recovery of company
     the fastest growth in the entire group of the          profits and by the normalisation
     emerging economies, at a worldwide level.              of	 the	 conditions	 of	 the	 financial	
                                                            markets.
     In turn, for the advanced economies as a whole,
     the economic recovery was modest, with a               In the Euro zone, the recovery
     slowdown in the second half of the year due            registered since the third quarter
     to	the	turbulence	in	the	financial	markets,	as	a	      of 2009 has been moderate,
     consequence of the increase in sovereign risk,         with GDP growth having stood
     associated	to	the	significant	growth	in	budget	        at	 1.8%	 in	 2010,	 to	 a	 large	
     deficits	and	public	debt.                              extent	reflecting	the	dynamics	
                                                            of the external component.
     In response to the strong global demand and,           However, the evolution of
     also, due to the imbalances in supply, relative        economic activity in the Euro
     to certain consumer goods, prices, in particular,      zone was not homogenous
     of	oil,	which	finally	stabilised	in	2010	at	a	value	   between the respective
     above 80 USD/barrel, as well as non-energy             countries, which present
     commodities, increased considerably, to stand          differentiated values.
     at the level of the historic maximums reached
     during	the	first	half	of	2008.                         Hence, in Germany
                                                            economic activity has
     However, in view of some signs of economic             shown the strongest
     recovery, albeit differentiated, the authorities       recovery, with the
     have started removing stimuli from the economy,        economy        having
     in accordance with the different regional              expanded	 by	 3.6%,	
     dynamics, which varies between countries and           against a contraction
     depends on the robustness of the respective            of	 -4.7%	 in	 2009,	
     private	sector	demand,	as	well	as	the	financial	       with beneficial
     conditions observed.                                   effects having
                                                            spread to the
     In	the	USA,	after	a	strong	contraction	in	the	first	   other countries
     half of 2009, economic growth has showed a             of the Euro zone.



42   TAP Group   Annual Report 2010
                            Economy
                            GDP Growth

                                 World        United States       European Union



                            6%
                            5%
                            4%
                            3%
                            2%
                            1%
                            0%
                           -1%
                           -2%
                           -3%
                           -4%
                           -5%
                                   1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010




                                   In France,        zone compared to Germany have expanded,                recession, as a consequence of the progressive
                                  economic           and reached new maximum levels, in particular          decrease	in	the	rate	of	job	creation	since	2007,	
                                  activity is        in Greece, Ireland and Portugal. As the sovereign      as	well	as	the	strong	increase	in	the	rate	of	job	
                                 expected to         risk	crisis	intensified,	the	risk	of	its	contagion	    destruction since 2009.
                                be positive          to other countries, institutional sectors and
                               in 2010, with         various market segments also increased. In this        The	 forecast	 for	 inflation	 stands	 at	 1.4%,	 a	
                              an evolution           context, the monetary authorities announced            value close to the forecasts for the Euro zone,
                              of	 1.6%,	 after	      various measures, amongst which budgetary              after the fall observed in 2009. In terms of
                             a contraction           consolidation plans on the part of the                 corrections	of	imbalances,	the	financing	needs	
                            of	 -2.5%	 in	           governments of the most affected countries, as         of the Portuguese economy, measured by the
                           2009, reflecting          well as the creation of an European stabilisation      combined deficit of the current and capital
                          a deceleration in          fund, to be activated in the case of necessity         balances, as a percentage of GDP, declined in
                         the second half             by countries of the EU with external funding           2010, only slightly compared to the previous
                         of the year, as the         difficulties,	which	permitted	some	stability	in	the	   year,	 to	 8.8%,	 reflecting	 reductions	 both	 in	
                        favourable effects           markets at the end of the year.                        terms of the rate of internal saving, currently at
                       of the incentives                                                                    historically low levels, and in the investment rate,
                      to the economy                                                                        leading to an unsustainable situation, in view of
                     disappear. In the                                                                      the continuation of the constraint to the external
                     United Kingdom, it is           National Economic Climate                              financing	of	the	economy.
                    expected that GDP will
                    have	 grown	 by	 1.7%,	
                   and in Italy, which having        After the sharp decline registered in 2009, of
                  entered into a period of           -2.6%,	 the	 forecast	 for	 economic	 activity	 in	
                 international	financial	and	        Portugal	points	to	growth	of	around	1.3%	in	
                economic crisis, with weak           2010	reflecting,	on	the	one	hand,	the	important	
               growth and competitive                growth of exports, especially trade flows
               difficulties, it is expected          outside the European Community and, on the
              that the economy will have             other hand, the strong buoyancy of private
             grown	by	only	1%	in	2010.	              consumption, in particular the consumption
            In turn, in Spain, the weak              of durables. However, it is expected that
            performance of the economy               investment, of both components, private
           over the year and which resulted          and public, has maintained its behaviour of
          in	a	decline	of	-0.1%	by	the	end	          contraction, reaching historic minimums, as a
         of 2010, contrasted with that               percentage of GDP.
         of other countries of the Euro
        zone, showing the extent of the              However, the dynamics of recovery of economic
       economic crisis in this country, as           activity show a pronounced deceleration in the
      well as the impact that the necessary          final	part	of	the	year.	Extended	to	all	components	
     reform process is having on its                 of internal demand (with the exception of
     growth, in the short term.                      the variation of stocks), and especially of
                                                     private consumption, this behaviour has
     Added to the uncertainties, regarding           been	a	reflection,	namely,	of	the	review	of	the	
     economic recovery, are the fears                expectations of economic agents, following the
    related to the sovereign credit risk             measures announced for the State Budget for
   in some countries of the Euro zone,               2011, as well as the continued deterioration
  raising a new wave of turbulence in                of the conditions in the labour market. In this
 the	international	financial	markets.	The	           context, it is important to note that employment
differentials of the interest rates of the           continues to register consecutive declines,
public debt of the countries of the Euro             more than a year after the highest point of the



                                                                                                                                Annual Report 2010    TAP Group    43
                                                              Air Transport


                                                            After the largest decrease of demand in the          The	overall	passenger	load	factor,	benefiting	from	
                                                           history of commercial aviation in 2009, the year      an efficient management of the capacity, finally
                                                          of 2010 was characterised by the return of air         stood	at	77.9%,	that	is,	2.0	p.p.	higher	than	the	value	
                                                         traffic	to	previous	profiles	of	behaviour,	with	the	    recorded in 2009. This behaviour was extensive to the
                                                        reuptake of air travel, as well as trade relations       different regions, albeit with differentiated expression,
                                                       between the different regions of the world. Hence,        with there having been a slight deterioration, of
                                                      for the airline companies, at the end of the year          -0.3 p.p., only in the connections between Europe and
                                                     the volumes stood at slightly above those recorded          Sub-Saharan Africa.
                                                     at the beginning of 2008, although the industry's
                                                    margins have remained at levels considered fragile,          At a worldwide level, 2010, as a whole, was a year of
                                                   strongly constrained by the permanence of structural          strong recovery in the passenger and cargo air transport
                                                  challenges for the sector.                                     markets,	which	recorded,	respectively,	growth	of	8.2%	
                                                                                                                 and	 20.6%,	 in	 terms	 of	 total	 passenger-kilometres	
                                                   In particular, the airline companies transported              and ton-kilometres. It is important to mention the
                                                  approximately	344	million	passengers,	2.7%	more	than	          high level of discipline observed in relation to the
                                                 in 2009, with this increase having represented about            allocation of capacity, evident in the load factors, which
                                                9 million passengers transported. In terms of the Industry’s     reached	78.4%	and	53.8%,	in	each	of	these	segments,	
                                               conventional unit of measurement (passenger-kilometres),          reflecting	growth	of	2.7	p.p.	and	5.2	p.p.,	respectively.
                                              according to the AEA (Association of European Airlines),
                                             this	 increase	 represented	 2.6%.	 All	 the	 main	 regions	        Underlying this trend, it is important to note the
                                             presented positive evolutions, with increases in numbers of         expansion	 of	 passenger	 traffic	 in	 the	 three	 largest	
                                            passenger-kilometres,	reaching	2.7%	in	Europe,	5.9%	in	the	          regions – Asia-Pacific, Europe and North America
                                           Mid-Atlantic	and	6.2%	in	the	South	Atlantic.	Likewise,	the	           –	respectively,	in	the	order	of	9.0%,	5.1%	and	7.4%.	
                                          traffic	flows	between	Europe	and	Sub-Saharan	Africa	and	the	           The region of the Middle East, based on the strong
                                         Far	East	increased	by	approximately	2.4%	and	2.6%,	respectively.	       increase in the capacity of the airline companies of the
                                        The North Atlantic showed the weakest performance in 2010,               Gulf, showed the highest rates of growth, with a value
                                       with	 the	 traffic	 level	 standing	 at	 only	 0.3%	 above	 the	 value	   around	17.8%,	while	in	Latin	America	and	Africa,	the	
                                      recorded in 2009.                                                          evolution	stood	at	8.2%	and	12.9%,	respectively.

                                   However, these values were significantly affected by various                  Regarding	the	financial	performance	of	the	Industry,	
                                  external impacts, in particular the closure of the air space related           the improved economic conditions, in spite of the
                                 to the volcanic eruptions in Iceland in April and May, as well as by            European crisis, supporting strong market growth,
                                the disruptions in the airports, considered unprecedented, caused by             combined	 with	 the	 greater	 efficiency	 in	 the	 use	 of	
                               the snowfall in November and December. Also noteworthy, affecting                 the fleets, were determinant factors in the sharp
                              the	flight	operations,	was	the	frequency	and	intensity	of	the	industrial	          turnaround	in	profitability	observed	in	all	the	regions,	
                             action, in response to the austerity measures related to the recession and          with an estimated result, at an overall level, of
                            its respective impact, especially, in the Euro zone. Hence, in Europe, during        approximately USD 16.0 billion.
                           the	first	half	of	the	year,	it	was	not	possible	to	restore	the	traffic	losses	
                           which occurred in 2009, with the subsequent recovery remaining very weak
                          during the rest of the year.




44   TAP Group   Annual Report 2010
Strategy

With the objective of re-establishing the Company's profitability, the TAP Plan for the
three year period 2009-2012 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.




Main commitments of the Company within the Plan's time horizon
Network Strategy                         i)   Maintain the Network logic and strategy, tactically reducing capacity and seeking new market niches;

Strengthening of the sales              ii)   Launch	an	aggressive	effort	to	stimulate	demand,	promoting	connection	traffic	from	foreign	markets,	
performance                                   reinforcing Internet sales and promoting the loyalty of its customers in the home market;

Systematic cost-cutting effort         iii)   Act	incisively	on	all	possible	costs,	promoting	efficiency	gains	while	at	the	same	time	maintaining	the	
                                              current work environment;

Redefinition of the participated       iv)    Implement	the	process	of	redefinition	of	the	shareholding	structure,	concluding	the	divestiture	of	
companies                                     Groundforce and maintaining the sale/partnership effort with TAP–Maintenance and Engineering Brazil;

Organisational transformation           v)    Re-launch the organisational transformation programme, developing the organisation and its resources,
                                              in order to ensure the future sustainability of the company;

Capital structure and risk             vi)    Prepare the Company to face business uncertainties, increasing its cash position and intensifying the
management                                    hedging programme for the main risks;
                                       vii)   Maintain the debt reduction strategy, particularly during the low growth period of the operation.




Main developments in 2010



Network Strategy                                                         Likewise, the effort which has been made in the area
                                                                         of	customer	loyalty	has	led	to	a	significant	increase,	of	
The logic of the Network operation was continued, focused                approximately	12.2%,	in	the	number	of	members	of	the	
on the consolidation of its connections with the South Atlantic          Victoria programme.
and expansion of the operation to Africa. In the development
of this line and as a result of the implementation of a strategy
of systematic assessment of opportunities to launch new
routes, TAP expanded its Network, with regular operations                Systematic cost-cutting effort
to Algiers and Marrakech, with these operations currently
involving access to ten cities in eight countries, and a total of       The application of a strategy of continued growth in the offer
55	weekly	flights	between	Portugal	and	the	region	of	Africa.	           of destinations and volume of services, whenever possible
Likewise, with a view to meeting the increased demand in                reducing the labour force, has enabled the achievement of
Brazil, in July the operation was started to the Airport of             notable	efficiency	gains	and	the	dilution	of	fixed	costs,	in	order	
Viracopos, in Campinas, in the State of São Paulo.                      to maintain a competitive position in the market. On the other
                                                                        hand, incisive action has been pursued on all possible costs,
                                                                        with the implementation of a suitable cost-cutting programme
                                                                        which	included	a	diversified	series	of	measures,	to	be	enforced	
Strengthening of the sales performance                                  until 2012. Under this programme, developed exclusively with the
                                                                        Company's resources, strongly aimed at improved performance,
The Network operation remained centred on a hub logic,                  and with transversal effects on all the companies of Grup TAP, 132
with an aggressive effort having been made to stimulate                 projects	were	identified	in	2010.		Also	in	this	context,	following	
demand. Of particular note, as a result, was the increase               the Law of the State Budget for 2011 (Law number 55-A/2010, of
of	approximately	11.7%,	compared	to	the	previous	year,	in	              31 December) and Resolution of the Council of Ministers number
connection	traffic,	with	the	air	traffic	revenue	derived	from	          1/2011, of 4 January, relative to the creation of conditions to enable
foreign	markets	having	represented	77%	of	the	total	volume	             overcoming the situation of imbalance of public accounts, it should
in	 2010,	 thus	 strengthening	 TAP's	 position	 as	 a	 major	          be noted that the Company will fully apply the abovementioned legal
national exporter. This was also the case on the Internet,              provisions, involving the achievement of decreased operating costs, by
following	the	increase	of	28.4%	in	the	activity	of	booking	             a	minimum	value	of	15%,	being	an	effective	reduction	of	5%	in	overall	
through the site, there was a strengthening of sales, which             costs related to gross total remunerations.
already	represent	9%	of	the	total	value	of	the	markets.	



                                                                                                                                              Annual Report 2010   TAP Group   45
                         Redefinition of the participated companies                                carried out, note should be made of the constitution, under
                                                                                                   TAP's Executive Board of Directors, of a Maintenance and
                          Regarding the shareholding structure, for TAP–Maintenance and            Engineering Coordination Committee (CCME), entrusted
                          Engineering Brazil, 2010 represents the end of a cycle of three          with the mission of supervising the activity of its two units,
                           years of preparation of the economic viability of the company,          located	in	significantly	distant	geographical	areas.	Also,	
                            which, as a strategic investment, has been characterised by a          regarding the Management and Supervisory Committee,
                            notably negative component of the Group's balance sheet.               whose	main	objectives	include,	amongst	others	related	
                             Following the process of full transformation, conducted by TAP–       to	 the	 fluidity	 of	 communication,	 the	 fostering	 of	 the	
                              Maintenance and Engineering Portugal, involving investment and       appearance of new initiatives for improvements, as well as
                              reorganisation in terms of human capital, business and markets       ensuring	greater	debate	on	the	Company's	key	projects,	in	
                               in which the company currently operates, combined with new          2010, new initiatives were presented, which was the case
                                aggressiveness, its recent performance and the consolidation       of business opportunities, issues related to organisational
                                 of its strong strategic positioning has enabled placing the       dynamics and institutional communication.
                                 company in a more favourable situation.
                                                                                                   In the area of the implementation of the commitments
                                      Regarding Groundforce, as a result of the transversal        towards corporate sustainability, actions were pursued
                                      application of the cost-cutting process and improved         with a view to the progressive expansion of its respective
                                       performance of all the companies of the Group, the          applicability to all the companies of the Group, with the
                                        activity of the company in Faro has been closed. In        Corporate Governance and Sustainability Report for 2010
                                        compliance with the provisions of the Competition          presenting the information relative to this entire group of
                                         Authority, TAP is pursuing an effort to dispose of the    companies, with the exception of TAP– Maintenance and
                                          control of the share capital of SPdH, a position which   Engineering Brazil.
                                           it was forced to reacquire, with the corresponding
                                            shares having been handed over to an independent
                                             entity, Europartners, which plays an active role in
                                              the undertaking of AdC's decisions, managing the     Capital structure and risk management
                                               company SPdH independently from TAP.
                                                                                                   Regarding	 risk	 management,	 the	 area	 of	 the	 financial	
                                                                                                   risk of TAP SGPS, as the Company responsible for the
                                                                                                   strategic coordination of TAP Group, takes on dimensions
                                               Organisational transformation                       and implications which are much broader than those of
                                                                                                   the	financial	management	applied	to	a	company	whose	
                                                 The organisational transformation programme,      activity	is	limited	to	a	specific	area	of	activity.	In	its	statutory	
                                                  in the organisational model component, the       capacity as the Parent Company of the Group, TAP SGPS
                                                   management model of TAP–Maintenance             assesses,	reflects	and	decides	on	the	major	guidelines	of	
                                                    and Engineering was altered. With the          its participated companies and takes long term decisions
                                                    objective	 of	 promoting	 closer	 and	 more	   relative to investment and divestment in shareholdings
                                                     focused supervision of the Maintenance        according to their structural relevance for the functioning
                                                      and Engineering operations in both           of the Group as a whole.
                                                      Portugal and Brazil, the management
                                                       model of TAP–Maintenance and                The debt repayment plan has continued, in accordance with
                                                        Engineering	 was	 readjusted	 in	 2010.	   the established maturity, where the Company has shown
                                                        Included in the alterations which were     sufficient	capacity,	using	its	own	funds,	to	repay	its	debt.



46   TAP Group   Annual Report 2010
Performance
of TAP Group Companies

TAP, S.A.



The return of air traffic to previous
profiles of behaviour, albeit with                                                                                  € 2,122.9
significantly differentiated expression                                                                                 million
in the different regions of the world
                                                                                                                        Sales and Services Rendered
                                                                                                                         of Air Transport and
For the Air Transport Industry, after the greatest decrease      to EUR 2.3 million above that achieved in               of Maintenance and
of demand in the history of commercial aviation in 2009,         2009. This result was the consequence of the             Engineering Portugal
the year of 2010 was characterised by the return of air          notable performance in the operating sphere,
traffic	 to	 previous	 profiles	 of	 behaviour,	 albeit	 with	   which achieved EUR 103.3 million, that is,
significantly	 differentiated	 expression	 in	 the	 different	   EUR 5.5 million more than in 2009, where fuel
regions of the world. In particular was the case of Europe       costs	 increased	 by	 45.8%,	 with	 this	 evolution	
where, in addition to a slow economic recovery, various
external impacts interfered with the normal development
of the flight operation, constituting factors which
                                                                 representing EUR 164.3 million, of which EUR
                                                                 141.6 million are attributable to the price effect.        91.5%
negatively affected the performance of commercial                The Air Transport activity generated a total of EUR          of the Group’s
aviation in the region. Particular note should be made           1,986.3 million, that is, EUR 218.5 million more than        Turnover
of the closure of the air space related to the volcanic          in	 2009,	 with	 this	 value	 having	 been	 significantly	
eruptions in Iceland, the unprecedented disruptions in           influenced	 by	 the	 behaviour	 of	 passenger	 income,	
the airports caused by meteorological factors, the fall          which reached a total of EUR 1,842.9 million, that is,


                                                                                                                                 € 62.3
in	traffic	following	the	catastrophe	in	Madeira	as	well	         11.8%	more	than	the	value	recorded	in	the	previous	
as the frequency and intensity of the industrial action          year, as a consequence of increased demand, of the order
in response to the austerity measures, related to the            of	13.6%,	expressed	in	passenger-kilometres	(RPKs).	Also	
economic recession.                                              contributing to these results was the income associated to
                                                                 the volume of Cargo and Post transported which reached           million
Similarly affected by the economic scenario described            a	total	of	EUR	124.9	million,	27.2%	more	than	in	2009.
above, TAP, S.A. ended the financial year of 2010                                                                                  Net Income
with a net income of EUR 62.3 million, corresponding                                                                               of TAP, S.A.




                                                                                                                                Annual Report 2010   TAP Group   47
                                                                                                          Growing importance of the Lisbon
                                                                                                          hub in the connection with Europe to
                                                                                                          an increasing number of destinations
                                                           In turn, the aeronautical maintenance          located in Africa and in the South Atlantic
                                                           activity of TAP–Maintenance and
         In the context of the                            Engineering Portugal, in the Third Party        Regarding the Air Transport business, note should be made
         Portuguese economy, the                         Customersegment showed a significant             of the growing importance of the role of the Lisbon hub,
         importance of TAP continued                    performance, with a total of EUR 126.5            with particular focus having been placed on the preservation
         its consolidation, which was                  million, corresponding to an increase              of	its	efficiency	and	quality	of	the	service	provided	to	the	
         reflected in different areas                  of	 11.7%	 relative	 to	 2009,	 reflecting	 the	   Customer.
                                                      improved	efficiency	of	the	sales	process	as	well	
         ρ   The expression of the vol-              as increased number of units submitted for           In this context, it is important to highlight the impact
             ume of employment                      intervention.                                         of the participation of TAP in the STAR Alliance global
             created in the Country;                                                                      multi-hub	system,	which	has	permitted	benefiting	from	the	
                                                It should be noted in particular that, in the             incoming	traffic	provided	by	the	other	members.	It	should	
         ρ   The significance of its            presence of a fuel scenario, once again on an             be	noted	that,	five	years	after	TAP's	integration	in	this	global	
             contribution to the               upward price trend, these results were possible            Alliance, with this participation considered a reinforcement
             volume of national               only due to the combined effect of greater rigour           by the actual Alliance, the Company has pursued the
             exports;                        in cost management, the permanent increase in                implementation of its niche strategy, connecting Europe to
                                            productivity levels, the adoption of the best practices       a growing number of destinations situated in Africa and in
         ρ   The impact on                  and	 process	 simplification,	 and	 the	 intensification	     the South Atlantic, where it is distinguished as the leading
             national tourism,             of aggressive sales policies. Also noteworthy was the          European carrier to Brazil.
             with a significant           impact of incisive action on all costs possible, with the
             volume of traf-             implementation of a suitable cost-cutting programme              By	the	end	of	the	year,	the	joint	fleet	of	TAP	+	PGA	comprised	
             fic to Portugal,            which	included	a	diversified	series	of	measures,	to	be	          71	airplanes,	making	it	possible	for	the	Company	to	fulfil	its	
             throughout its             enforced until 2012.                                              strategy to respond more fully and better to the expectations
             entire opera-                                                                                of its Customers, while seeking to optimise all its business
             tion network.                                                                                opportunities. The Company transported a total of 9,089
                                                                                                          thousand passengers, corresponding to 651 thousand more
                                                                                                          than in 2009, with increases having been recorded in most
                                                                                                          sectors of the network, with the exception of Mainland




                                                                                                                         2010                   2009
                               Main Indicators of TAP, S.A.                                                                                                          var.
                                                                                                                    EUR million            EUR million
                               Operating Revenues and Gains                                                              2,180.7                1,958.1            11.4%
                               Operating Costs and Losses                                                                1,953.4                1,734.4            12.6%
                               Operating Net Income                                                                        103.3                   97.8             5.6%
                               Net Income                                                                                   62.3                   60.0             3.8%

                               Total Assets                                                                              1,876.0                1,823.9             2.9%
                               Total Equity                                                                                 52.7                   (3.6)         1583.2%

                                 Active Staff (31 December)*                                                              7,055                   6,986                69
                                  Air Transport                                                                           4,582                   4,489                93
                                  Maintenance and Engineering                                                             1,942                   1,961               -19
                                  TAP Serviços                                                                              496                     498                -2
                                  Other                                                                                      35                      38                -3

                                  TAP	fleet	composition	(average)                                                          55.4                   54.4              1.8%
                                  Flight Hours (Sched. oper. using own aircraft)                                        229,703                221,472              3.7%
                                  Departure	punctuality	up	to	15'	(%)                                                      71.2                   79.9           -8.7 p.p.
                                  Regularity	(%)                                                                           98.0                   98.7           -0.8 p.p.


                               * Not including non-placed and non-active staff




48   TAP Group   Annual Report 2010
                                                                    Service quality – a permanent objective


Portugal, the Autonomous Regions and the Middle Atlantic.In         Likewise, since the improvement of the quality of Customer service is a priority and
this context, it is important to note the effect of the operation   permanent	objective,	it	is	important	to	mention,	amongst	other	initiatives,	the	
of new markets, whose behaviour proved to be decisive to            continued offer of the Branded Products concept, and also the differentiation of
compensate the decline which took place in the traditional          the Ground Service, in all of the airports of the Company's Network, as well as TAP's
European markets, strongly affected by the environment of           Personalised Assistance service, offering greater comfort and speed during boarding
crisis, as well as the reduction in the number of passengers, and   and landing phases.
increase in competition. Likewise, note should be made of the
significance	of	the	growth	in	Africa,	following	the	opening	of	
new routes, as well as the behaviour of the more traditional
destinations. With a determinant impact on the achievement          Strengthening of TAP's contributions to national exports
of the results, note should be made, moreover, of the operation     and to the Country's Tourism
to	Brazil,	where,	as	a	result	of	the	growth	of	approximately	26%	
(in	RPKs),	the	operation	now	represents	42.2%	of	the	entire	
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 2010, TAP
At the end of the year an announcement was made of the              achieved total sales and services rendered on markets abroad of EUR 1,782.8 million,
expansion of the operation network, in 2011, with the opening       that	is,	EUR	261.8	million,	representing	17.2%	more	than	in	2009.	Also	noteworthy	
of six new destinations in Europe (Dusseldorf, Athens, Bordeaux,    was	the	contribution	to	national	tourism,	with	the	significant	expression	of	the	traffic	to	
Manchester, Vienna and Dubrovnik), of Bamako (Mali), of Accra       Portugal, of its entire operating network.
(Ghana) and S. Vicente (Cape Verde) on the African continent,
of Miami in the USA and Porto Alegre in Brazil.




                                                                                                                                Annual Report 2010    TAP Group    49
                                      € 1,986.3
                                      million
                                      Air Transport Sales and Services
                                      Rendered




                                         86.0%
                                          of the Group’s
                                           Turnover




                                              4,582
                                              Air Transport Staff
                                              (31st December)




                                                   The mission of TAP Air
                                                    Transport is to develop busi-
                                                    ness 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 provi-
                                                          ding its investors with
                                                           appropriate levels of
                                                           return.




50   TAP Group   Annual Report 2010
Air Transport

At the level of the Industry, during the first part of the year, it was not possible
to recover the losses in traffic of 2009, and, when, in the second half of the year,
economic growth was re-established, the recovery remained at significantly low
levels, with the companies of the AEA (Association of European Airlines) having
recorded growth in the order of 2.6%.




Traffic Growth (RPK) in TAP                               Growth in the Air Transport
and in AEA companies                                     Activity
Evolution since 2000

     TAP             AEA
                                                         To TAP, in spite of the continued recessive
                                                         environment	of	the	first	months	of	the	year,	
200%                                                     added to the fact that the operation was
                                                         strongly affected, during the months of April
150%                                                     and May, by the closing of almost all European
                                                         airports due to the cloud of volcanic ash from
100%                                                     Iceland, the growth in demand proved to be
                                                         significantly	higher	than	the	average	identified	
 50%                                                     for	the	sector,	standing	at	approximately	13.6%,	
                                                         expressed in passenger-kilometres (RPK).
   0%
              Jan    Mar May         Jul    Sep    Nov   Strict compliance with an aggressive commercial
                                                         policy enabled TAP to achieve, by the end of 2010,
                                                         total sales and services rendered of EUR 1,986.3 million
     South Atlantic – TAP           Europe – TAP         in its Air Transport activity, a value which represents an
     South Atlantic – AEA           Africa – TAP         increase	of	12.4%	relative	to	the	previous	year.
     Europe – AEA

500%
                                                         The air transport business, the main activity of
450%                                                     TAP Group, represented, in 2010, 86% of the
400%                                                     Company's total turnover.
350%
300%
250%
200%
150%
100%
 50%
  0%
              Jan    Mar May         Jul    Sep    Nov




Air Transport Revenues
– Sales and Services Rendered
EUR million

                                1,986
                    1,768




                    2009        2010


                           +12.4%




                                                                                                                      Annual Report 2010   TAP Group   51
                              Main aspects of the commercial policy

                              During 2010, the Company maintained its path towards continuous striving for the
                              strengthening of product quality and search for the most appropriate solutions for
                              Passenger travel, aimed at growing Customer satisfaction and constant differentiation in
                              relation to the competition. In the development of this policy, special attention was given
                              to the following aspects:


                              Strengthening of TAP's presence in Brazil and Africa
                              and the adjustment of schedules

                              After the decline of the world economy and trade flows in 2009, with strong
                              reflection on traffic volumes, the recovery showed strong regional differences,
                              in particular Europe where the rate of recovery has been low.

                              In view of the signs of some dynamics of recovery, the Company continued                Intensification of Customer
                              with prudent optimism, and developed its strategy maintaining the strict and            relations – VICTORIA Programme
                              effective	management	of	equipment	and	resources	as	its	principal	objective.
                                                                                                                    The platform of the customer loyalty
                              Note should be made, in this context, of the continued application, until             programme enables Victoria members
                              the month of June, of the Contingency Plan, in activity since the Summer             to consult and manage their account, and
                              period of 2009, and implemented with a view to promoting a rational                 also provides a Miles Shop, where members
                              adaptation of the offer to the decline in levels of demand, following the           may purchase, extend and transfer their
                              intensification of the international economic and financial crisis. As of          miles, with new functionalities being under
                              the month of June, the operation developed with the restoration of the            development which should be concluded in
                              cancelled operation, with the exception of a lesser number of routes              2011. At the same time, the effort has been
                              in Europe.                                                                       intensified in the Micro, Small and Medium-sized
                                                                                                              Enterprise segment, which has been provided,
                              The logic of the operation was continued, with the maintenance of              since March 2010, with a new online platform at
                              the importance of the strengthening of the role of Lisbon airport,            [ www.tapcorporate.com ], where it is possible
                              as the main operating centre, in a hub logic, ensuring service to            to access the tap | corporate Fly customer loyalty
                              the connection traffic. Complementarily, the Porto hub operation             programme, manage and consult the respective
                              was maintained, as the 2nd operational hub, in order to meet the            accounts, and also request the issue of bonus or
                              volume of traffic from the north of the Country.                           learn about the latest TAP novelties.

                              In the development of this route, the operation focused on                 Online booking engines for bonus tickets are currently
                              the consolidation of the connections with the South Atlantic              under development, encouraging the use of this
                              and expansion of the operation to Africa, with the Company               means, as the preferred channel for contact with TAP.
                              having sought to optimise all present business opportunities,           It should be noted that 2010 also represented a year
                              namely, the promotion of the launch of operations to new               of	consolidation	for	two	important	projects,	the	Carbon	
                              destinations.                                                          Compensation Programme and a personalised search
                                                                                                    tool, Power Choice.
                              For this purpose, note should be made, of the
                              strengthening of the strategy of growth regarding
                              Africa, with the expansion of the network, in June, of
                              regular operations to Algiers. Also in June, the route            Embark on Freedom of Choice commercial model.
                              to Marrakech was initiated, with the operations in               1 Flight, 5 ways to travel
                              this region currently involving a network of ten cities
                              in eight countries, and a total of 55 weekly flights            In 2010, TAP continued to offer the model launched in June
                              between Portugal and this continent. Likewise, with            2008, corresponding to a new commercial strategy, founded
                              a view to meeting the increased demand in Brazil,             on product segmentation, offering greater flexibility and variety
                              in July the operation was started to the Airport of           of choice, and based on quality and price differentiation, in
                              Viracopos, in Campinas, in the State of São Paulo.           accordance with the motivation of each Customer.
                              With this operation, a total of 70 weekly flights was
                              reached, for the group of nine destinations served         The five new products created: tap | executive, tap | plus, tap |
                              in that Country, with TAP, once again, reaffirming        classic, tap | basic and tap | discount offer the passenger the choice
                              its position as the leading airline company in            between five ways to travel and five classes of service: one executive
                              Brazil. It is also important to note the increased       class and four economy classes, with the underlying concept being
                              connections between Portugal and Spain, one             in line with current market trends. The new products on offer are
                              of the main economic partners of Portugal,             applied on all TAP flights, with the exception of tap | discount, which
                              consolidating a positioning as the principal          is available only for medium haul-flights.
                              company linking the Iberian Peninsula.




52   TAP Group   Annual Report 2010
                                                         TAP Personalised Assistance                                  by the Company, the new platform is more
                                                                                                                      flexible in response to market dynamics and
                                                         Attendance, with guaranteed excellent and                    to the growing needs faced by the aviation
                                                         personalised service, aimed at meeting the different         business. In this way, it enables swiftness in
                                                         needs of Customers, at Lisbon, Porto and Funchal             the	 implementation	 of	 projects	 which	 are	
                                                         Airports, for the purpose of optimising the ground           common to the partners of the STAR Alliance,
                                                         services before and after boarding. The booking              synergies scale, cost reduction and significant
                                                         process is carried out exclusively on the web at             improvements in business operations.
                                                         [ www.flytap.com ], through an intuitive form.
                                                                                                                      Of note, in this context, amongst others, is the
                                                                                                                      implementation of two new systems, the Web
                                                         Offer of car parking                                         Check-in and the Self-service Check-in, which
                                                                                                                      have allowed for the provision of new facilities
                                                         Facility available at Lisbon, Porto, Faro and Funchal, for   for TAP Customers, in particular, the facilities for
                                                         up to two days, to Premium, Executive class, Victoria        groups Check-in.
                                                         Programme Gold Card, TAP Corporate or TAP Amex
                                                         Platinum Customers.

                                                                                                                      Improved ground services
                                                         ValetXpress                                                  –	In-flight	Reading	Counter,	in	Porto	

                                                         Personalised parking system available, also, for             Strengthening of the reading counter service for
                                                         Premium Customers, at departures, in Lisbon and              TAP passengers boarding at Porto.
                                                         Porto, with a welcome service and the offer of valet
Differentiation by the quality of the                    parking, in the exclusive area of ValetXpress.
service provided, also, in the Ground
Service                                                                                                               Promotion of National Tourism

In an effort to consolidate the strategy of              Lower marketing costs                                        Through the establishment of partnerships
service differentiation, TAP pursued, in 2010,                                                                        with bodies in Portugal, various tourism-related
the	offer	of	a	diversified	range	of	services,	for	       Following the general trend in the Air Transport             entities and companies were supported and
Customers who value greater comfort and                  Industry, TAP has continued with its policy of               promoted by TAP in 2010 which, through
convenience in their travel, in addition to              reducing marketing costs.                                    advantageous offers to its Customers, acted
better service:                                                                                                       as an important entity in promoting national
                                                                                                                      Tourism.

Premium Customer Centre at Lisbon Airport                Project of Change to a new price and                         Also noteworthy, was the recognition of the
                                                         space management paradigm                                    role of TAP's in-flight magazine, UP, which is
An area offering passengers faster and more                                                                           the	only	major	Portuguese	magazine,	edited	
efficient service prior to boarding, providing           With	 the	 objective	 of	 increasing	 the	                   in Portuguese and English, and a pioneer in its
differentiated check-in, as well as the possibility to   Company's revenue, through a more dynamic                    provision in iPAD format.
deal	with	any	issue	related	to	the	journey,	available	   management of prices and space, reacting
to Executive Class Customers or holders of Victoria      coherently to no-frills companies, TAP pursued               In 2010, the magazine UP became the first
Programme Gold cards and TAP Corporate cards.            readjustments	 to	 the	 project's	 operations	 in	           CarbonoZero® in-flight magazine of the
                                                         2010. Of particular note was the alteration                  world, and is also the first monthly publication
                                                         of the management logic, relative to the                     in Portugal to compensate for the greenhouse
Offer of Green Way to Premium Customers                  optimisation of the Company's inventory, which               gas emissions associated with its production
                                                         is now directed towards maximisation at the                  and printing, thus providing continuity to TAP's
Priority security control and X-ray treatment,           segment level.                                               sustainability policy
facilitating and ensuring faster access to the
departure lounge. This TAP Fast Track service, which
uses the Green Way concept, complements the
service improvement introduced with the creation         Innovation and Simplification of business                    Strategic commercial partnerships
of the Premium Centre, and is available at Lisbon,
Porto, Faro and Funchal.                                 In the development of a business innovation                  Various strategic commercial partnerships were
                                                         and simplification strategy, for the purpose of              pursued in 2010, particularly, in addition to the
                                                         reducing complexity along the service chain                  existing partnership with Avis, the expansion
                                                         and creating more convenient conditions for                  to new markets, in the context of the website
Premium Boarding                                         Customers, the implementation of several                     [ www.flytap.com ], he online insurance
                                                         initiatives was continued.                                   service, through Mondial Assistance, as well
Access to the exclusive area at the boarding gate,                                                                    as the implementation of the hotel booking
offering the possibility of boarding at the desired      Of importance, in this context, was the                      service, Booking.com.
time and, for long-haul flights, transport on            implementation of the Common IT Platform,
exclusive buses to the plane (when the boarding is       resulting from the participation of TAP in
not	carried	out	by	jetway),	with	this	function	being	    this	STAR	Alliance	project,	consisting	of	the	
provided in order to achieve a differentiated service    use of a common platform for the Booking,
in all phases of customer service at Lisbon Airport.     Ticketing, Inventory and Departure Control
                                                         system. Compared to the previous system used
     Carried Passengers                                                                              Route Network                                      Medium-haul network
     Scheduled Flights


     Million passengers                                                                  9.1         In the Company's Route Network, in 2010            Medium-haul traffic represented,
                                                                       8.7
                                                                                   8.4               TAP pursued its strategy of providing an offer     in 2010, 40.3%, of the total Route
                                                              7.8
                                                     6.9                                             of	quality	services,	adjusted	to	its	Customer's	   Network, when expressed in passenger kil-
                                               6.4                                                   needs, aimed at meeting their expectations.        ometres (RPKs), representing a decrease of
      5.3    5.4 5.3                 5.6 6.2
                                                                                                                                                        2.8 p.p. relative to 2009.

                                                                                                     For the entire network, the level of               ρ   In the Autonomous Regions the
                                                                                                     supply of the regular operation increa-                strict analysis of the operation led to
                                                                                                     sed by approximately 4.4%, relative to                 the suspension of flights, affecting
                                                                                                     an increase in demand of 13.6%. As a                   operations with lower passenger load
                                                                                                     consequence, the passenger load fac-                   factors, following the decline in traf-
     2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010                                          tor increased by 6 p.p. to 74.5%. The                  fic which occurred in particular to the
                                                                                                     total number of passengers transpor-                   Autonomous Region of Madeira, after
                                                                                                     ted reached 9.1 million (+7.7%), with                  the natural catastrophe which devas-
                                                                                                     passenger income having come to a                      tated the region. Likewise, an identical
                                                                                                     total of EUR 1,842.8, corresponding to                 procedure was also implemented in the
     Capacity, Traffic                                                                                an increase of 11.8% relative to 2009.                 Azores, due to the contraction experi-
     and Load Factor                                                                                                                                        enced in demand, as a consequence
     Passenger-Km and %                                                                                                                                     of the current economic crisis. Thus,
                                                                                                     During the operation, over 100 thousand                the offer for this sector of the network
          ASKs              RPKs          Load Factor
                                                                                                     services were provided. Furthermore, it                decreased	by	2.2%,	with	demand	hav-
                                                                                                     should be noted that the Company was                   ing	 fallen,	 significantly	 (-6.8%),	 with	
     Thousand million                                                                                present in over 103 thousand flights                   the overall passenger load factor hav-
                                                                                                     operated by other companies under                      ing	 declined	 by	 3.3	 p.p.,	 to	 64.7%.	
     35                                                                                        75%
                                                                                                     code-sharing agreements, thus increasing               The Autonomous Regions recorded a
     30                                                                                              by	47.3%	relative	to	2009.	The	Company	                weight	of	4.6%,	that	is,	1	p.p.	less	than	
     25                                                                                              flew approximately 230 thousand hours                  in 2009.
                                                                                               70%
                                                                                                     with its own aircraft and approximately
     20
                                                                                                     51 thousand hours with Portugália air-             ρ   In Europe in a general manner, and
     15                                                                                              craft,	reaching	a	total	of	3.6%	more	than	             during the periods of lower demand,
                                                                                               65%
     10                                                                                              in 2009. The number of kilometres covered              the night-stop operations were can-
      5                                                                                              corresponded to 164.7 and 28.0 million,                celled or significantly reduced, due to
                                                                                               60%   respectively.                                          their high cost, and also because, at
      0
                                                                                                                                                            the same time, alterations were made
          2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
                                                                                                                                                            to the long-haul operation (see the
                                                                                                                                                            long-haul network). This region, rep-
                                                                                                                                                            resenting	 35.1%	 of	 total	 demand,	
                                                                                                                                                            is the 2nd most important sector in
     Traffic (RPKs)                                                                                                                                          TAP's network. However, also taking
     by Route Network Sector                                                                                                                                into account the demand of Mainland
                                                                                                                                                            Portugal and the Autonomous Regions,
     Scheduled flights
                                                                                                                                                            the European region accounted for
                                                                                                                                                            40.3%	of	the	Company's	total	demand	
                                                                                                                                                            in 2010. The increased supply in this
                          Mid                             South
                          Atlantic                        Atlantic                                                                                          sector	of	the	network,	of	around	2.8%,	
                          2.2%                            42.2%                                                                                             was lower than the increase in demand,
                                                                                                                                                            which	finally	stood	at	8.4%.	As	a	con-
                                                                     Mainland                                                                               sequence, the overall passenger load
                 North
                 Atlantic                                            Portugal                                                                               factor increased by 3.5 p.p. to stand
                 4.0%                                                0.6%                                                                                   at	68.1%.

                                                                     Madeira and
                                                                     the Azores
                 Africa                                              4.6%
                 11.3%
                                                 Europe
                                                 35.1%




54    TAP Group               Annual Report 2010
                                                   Long-haul network


ρ   In view of the reduction of the offer          Long-haul traffic accounted for 59.7% of the total Route Network in 2010, repre-
    attributed to the Mainland Portugal            senting 2.8 p.p. more than in the previous year, as a consequence of the expansion of the
    network	sector,	in	the	order	of	2.5%,	         Company's operation in the South Atlantic region.
    and since demand increased slightly by
    0.4%,	there	was	an	increase	in	the	over-       ρ   In Africa, 3 weekly flights between Lisbon and Algiers were launched in June, for the
    all passenger load factor of 1.6 p.p.. The         purpose of serving the business traffic between these two countries.
    representativeness of this network sec-
    tor	fell	to	0.6%.                                  Also	in	June,	the	Lisbon-Marrakech	operation	was	initiated,	with	3	weekly	flights,	
                                                       as a form of diversifying the operation and offering a greater range of options in
Improved in-flight service                             Morocco.

Launch of a new service – Express Moment               Demand	increased	by	7.6%,	while	the	operation	increased	by	1.7%,	thus	ena-
–, which provides light meals, at board-               bling an increase in the operation's passenger load factor of 3.9 p.p.. The
ing time, during domestic flights of short             representativeness	of	the	region,	in	the	entire	network,	stood	at	11.3%	or	0.6	
duration. The application of this modern               p.p. less than in 2009.
concept, corresponding to new market
trends, which values the components of             ρ   Demand aimed at the North Atlantic sector of the network increased
convenience of schedules, flexibility, sim-            sharply,	by	around	10.5%,	while	the	offer	fell	by	5.4%,	which	enabled	
plicity and price, as well as speed and fluidity       increasing	the	passenger	load	factor	by	approximately	11.5	p.p.,	to	80.2%.	
of attendance, is in line with the practice            The weight of this traffic in the total network dropped very slightly in rela-
followed by international companies in                 tion	to	2009,	standing	at	4.0%.
shorter flights, in the context of an increas-
ingly more competitive industry, where TAP         ρ   In the Mid Atlantic,	demand	fell	by	12.1%,	enabling	a	reduction	of	the	
continues to offer the best product in the             offer	by	15.4%,	to	increase	the	passenger	load	factor	by	approximately	
market, along these lines.                             2.6	p.p.,	to	stand	at	68.8%.	Its	representativeness,	in	the	total	network,	
                                                       fell	by	0.6	p.p.,	to	stand	at	2.2%.

                                                   ρ   In the South Atlantic region, the flight schedules to Brazil were
                                                       altered during the periods of lower demand.

                                                       Also, as a means of cost reduction and, at the same time, in order to
                                                       boost connections, the departures to Rio de Janeiro, Sao Paulo and
                                                       Brasilia were altered from the morning to the evening (from 9h00
                                                       in the morning to 23h00). This alteration enabled the cancellation
                                                       of	night-stop	flights	from	Europe,	while	maintaining,	however,	
                                                       all the Europe/Brazil/Europe connections. In July, 3 weekly
                                                       flights	 were	 also	 launched	 between	 Lisbon	 and	 Viracopos	
                                                       (Campinas), as an alternative airport to Guarulhos, and which
                                                       presents a lower level of congestion.

                                                       The	increased	supply	for	this	region,	of	around	11.0%,	was	
                                                       lower	than	the	increase	in	demand,	which	finally	stood	at	
                                                       26.1%.	As	a	consequence,	overall	passenger	load	factor	
                                                       increased	by	9.9	percentage	points	to	83.4%.




                                                   Reinforcement of the leading position in Brazil

                                                   The South Atlantic was the most representative sector of
                                                   the	route	network,	reaching	42.2%,	4.2	p.p.	more	than	in	
                                                   2009, hence continuing to exceed the size of the Europe
                                                   network sector.




                                                                                                                               Annual Report 2010   TAP Group   55
                                                               Collaboration with partner companies

                                                               On the other hand, efforts were made to intensify the code-sharing agreements with partners
                                                                in thecontext of the STAR Alliance and non-aligned, with the good collaboration between TAP
                                                                 and its strategic commercial code-sharing partners being particularly noteworthy. The follow-
                                                                  ing outline the main developments reflecting the changes made, namely:

                                                                  Regarding LOT (LO), the existing agreement was strengthened with the introduction of
                                                                   seven domestic destinations in Poland, operated by the Polish carrier. With the Spanish
                                                                    carrier, SPANAIR (JK), the agreement was also strengthened through the expansion of
                                                                     East European points, served by JK, from Madrid or Barcelona. Also noteworthy was the
                                                                     maintenance of the code-sharing agreement with the ALITALIA GROUP (which acquired
                                                                      AIR ONE, a former partner of TAP). This permitted strengthening the flights and destina-
                                                                       tions inside Italy with the TP code (14 cities), operated with aircraft of the Italian carrier.
                                                                        It is important to mention the continued intensification of the cooperation with the
                                                                         national partner, SATA INTERNACIONAL (S4), through its continued expansion of
                                                                          routes between the Autonomous Regions and Europe and North America.

                                                                          The intensification of the relationship with STAR Alliance member companies con-
                                                                           tinued, in particular with the signing of the code-sharing agreements with AIR
                                                                            CHINA (CA) and CONTINENTAL AIRLINES (CO). Through the agreement with the
                                                                             Chinese partner, TAP now offers, with its own code, Peking and Shanghai, in AIR
                                                                              CHINA aircraft, from Europe. With the North American partner, CONTINENTAL,
                                                                               TAP now places its code on flights between Portugal and the United States, as
                                                                                well as to 20 destinations inside the USA and to Mexico City, via Newark/New
                                                                                York, in CO aircraft. In addition to this fact, it is also important to mention the
                                                                                 expansion of the code-sharing with TAM, through the growth in the number
                                                                                  of shared code destinations in Brazil. Note should also be made of the
                                                                                   increased connections with the Egyptian carrier EGYPTAIR (MS), between
                                                                                    Portugal and various cities in Egypt, via points in Europe, operated by MS.

                                                                                     In Canada, TAP now offers Vancouver with its own code, with this city cur-
                                                                                      rently being an integral part of the code-sharing with AIR CANADA (AC).




                                                                                                            Change on previous year
                                      Region                              Traffic Volume                   Capacity           Traffic                  Load Factor
                                                                      (Thousand Passengers)                  (ASKs)            (RPKs)
                                      Mainland Portugal                                    590                  -2.5%                    0.4%                  54.8%
                                      Madeira and the Azores                               947                  -2.2%                   -6.8%                  64.7%
                                      Europe                                             5,267                   2.8%                    8.4%                  68.1%
                                      Africa                                               603                   1.7%                    7.6%                  71.9%
                                      North Atlantic                                       175                  -5.4%                   10.5%                  80.2%
                                      Mid Atlantic                                          80                 -15.4%                  -12.1%                  68.8%
                                      South Atlantic                                     1,427                  11.0%                   26.1%                  83.4%
                                      TOTAL                                              9,089                   4.4%                  13.6%                   74.5%




56   TAP Group   Annual Report 2010
Cooperation and Partnership Agreements* 2010


PORTUGAL
                           Brussels Airlines, Continental Airlines (since October), Egyptair, Lufthansa, Sata International, Swiss, TACV, Turkish
Mainland Portugal
                           Airlines, Ukraine International, US Airways
Madeira and the Azores     Austrian Airlines, Sata International


EUROPE
Austria                    Austrian Airlines, Brussels Airlines
                           Austrian Airlines, Brussels Airlines, LOT–Polish Airlines, Ukraine International (until March and from October),
Belgium
                           United Airlines
Bulgaria                   Lufthansa
Croatia                    Croatia Airlines, Lufthansa
Czech Republic             Lufthansa
Denmark                    Lufthansa, Sata International
Estonia                    LOT–Polish Airlines (since October)
Finland                    Lufthansa
France                     Aegean Airlines, Brussels Airlines, LOT–Polish Airlines (until March), Sata International
                           Aegean Airlines, Air China (since August), Austrian Airlines, Brussels Airlines, Croatia Airlines, LOT – Polish Airlines,
Germany
                           Lufthansa, Sata International, Thai Airways, United Airlines, US Airways
Greece                     Aegean Airlines, Lufthansa, Swiss
Hungary                    Lufthansa
Ireland                    British Midland, Sata International
                           Aegean Airlines, Air China (since August), Alitalia (since September), Austrian Airlines, Croatia Airlines, Egyptair (since
Italy
                           August), LOT–Polish Airlines
Latvia                     LOT–Polish Airlines (since October)
Lithuania                  LOT–Polish Airlines (since October)
Netherlands                LOT–Polish Airlines, Sata International (from March to October), United Airlines
Norway                     Lufthansa, Sata International (from March to October)
Poland                     LOT–Polish Airlines
Romania                    Lufthansa
Serbia                     Spanair (since October)
Slovakia                   LOT–Polish Airlines (since October)
                           Aegean Airlines, Air Canada (from March to October), Air China (since August), Austrian Airlines, Croatia Airlines (from
Spain
                           March to October), Sata International (since March), Spanair, Thai Airways
Sweden                     Brussels Airlines, Lufthansa, Sata International
                           Austrian Airlines, Croatia Airlines, LOT–Polish Airlines, Sata International, Swiss, Thai Airways, Ukraine International,
Switzerland
                           United Airlines
Turkey                     Turkish Airlines
Ukraine                    Ukraine International
United Kingdom             Air Canada, British Midland, Brussels Airlines, Lufthansa, Sata International, United Airlines


AFRICA
Cape Verde                 TACV
Egypt                      Egyptair
South Africa               South African Airways


NORTH ATLANTIC
Canada                     Air Canada, Sata International (since March)
USA                        Air Canada, Continental Airlines (since October), Sata International, United Airlines, US Airways


SOUTH ATLANTIC
Brazil                     TAM


EAST
China                      Air China (since August)
Hong Kong                  Lufthansa
Singapore                  Lufthansa
Thailand                   Thai Airways

* Code-sharing operation




                                                                                                                                            Annual Report 2010   TAP Group   57
             Cargo and Mail                                                          Cargo and Mail
             Traffic                                                                  Revenue
             Million RTK                                                             EUR million

                     Variation                                                             Variation


             400                                   376                                                                          NEW PROJECTS
                            354
             350                                                                     150                                        ρ   TAP–Cargo site reformulation
                                         306                                                  128               125
                                                     22.9%                                                                      ρ   Cargospot – New Bookings and Revenue Management
             300                                                                     120                98                          system
             250                                                                      90                         27.2%
                                                                                                                                ρ   ICS, ECS and SDS – New Customs information systems
             200                                                                      60                                        ρ   Cool Containers – Constant-temperature controlled
                                         -13.6%                                                                                     transport
             150                                                                      30               -23.1%
                                                                                                                                ρ   TAP–Cargo Charters – Charter air freight service
             100                                                                       0
                            2008         2009     2010                                        2008     2009     2010




                                                                                     Cargo

                                                                                     During 2010, TAP experienced a rapid and
                                                                                     consistent recovery of business in air cargo,            noteworthy was the creation of a cargo flight
                                                                                     with the volume of cargo and mail trans-                 charter service to transport cargo of high weight
                                                                                     ported by TAP–Cargo having reached, this                 and volume, through exclusive air freight
                                                                                     year, a new historic maximum                             flights, in an initiative to respond to Customer
                                                                                                                                              logistics requirements. This type of operation,
                                                                                     This fact was mainly due to an offer of                  where the destinations of Angola, Senegal and
                                                                                     quality logistics of transport in the in the             Venezuela were the most frequent, expands the
     The Mission of TAP–Cargo is to provide                                          Europe-Africa-Latin America triangle, supported          regular operation through exclusive air freight
     a reliable service for the collection,                                          by an efficient service, made through a giratory         flights, which already existed between Germany
      transport and delivery of goods and                                            platform, in Lisbon. The growth in the cargo             and Portugal.
       parcels on the aircraft of TAP and its                                        flows of Northern America, as well as the com-
       partners, in a timely manner, suited                                          plementarity of the platform in Porto were, also,
        to its Customers' needs and at com-                                          of relevant importance. These facts, arising from
         petitive prices.                                                            a correctly delineated strategy, enabled taking          By continuously investing in the quality of
                                                                                     advantage of the effects of the economic recov-          its modern fleet and respective technically
                                                                                     ery of the sector, at a worldwide level. Particular      equipped holds, TAP continues to guaran-
                                                                                     note should be made, due to its greater rel-             tee quality in the transport of perishable
                                                                                     evance, of the growth in cargo volumes from              cargo and live animals, in accordance with
                                                                                     Europe for destinations in Brazil, as well as            the requirements of passengers and institu-
                                                                                     Brazilian exports to Portugal.                           tions dedicated to animal life

                                                                                     In the ongoing endeavour to ensure Customer              Particular note should be made of the improved
                                                                                     satisfaction and new business opportunities, TAP         operationality of the New Cargo Terminal at
              Carried Tonnes                                                         continued to develop its constant-temperature            Lisbon Airport, as a decisive factor towards the
              By Route Network Sector                                                controlled transport activity. Very sensitive vac-       notable increase which has occurred in the quality
                                                                                     cines and medicinal products transported in the          of the service provided to Customers, both in the
                                                                                     denominated Cool Containers were the most                area of Exports and Imports. Also regarding the
                              Mid
                              Atlantic                                               frequent in this specialised line of service. This       quality of the service, note should be made of the
                                                             South
                              2%                             Atlantic                priority boarding service, classified as Must Go         close contact that the Company has maintained
                 North                                       37%                     Cool, has expanded the diversified range of serv-        with IATA, whose recommendations it follows
                 Atlantic                                                            ices which are already available: Must Go Turbo,         rigorously, participating in the e-freight,	project.	
                 8%
                                                                                     Must Go Petroleum, Must Go Wearing, Must Go              Currently, TAP–Cargo participates in important
                                                                    Mainland
                                                                    Portugal
                                                                                     Fish, Must Go Meat, Must Go News and Must Go             new	IT	projects,	namely	in	the	context	of	the	new	
                                                                    4%               Production Line.                                         customs requirements, as well as the ICS (Import
                                                                                                                                              Customs System), ECS (Export Customs System)
                                                                                     In the communication sphere, and with the                and SDS (Summary Declarations Systems).
                                                                    Madeira          objective	 of	 providing	 a	 series	 of	 new	 facili-
                                                                    and the Azores
                 Africa                                                              ties of interest for the Customer, TAP–Cargo             Finally, it is important to highlight the signing, in
                 13%                                                5%
                                                                                     promoted, during 2010, the full renewal of its           2010, of the contract for the installation of the
                                                  Europe                             site, which currently also presents a more func-         new Bookings and Revenue Management sys-
                                                  31%                                tional and appealing design. Complementarily,            tem, as an investment aimed at improving the
                                                                                     the Company strengthened the customer                    quality and profitability of the business, as well as
                                                                                     attendance teams of its Call Centre and cargo            ensuring a suitable response to the IT challenges
                                                                                     complaints treatment, which showed signifi-              for the sector.
                                                                                     cant improvements both in terms of attendance
                                                                                     time and quality of the solutions produced. Also




58   TAP Group        Annual Report 2010
Online Bookings                                                    Online Revenue
   Variation                                                       EUR thousand

                                                                       Variation




                                                    550,575                                                                  195,720

 116.9%        78.1%        83.4%                                    118.8%        82.2%           56.5%                     155,622
                                                    428,645
                                    42.0%                                                  23.6%           39.5%
                    25.0%                   28.4%                                                                    25.8%
                                                    301,888                                                                  111,539

                                                                                                                              71,268
                                                    164,594                                                                   57,680
                                                    131,696
                                                     73,955                                                                   31,665
                                                     34,102                                                                   14,474

2004 2005 2006 2007 2008 2009 2010                                  2004 2005 2006 2007 2008 2009 2010




e_commerce

A strategy of coverage in various market                      2010 marks the inevitable presence and focus of TAP
segments, whether final Customers, corpo-                     on the social media channels, such as Facebook,
rate Customers or Travel Agents                               Twitter and Youtube, where the Victoria Programme
                                                              is greatly highlighted
In the development of solutions to promote the
customer loyalty of the B2C, B2B and B2T (Travel              This channel regularly launches new products, campaigns
Agents) segments, priority has consistently                   and promotions, amongst others. Furthermore, a book-
been given to process automation and the pro-                 ing engine has also been provided on Facebook, as well
vision of information, through the Company's                  as the possibility of making the check-in through the
sites on the Internet. The activity of online book-           Internet, and the Virtual Auction has been re-created
ing	through	the	site	has	grown	by	28.4%,	and	                 with an exclusive design for this channel. Note should
generated sales revenue in the order of EUR                   also be made of the implementation, in all the sites,
196 million, corresponding to approximately                   of an application which enables sharing the most rel-
820 thousand passengers. It should be noted                   evant contents on the main social networks.
that the Internet currently represents a signifi-
cant	distribution	channel,	responsible	for	9%	
of total market sales, where the Brazilian and
Portuguese markets are the most representative
in this channel.

In 2010, the FLYTAP portal, present in 25 markets,
was also made available in Romania and Greece,
and this booking engine is now also available in                                                                ■    Opening of new markets on the site
Russian, Hungarian, Czech, Polish and Greek, thus
expanding the provision of this booking func-                                                                   ■   Implementation of the hotel
tionality to new markets. Complementarily, the                                                                      booking service of Booking.com
insurance service, through Mondial Assistance,
has been extended to new markets, namely to                                                                 ■    Presence in the social media
the markets in Germany, Spain, Finland, France,                                                                 channels (Facebook; Twitter and
Hungary, Ireland, Italy, Poland and the Czech                                                                   Youtube)
Republic. The hotel booking service Booking.com
has also been implemented, which now serves all                                                        ■     Establishment of a partnership
markets. In particular, in relation to Brazil, a new                                                        to expand forms of payment and
partnership has been developed which will enable                                                           foster the agility of the booking
expanding the forms of payment in this market, as                                                          process, in the Brazilian market
well as facilitating and increasing the agility of the
entire online bookings and sales process.

In the Affiliation Programmes, efforts have been
developed to expand the online presence and
stimulate new contacts.




                                                                                                                                            Annual Report 2010   TAP Group   59
                                                    MAIN FUNCTIONS:

                                                    ρ     Manage operations at Lisbon airport, with a view to improving their
                                                          punctuality and regularity;

                                                    ρ     Manage passenger attendance in Lisbon, in all aspects (check-in,
                                                          transfers and baggage, amongst others);

                                                    ρ     Guarantee the provision of a service of recognised quality to
                                                          passengers, in TAP network airports, ensuring, in advance, the resolu-
                                                          tion of any possible irregularities;

                                                    ρ     Coordinate the implementation of the service levels, practices
                                                          and guidelines, for the different ground services;

                                                    ρ     Promote the initiative, development and implementation of improve-
                                                          ments in service quality, which are recognised by Customers.




           Customer Service

           The mission of the Customer
           Service Department is to guarantee
           the provision of a service of recog-
           nised quality to TAP passengers,
           anticipating any possible irregulari-
           ties and ensuring proactivity in their
           resolution.
                                                    Monitoring of the accomplishment of the service levels provided
                                                    by the Handling Agents

                                                        Three new Stopovers were opened (Algiers, Marrakech and Viracopos) and two were closed
                                                         in Europe (Pamplona and Charles de Gaulle) over the year. Regarding relations with the
                                                          Handling Agents, the negotiation of new contracts were pursued, and compliance with
                                                           service levels was actively monitored as a form of exerting pressure, aimed at improving
                                                            their quality.




                                                             Assistance team – a ready-to-act structure in order to minimise the impact
                                                             of situations of overcrowding in the airport

                                                               In 2010, the cloud of ash, caused by the Icelandic volcanic eruption led to chaos in
                                                                airports and consequently also affected TAP passengers. At that time, every help
                                                                 possible was useful, and it was found that it is possible to minimise the impact of a
                                                                 situation of overcrowding at the airport if the most immediate needs of the passen-
                                                                  gers were met, such as, for example, through the distribution of water and food.
                                                                   In reality, this involves the provision of humanitarian assistance to passengers,
                                                                    putting into practice the solidarity that these situations deserve.

                                                                     The experience, carried out by a team of TAP volunteers, composed of mem-
                                                                      bers of the Care Team, which helped to respond to the situation of waiting
                                                                       queues at the airport over those days, had positive results and confirmed the
                                                                       Company's necessity to be able to provide this ready-to-act structure, if nec-
                                                                        essary. Thus, a challenge was launched to the Employees to be part of the
                                                                         new structure which was created – the TAP Assistance Team –, exclusively
                                                                         to	attend	peak	operating	situations	in	airports.	Participation	in	this	project	
                                                                          is voluntary, where the volunteers may, or may not, be in an active situa-
                                                                           tion of work.




60   TAP Group   Annual Report 2010
                                                                                                          FAST TRAVEL


                                                                                                          An IATA project aimed at providing
                                                                                                          a series of self-service options




                                                                                                           Departure Punctuality
                                                                                                           (15 min)

                                                                                                                                 80%
                                                                                                                          75%
                                                                                                                                        71%
Participation in external projects                   Punctuality                                            60%    59%

ρ   Co-leadership of the Lisbon airport per-         Punctuality at departure up to 15 minutes fell,
    formance improvement work group (AIMS            thus countering the trend of improvement
    Project),	aimed	at	improving	the	quality	of	     observed during the previous years. This evolu-
    the service provided to passengers, con-         tion was significantly influenced by the cloud
    veying motivation and effective teamwork.        caused by the Icelandic volcano, which, by
    The 3rd AIMS meeting was held in 2010,           paralysing European air traffic, forced mass
    involving over fifty employees of the differ-    cancellations by airline companies, with serious       2006 2007 2008 2009 2010
    ent entities – ANA, TAP, Groundforce, SEF,       impact on costs related to irregularities. 2010
    Customs and AOC, where there was great           was also a year marked by various strikes of air     Punctuality significantly influen-
    participation in the debate, in the context of   traffic controllers and Handling Agents, which       ced by a vast number of external
    a functional restructuring of this Programme,    contributed to disturb normal compliance with        factors, such as the Icelandic
    on the establishment on new work modes.          flight operation schedules.                          volcano and industrial action, in
                                                                                                          response to austerity measures.
ρ   Collaboration in baggage handling perform-
    ance	 improvement	 projects	 (BIP/RFID),	 in	
    partnership with the STAR Alliance and IATA      Baggage

ρ   Active participation in the IATA (STB)           Notwithstanding the problems caused by the
    Fast Travel Programme, a working group           Eyjafjallajökull	volcanic	cloud,	the	performance	     Left-behind luggage
    constituted	with	the	objective	of	improv-        of	Lisbon	Hub	improved	by	about	5.6%,	in	rela-        per 1,000 passengers
    ing the passenger's experience, through the      tion to the previous year, with the value relative
    provision of a series of self-service options,   to the entire network remaining at the same
    during	the	passenger's	journey,	promoting	       level.
    cost-cutting for airline companies.                                                                            27.8



                                                                                                            21.0          19.9
                                                                                                                                 15.2   15.2




                                                                                                            2006 2007 2008 2009 2010




                                                                                                                          Annual Report 2010   TAP Group   61
                                                        Fleet

                                                        After the year of 2009 which was significantly marked by decreased demand, there was a recovery of
                                                        passenger occupancy rates during 2010. In spite of the adverse economic context and the economic
                                                        austerity measures decreed by the Portuguese government, over the last quarter, the operation regis-
                                                        tered an increase over the last year, with the same fleet, which was achieved through a more efficient use
                                                        of the aircraft. This trend should continue during 2011, with plans for a new increase in the operation,
                                                        in terms of the level of the offer as well as in the number of destinations. Moreover, in spite of the cost of
                                                        fuel having exceeded the budgeted value, the increased capacity of adaptation of the operation enabled
                                                        TAP to achieve a record result.

                                                        At the end of the year, the Groups TAP fleet, composed of the fleets of TAP and PGA, used
                                                        71 airplanes in its network, where there were no alterations in the resources available as of
                                                        January 2010
       Average Fleet Age
                                                        TAP's	fleet,	composed	of	55	airplanes	(39	medium-haul	and	16	long-haul),	presented,	in	2010,	an	aver-
            Long-Haul fleet      Medium-Haul fleet        age age of 9.5 years, slightly higher than the 8.9 years of 2009, but in line with the average age of the
            Total fleet
                                                        fleet	in	previous	years	(9.4	in	2008,	10.2	in	2007	and	9.6	in	2006).	Likewise,	PGA's	fleet,	composed	of	
                                                        16 airplanes (2 airplanes under ACMI of OMNI), also did not undergo any alteration during the year
                                                        under analysis.
       14
       12
       10                                               Composition (Number of Aircraft on 31 December)
        8                                                                          Units              Average        Ownership         Rental            2011
                                                                              Dec-09   Dec-10             Age                                    Additions Options
        6
                                                        MEDIUM-HAUL
        4
                                                        A319                        19           19       11.6                 15            4
        2
                                                        A320                        18           17           6.9               5           12
        0
                                                        A321                         3            3           9.5               2            1
              2005 2006 2007 2008 2009 2010
                                                        LONG-HAUL
                                                        A340                         4            4       15.7                  4            0
                                                        A330                        12           12           7.9              11            1

                                                        TOTAL                      56            55           9.5


       TAP Fleet Financing
       31 December 2010
                                                        Average Daily Utilization (Block Hours / Day)
       Company                                                                           2005         2006          2007            2008          2009          2010
       Ownership
                                                        MEDIUM-HAUL
       67%
                                                        A319                             10.45        10.62         10.39           10.90         10.40         10.18
                                                        A320                             10.48        10.55         11.08           11.51         10.45         10.60
                                                        A321                             12.18        11.79         12.38           12.04         10.85         10.88


                                                        LONG-HAUL
                                                        A340                             15.70        15.74         13.87           12.90         10.97         13.40
                                                        A330                                 –        16.00         15.24           15.16         13.56         13.83
                                         Operating
                                         Leasing        A310                             14.44        13.90         13.48            6.78             –             –
                                         33%




        Of the total 55 airplanes comprising TAP's      Fuel Saving
        fleet,	 in	 operation,	 as	 at	 31	 December	
        2010, 37 were owned by the Company
        and 18 were under a regime of operating
        leasing.                                        The TAP Portugal Fleet

        ρ     Owned by the Company                      The	Fuel	Conservation	project,	which	celebrated	its	5th	anniversary	in	2010,	continued	to	pro-
              15 A319; 5 A320; 2 A321; 11 A330          duce very positive results, leading to total savings of USD 57 million, in the period between
              e 4 A340;                                 July 2005 and June 2010. At the end of 2010 the cost of fuel showed a trend of growth which
        ρ     Operating leasing                         might lead, in 2011, to high values, identical to those during 2008. The financial pressure
              4 A319; 12 A320; 1 A321 e 1 A330.         caused by the continuous increase in fuel cost, combined with the growing concern for the
                                                        environment and the beginning of the implementation, in 2010, of the EU-ETS (Emission



62   TAP Group      Annual Report 2010
FUEL CONSERVATION
PROJECT
Savings achieved in terms of fuel and
avoided emissions in 2010


                        Fuel (ton)       CO2 (ton)
A340                          2,176          6,856
A330                          2,162          6,812
A321                            968          3,048
A320                          3,764         11,856
A319                          5,052         15,913
TOTAL                       14,122          44,484




Trading Scheme) reaffirm the strategic importance            The Portugália Fleet
of	the	fuel	saving	project,	which	represents	an	essen-
tial tool for the future good performance of the             PGA	manages	its	own	Fuel	Conservation	project	internally,	
Company, in the context of an increasingly more              through coordinated work between the Flight Operations
competitive and demanding market. It should be               and Maintenance and Engineering Departments. In this
noted that the operating context over last year was          context, a fuel policy was created, characterised by a series
extremely adverse, being market by the eruption of           of fuel consumption optimisation measures, which have
the	Icelandic	Eyjafjallajökull	volcano,	which	imposed	       been	fine-tuned	continuously	over	the	years.	However,	
significant operating constraints, as well as by the         the effective reduction of fuel consumption is possible
restrictions on the use of the European air space, as        only through the commitment of full involvement, val-
a result of the strikes of the air traffic controllers, in   orising the systematic sum of small gains. Based on this
addition to the poor atmospheric conditions in vari-         principle, we highlight some of the measures which
ous regions of Europe, during various periods. This          were implemented:
combination of exceptional factors penalised TAP's
performance in relation to previous years, with fuel         ρ   Efficient practices in aircraft operation;
savings having reached 14,122 tons, a value lower            ρ   Programme of periodic washing of aircraft;
than the approximately 20,000 tons registered in             ρ   Weight reduction (new painting, replacement
2009. The table above presents the breakdown by                  of carpets, windshield connection elements –
fleet and the corresponding savings (avoided fuel                titanium versus stainless steel);
and	emissions)	achieved	under	this	project	in	2010.          ρ   Concordance of the panels and polishing of
                                                                 the fan blades of the engines.
Note should also be made, in 2010, of the implemen-
tation, in TAP, of the emissions and ton-kilometre           In order to control the measures referred to
reporting system, under the EU–ETS Emissions                 above, methodologies and tools have been
Trading Scheme. The EU–ETS has implied an altera-            developed to monitor participation in the
tion of procedures and an upper level of efficiency          policies and follow the evolution of the level
in the management of operating data, in order to             of Key Performance Indicators (KPIs). The
increase the quantity of data available. This increase       company, together with TAP, is collecting a
of representativeness of data will also benefit the          database to allow for swift analysis on the
entire operation, since the increased analytical             measures which are being applied.
capacity will enable a significant inforcement in effi-
ciency. The working group continued to develop               In 2011, it is expected that the imple-
methodologies and tools to monitor the participa-            mentation of new measures, and the
tion in fuel saving policies and follow its evolution.       fine-tuning of the measures imple-
This work, which included the migration and expan-           mented last year, will represent cost
sion of the supporting database in 2010, and which           economies	of	approximately	0.6%	of	
has been under development since 2008, involving             the budgeted value for 2011, in terms
the Operations Engineering area, Flight Data Reading         of	efficiency	(Kg/BH),	equivalent	to	
Station and the company Megasis, should be con-              a CO2 emission reduction of about
cluded by mid-2011.                                          1,153 tons.

In	2011,	the	main	objectives	are	the	continued	dis-
semination	of	the	Fuel	Conservation	project,	through	
various initiatives, for the purpose of recovering and
surpassing the efficiency and saving levels achieved
in 2008 and 2009, as well as the study of new pos-
sibilities to enable the continued guarantee of higher
efficiency levels.



                                                                                                                             Annual Report 2010   TAP Group   63
                                                                                More
                                                                                than      21
                                                                                thousand
                                                                                daily departures




                                                                               1,160
                                                                                destinations



                                                                               181
                                                                                countries



STAR Alliance
REGIONS                 Main hub airports

EUROPE                                                                         STAR Alliance
Adria Airways           Ljubljana	
Aegean Airlines         Athens
                                                                               STAR Alliance: the first global Alliance
Austrian Airlines       Vienna
Blue1                   Helsinki                                               STAR Alliance, constituted in 1997 by a group
bmi                     London (Heathrow)                                      of five international renowned airline compa-
Brussels Airlines       Brussels                                               nies, is currently the foremost and most highly
Croatia Airlines        Zagreb                                                 distinguished Alliance of companies, truly glo-
LOT Polish Airlines     Warsaw                                                 bal, as well as the largest Alliance present on the
Lufthansa               Frankfurt, Munich                                      market. The companies comprising the Alliance
Scandinavian Airlines   Copenhagen, Oslo, Stockholm                            offer their Customers a wide global network,
Spanair                 Madrid, Barcelona                                      based on a multi-hub system which enables
Swiss                   Zurich, Geneva, Basel                                  establishing the best connections possible.
TAP Portugal            Lisbon, Porto                                          By the end of 2010, a total of 27 operators
Turkish Airlines        Istanbul, Ankara                                       offered a range of over 21,000 daily flights, to
                                                                               1,160 destinations, in 181 countries.
AFRICA
Egyptair                Cairo
Ethiopian Airlines *    Addis Ababa
South African Airways   Johannesburg                                           Improve the flight experience
                                                                               – a commitment of the Alliance
NORTH ATLANTIC
Air Canada              Toronto, Montreal, Vancouver, Calgary                  Underlying the commitment of the Alliance
Continental Airlines    Newark, Houston, Cleveland, Guam                       to improve the flight experience of its pas-
                        Chicago, Denver, San Francisco, Los Angeles,           sengers are two fundamental concepts,
United Airlines                                                                identified as capable of generating benefits for
                        Washington, D.C.
US Airways              Charlotte, Philadelphia, Washington, D.C., Phoenix     its Customers: (1) A Customer of any member-
                                                                               company of STAR Alliance is a Customer of all
MID ATLANTIC                                                                   member-companies, receiving identical expe-
Avianca–TACA *          Bogota, San Salvador, San Jose, Guatemala City, Lima   riences in the service provided (partnership
Copa Airlines *         Panama City                                            concept); (2) Global reach of the Alliance sup-
                                                                               ported by connections between the different
SOUTH ATLANTIC                                                                 hubs of the member-companies (hub and spoke
TAM                     Sao Paulo                                              operating concept).

ASIA
Air China               Beijing,	Chengdu,	Shangai	
Air India *             Mumbay, Delhi, Kolkata, Chennai                        Advantages for the members
All Nippon Airways      Tokyo, Haneda, Osaka                                   of the Alliance
Asiana Airlines         Seoul Incheon
Singapore Airlines      Singapore Changi                                       Enabling cost reductions due to the economies
Thai Airways            Bangkok, Chiang Mai, Phuket, Hat Yai
                                                                               of scale and efficiency which are generated, the
                                                                               common	projects	of	STAR	Alliance	also	permit,	
OCEANIA                                                                        in terms of the product, achieving significant
Air New Zealand         Auckland, Los Angeles, Hong Kong
                                                                               improvements for the passengers. In this context,
                                                                               TAP has maintained considerable activity, partici-
*	to	join	soon
                                                                               pating and intervening in the implementation of
                                                     STAR Alliance governance model

many initiatives. Thus, in 2009, TAP was one of      The governance of the STAR Alliance is com-
the first member-companies to launch its mobile      posed of two boards, the Chief Executive Board
portal – the tap mobile portal. It is important      and the Alliance Management Board, with
to note the initiatives such as the STAR Alliance    responsibilities, respectively, at the level of
Upgrade Awards, the Common IT Platform or            the definition of the strategic guidelines and
the strategy of moving the Alliance companies        approval of the Business Plans, and regarding
into a single common area, the Move Under One        directing and supervisory functions. Additionally,
Roof project,	as	well	as	many	others	of	a	joint	     there are five Sounding Boards, established to
nature, namely, in the context of procurement        provide guidance in specific areas, namely, in
and purchases.                                       Sales, Network, Marketing and Technology.
                                                     Finally, there are also nineteen Advisory Groups,
Also in terms of innovation, the STAR Alliance       with the mission to advise and participate in the
is the first Alliance of airline companies to pro-   creation and development of products.
vide various products with fares on the Internet,
where all Circle Fares may now be booked and
acquired on its website. With a user-friendly
booking engine accessible in various languages,      Future members
booking may now be made in any part of the
world, with the tickets being issued automati-       In 2010, the candidature of Ethiopian Airlines
cally, through electronic means, in spite of         was approved unanimously, which thus
the fact that the vast number of destinations        becomes the third STAR Alliance operator in
offered and the complexity of the multiple ticket    the African Continent. The acceptance of this
fares implies that its automation is not an easy     company is an integral part of the STAR Alliance
task. This option of online booking for Circle       strategy for Africa, a region where, according
Fares follows the successful launch of Book          to market surveys carried out by the Industry,
& Fly, offering the possibility of planning, book-   the second largest rate of growth of air traffic
ing and acquiring Round-the-World tickets,           is forecast, over the next few years, as a result
through the Alliance website. Also of impor-         of increased demand, arising from the eco-
tance, along the same lines, was the creation        nomic growth fostered by greater political
of the Brazil Air Pass, a product which, cover-      stability, and where the Alliance will now have
ing the entire domestic network of the company       three important hubs – Addis Ababa, Cairo and
TAM, may be acquired by all customers who are        Johannesburg.
not resident in Brazil, in combination with an
international ticket of any member-company of        Also accepted unanimously were the applica-
the Alliance operating to that country.              tions	to	join	the	Alliance	made	by	the	airline	
                                                     companies Avianca–Taca and Copa Airlines,
                                                     thus concluding a strategic process which
                                                     sought to strengthen the brand of the Alliance in
                                                     the Latin American economies, benefitting from
                                                     strong and rapid growth.




                                                                                                          Annual Report 2010   TAP Group   65
66   TAP Group   Annual Report 2010
TAP Serviços

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.




The	objective	of	TAP	Services,	created	in	2004,	is	the	pro-   Over 2010, the Business Unit contin-
vision of supporting and management services for the          ued	 the	 intensification	 of	 the	 process	
other Business Units and companies of TAP Group, based        of the continued improvement of its
on an organisational model of shared services, founded        performance, supported by appropriate
on a strategy of collaboration or traded processes.           information technologies, in an attitude of
                                                              permanent innovation, search for excellence
In the development of its activity, the Business Unit con-    and use of best practices. In this context,
tributes	to	the	improved	profitability	of	its	Customers,	     particular note should be made of the Best
with an autonomous management structure, designed             Practices Plan, Reduction of Consumption, to
to	promote	efficiency,	the	creation	of	value	and	reduc-       be implemented over 3 years (2010 to 2012).
tion of costs, under an assumption of better quality of       This initiative is directed, in addition to the
service and transparency.                                     indispensable awareness-raising towards the
                                                              best behavioural practices, to the search for the
Involving the provision of financial services,                best	technical	solutions	and	most	efficient	sys-
human resources, procurement and warehouses,                  tems and equipment.
administrative, audit and legal services as well as
other support activities, TAP Serviços offers, in the         Likewise, the effort in the alignment of concepts
development of its activity a platform of sustai-             was also continued, extended progressively to
ned growth providing a broad group of benefits:               the offer of services to the different businesses of
                                                              the Group. Also noteworthy, with benchmarking
                                                              objectives,	was	the	participation	of	TAP	Serviços	in	
                                                              the XIII Meeting of the Shared Services Club, an event
 ρ    Allowing the Business Units and companies               which addressed the holding of thematic clubs for the
      of the Group to focus on their core activity;           specific	purpose	of	the	sharing	of	practices	and	experi-
                                                              ences between Club members.
 ρ    Significantly decreasing costs, through econ-
      omies of scale, reduction of duplications and           During the implementation of the processes, TAP Serviços
      the use of best practices, thus enhancing the           maintains	protocols	for	the	sharing	of	clearly	defined	
      efficiency of processes;                                responsibilities with its Customers, with agreements on
                                                              services levels and performance indicators having been
 ρ    Development of specialised competences;                 established as well as the regular follow-up of Customer
                                                              satisfaction levels. In 2010, the Customer satisfaction ques-
 ρ    Considerable improvement of the service                 tionnaire, in digital format, available at the Customer Portal,
      levels offered, due to the higher operational           recorded	a	participation	rate	of	about	74.4%.	
      efficiency of the management systems,
      through the standardisation of processes,               The overall satisfaction index observed, of 3.1 (scale of 1 to 4),
      reduction of operation times, greater access            showed	a	growing	evolution,	reflecting	the	effort	made	in	the	
      to information and better service ratios and            continuous improvement of the performance of TAP Serviços,
      response times;                                         both	in	terms	of	efficiency	and	quality,	and	regarding	the	multi-
                                                              plicity of competencies involved in the development of its activity.
 ρ    Improved strategic management, through
      the concentration of qualified resources, a
      faster and better grounded decision-making
      process, effective management of the avail-
      able resources, the sharing and exchange of
      know-how and better alignment of resources
      with the mission.




                                                                                                                                Annual Report 2010   TAP Group   67
     In this context, the following developments are
     highlighted as the most important:


     Finance

     During 2010, several long-term financing              ρ   The implementation of the Home Page of                 ρ     The process relative to cabin crew (Stewards
     operations	were	undertaken,	involving	finan-              TAP Group, whose applied solutions seek to                   and Flight Attendants) reached an advanced
     cial leasing or based on underlying assets.               meet the needs of TAP Group, fulfilling the                  stage, having been suspended at the initia-
     The Group's short-term operations were also               following	objectives:                                        tive of the trade union, which considered
     renewed or renegotiated.                                                                                               that the necessary conditions for an agree-
                                                               ρ   Encourage the general use of a single institu-           ment were not in place.
     Among the long-term operations, it is worth                   tional extranet of TAP Group;
     pointing	out	a	financing	operation,	without	col-                                                                 In addition, within the framework of the labour
     lateral,	as	well	as	financial	leasing	operations,	        ρ   Achieve the homogenisation of the various          dispute and legal advice area, various legal suits
     involving a total of 9 medium-haul Airbus air-                forms of the intranet at the Company, via logi-    were terminated with the cases won and/or
     craft.	The	execution	of	the	contracted	financing	             cal organisational criteria, without the loss of   agreements reached between the parties, with
     operations, combined with the amortisations of                identity of each company/business unit;            the success rate remaining at a very high level, in
     debt for the current year and the operating cash                                                                 relation to the total number of cases concluded
     flow	of	the	Group,	enabled	the	reinforcement	of	          ρ   Promote the offer of new functionalities that      and, above all, in relation to the respective values
     the cash position and the amount of cash assets               are transversal to the entire Organisation, in     involved.
     with	financial	institutions	to	be	increased	over	             a collaborative portal oriented towards the
     the course of the year.                                       sharing of information.                            The promotion of actions aimed at closer coor-
                                                                                                                      dination between the Business Units of the
     During	the	year	under	analysis,	several	jet	fuel	     ρ   The creation/implementation of electronic              Company and other companies of TAP Group
     hedging operations were also undertaken, in               forms and digitisation of printed forms of             was also maintained, taking precautions against
     addition to the operations already contracted in          TAP Group, with the aim of satisfying the              and solving situations that could result in regula-
     the previous year and with reference to 2010,             needs of the Organisation, through the                 tory offence procedures or legal suits.
     with	the	objective	of	reinforcing	the	level	of	pro-       centralisation and systematic computerisa-
     tection against the price of fuel.                        tion of the forms that are indispensable to
                                                               the requisition process of the Administrative
                                                               Services of Human Resources. The reduction
     Human Resources                                           of the effort and time spent with the asso-                 Labour Dispute
                                                               ciated manual treatment, permitting the                     – Risk and Cost
     During 2010, a wide-ranging series of initiatives         fulfilment	of	process	streamlining	objectives,	             EUR thounsand
     was implemented, with emphasis on:                        in addition to improved levels of productivity                 Total Risk               Total Cost
                                                               and quality, was thus assured;
     ρ   The implementation of the Communication
                                                                                                                                                  503,515
         Portal of TAP Group, in partnership with          ρ   Finally, it is worth noting the implementation                                                               164,124

         the Public Relations area of Air Transport            of the availability of information relative to                                                           8,589

         Business Unit, responsible for the aggrega-           the Clock-in System on the intranet/extranet,
         tion of information and contents, namely              presenting all the punching carried out by
         mentions, daily clippings, Flash Information,         the employee, for a specific period of time,                                                3,833

         TAP newspaper, newsletters, STAR Alliance             as well as holiday periods and schedule type;                       3,033

         information, international information and                                                                                    1,905
                                                                                                                                                                2,352

         media library.                                    ρ   In 2010, within the scope of the Recognise                  1,285
                                                                                                                                                                                    1,369
                                                                                                                                                                                 1,113
                                                                                                                                                868
                                                               Programme, 47 Employees from several                                  285
                                                                                                                                                         706   641 439
                                                                                                                                                                           157
                                                                                                                             119           95     52                                   46
                                                               Company areas were acknowledged.
                                                                                                                           2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

                                                           In the Labour Relations Area, emphasis is on the
                                                           continuation of the negotiations with the various
                                                           trade unions, with a view to reviewing the Labour
                                                                                                                          Over recent years, the Legal Advice and
                                                           Agreements:
                                                                                                                          Labour Dispute area has won an average
                                                                                                                          of 99.5% of the value of its causes.
                                                           ρ   The process relative to Pilots was concluded,
                                                                                                                          In 2010, the good performance was
                                                               with the publication of the new Labour
                                                                                                                          repeated, with TAP having won 96.7%.
                                                               Agreement celebrated with SPAC;




68   TAP Group   Annual Report 2010
Logistics

There were continuous efforts aimed at opti-           transversal to the Group, by streamlin-
mising the purchase of necessary goods and             ing communication channels with the
services for the different companies of the            Associated Companies. Information
Group, providing support to the weighing up of         was	 thus	 shared	 regarding	 projects,	
the quality/price combination options. In addi-        environmental indicators, integration
tion,	there	was	an	intensification	of	combined	        of energy and water consumptions and
purchases with STAR Alliance partners.                 sharing of solutions under development
                                                       at Campus TAP, namely those included
In the Request Management area, the year               in	Cost	Reduction	projects.	From	among	
was	marked	by	the	conclusion	of	the	project	           these,	the	project	to	substitute	traditional	
to connect the support information system              illumination is noteworthy, since it will
to the caterers of Lisbon and Porto, allow-            permit	savings	of	6%	in	the	annual	energy	
ing for online inventories, direct requests            invoice, in addition to a reduction of 242
for replenishment from caterers, as well as            ton/year of CO2.
direct deliveries of material at the respective
warehouses.	During	2011,	this	project	will	be	         In vector 1 it is worth mentioning the carrying
extended to other stopovers.                           out of environmental awareness and training
                                                       actions for a universe of 334 employees. In this
In the Warehouse area, it is worth pointing out        context, it is also important to point out the par-
the conclusion of the integration of the uniform       ticipation of passengers in the Voluntary CO2
management system with the support informa-            Emissions Compensation Programme, an initiative
tion	system,	still	in	the	final	testing	phase,	with	   that, having begun in 2009, continues to positively
its entry into full production scheduled for the       surprise TAP and IATA.
1st quarter of 2011.
                                                       Voluntary CO2 Emissions Compensation
The Customs Office continued to provide                Programme
its usual support, in related matters, to the          Year 2010
various business areas of TAP and Group com-
panies, with emphasis on the Maintenance and                  Objective              Result         Deviation
Engineering Business Unit and the company                      (Ton CO2)          (Ton CO2)
LFP–Lojas	 Francas	 de	 Portugal,	 S.A.	 as	 main	                  3,500              4,278          22.2%
internal Customers.


Administration and Management                          Also noteworthy is the attribution, by the International Union
of Physical Resources                                  of Geological Sciences of UNESCO, of the 2010 Planet Earth
                                                       Award, in the Most Innovative Sustainable Product category,
The plan of activities for 2010 of the                 in recognition of the CO2. Emissions Compensation Programme
Administration and Management of Physical              (more details available in Environmental Perspective of the
Resources area (ARF) focused on two vectors:           Sustainability Report of TAP).

1. Disclosure, training and develop-                   In	addition,	in	this	vector,	the	Risk	Prevention	area	carried	out	five	
   ment of the corporate culture in the                emergency exercises, involving risk sectors such as the Nursery, the
   Environment, Risk Prevention and                    company	Groundforce	(Back-Office	and	Hangar	3)	and	Professional	
   Security/Safety areas;                              Training. The result of the good collaboration between the areas, in the
                                                       elaboration of the Internal Emergency Plans, was also clearly evident in
2. Development and improvement of the                  the results of the exercises, which involved approximately 400 employees.
   execution, quality control and infor-               This process is included within the scope of the risk minimisation processes
   mation sharing processes with service               of	the	Company,	with	96%of	the	internal	emergency	plans	and	50%	of	
   providers, which operationalise acti-               ATEX Manuals (Protection Against Explosive Atmospheres) implemented,
   vities that the ARF is responsible for              which brings the total number of employees that attended training actions
   (canteen, crèche, office machinery, archive         (in classroom and e-Learning) in 2010 to 1,100.
   custody, microfilming, digitalisation, insur-
   ance, maintenance of the premises and               In the same year, the Operational Security area also consolidated security
   equipment and security of the premises).            training on an e-Learning platform, having extended access to the foreign
                                                       Stopovers, with training provided to a total of 502 employees. In the Premises
At	the	same	time,	significant	steps	were	taken	        Security	area,	7,181	new	identification	cards	for	employees	of	the	TAP	universe	
to extend the responsibilities of the area,            were	produced	and	distributed,	in	accordance	with	the	proposed	objective.




                                                                                                                                 Annual Report 2010   TAP Group   69
     The Insurance Management area developed a continuous process with the                        eliminated. This process is expected to result in the optimisation of
     Human Resources areas, of TAP and the Associated Companies, concerning                       maintenance, as well as in the increased productivity of the service
      the analysis and deepening of the risks (non-aviation) transferred to insurance             provider.	The	projects	and	works	undertaken	in	2010	were	mainly	
       companies,	with	the	objective	of	improving	the	diagnostics	of	risks	to	be	trans-           the result of the adaptation of the installations to national and com-
        ferred, assessing the best market proposals, as well as contributing towards              munity	legislation,	with	respect	to	fire	prevention	and	other	risks,	as	
         the risk coverage policy of TAP Group.                                                   well as hygiene and safety in the workplace, and to the regulations
                                                                                                  concerning the thermal characteristics of buildings, energy systems
          In vector 2, it is important to mention – involving seven companies and                 and the environment.
           approximately 500 employees – the development of a set of work measures
            and processes, with the aim of sharing Company policies with its service
            providers. Information is therefore shared in terms of environmental indi-            Legal Office
             cators and programmes, corporate ethics procedures and cost reduction
              programmes,	with	the	definition	of	targets	and	strategies	aligned	with	             In	addition	to	the	normal	duties	performed	by	the	Office,	emphasis	
              the	objectives	to	be	achieved	in	2011.	The	Company	will	also,	as	a	result,	         is placed on the continuation of the corporate restructuring process.
               monitor the evolution of the results of the programmes developed by
                providers in the TAP Campus or in any other of its areas.                         In this context, the company TAP TOURS was extinguished by
                                                                                                  merger. Regarding the company SPdH–Serviços Portugueses de
                 The	demand	for	transversal	support	services,	such	as	office	machin-              Handling, S.A., the works necessary to comply with the Decision of
                  ery,	archive	custody,	microfilming	and	digitalisation	increased	18%,	           the Competition Authority (of 19-11-2009) were undertaken, whose
                  indicating that the acquisition of these services from insourcing pro-          deadline was, in the interim, extended.
                   viders	presents	a	more	competitive	cost	(60%	less	on	average)	than	
                    that incurred by resorting to external suppliers. In terms of services        Several analyses were also conducted with a view to the restructuring
                     as	a	whole,	productivity	registered	an	increase	of	about	10%.	This	          of this company.
                     behaviour	was	significantly	influenced	by	a	progressive	compu-
                       terisation of processes, namely the digitalisation of the entire
                        documentary information of the Talk to Us (Fale Connosco)                 Internal Auditing
                        area. In this way, redundant circuits were reduced and paper
                         documents were immediately archived (about 40 thousand                   Evolution of no. of Audits carried out
                          processes/year).                                                        2009 and 2010
                          The use of the Canteen registered, from the last quarter of                2009                       2010
                           the	year	onwards,	an	8%	increase,	in	comparison	with	the	
                            first	nine	months,	a	trend	which	is	expected	to	continue,	            250
                                                                                                                                                                                                                           205
                             following the improvement efforts undertaken, as well as             200                                                                                                                   182
                              due to the economic and social situation of the Country.
                                                                                                  150

                               The	Crèche	registered	an	increase	in	supply	of	20%,	               100   70 67
                                                                                                                                              57
                                resulting from the increase in its capacity, via the use           50                                    33                                                                   27 33
                                                                                                                         14 15 12 12               9 4       3 3   3 3   1 1           6 4   4 6
                                 of an additional external room (Champagnat College),               0
                                 for children of 4 years of age. In this way, the admis-
                                                                                                                                  SPdH


                                                                                                                                          TPS


                                                                                                                                                   MEGASIS


                                                                                                                                                             UCS


                                                                                                                                                                   LFP


                                                                                                                                                                         CATERINGPOR


                                                                                                                                                                                       PGA


                                                                                                                                                                                             TAP M&E BRAZIL


                                                                                                                                                                                                               OTHERS


                                                                                                                                                                                                                          TOTAL
                                                                                                         Air Transport


                                                                                                                          M&E




                                  sion of babies to the nursery doubled (an area in
                                   which the solutions provided by the market are
                                    clearly	insufficient).

                                      In the Insurance area (aviation branch), it con-
                                       tinues to be advantageous the negotiation of               Within the scope of the risk monitoring and management policy,
                                        policies	jointly	with	other	airlines.	In	a	difficult	     the contractualisation undertaken was monitored, with the Plan
                                         period and with several constraints, for both the        of Activities, whose elaboration involved the participation of the
                                         aviation	and	insurance	sector,	a	10%	reduction,	         different	heads	of	departments,	having	been	subject	to	periodic	revi-
                                          to 2010/2011, in the value of the respective pre-       sion, with the aim of rethinkingpriorities. In TAP–Maintenance and
                                           mium was achieved during the renegotiation             Engineering Brazil, a local Auditor was admitted, under the direction
                                            of the aviation insurance policies (hulls, liabili-   of the Audit Department, with the works undertaken covering inven-
                                            ties, spares, war).                                   tory control, in physical terms, salary processing control, adaptation
                                                                                                  to function and control of invoicing for third parties.
                                             The Installations and Equipment area
                                             reflected	the	good	results	of	the	strategy	          In the face of new challenges, arising from benchmarking and, in
                                              pursued in 2010, with the improvement               addition, of the growing complexity of the Company's business, new
                                               of the organisation of the curative and            routines in the monitoring of the Representations – Continuous Audit
                                               preventative equipment maintenance                 Project	have	been	implemented.	The	aim	of	this	integrated	process,	
                                                process, from planning to quality                 from a Cost Reduction viewpoint, is to continuously monitor, with
                                                 control. The number of equipment                 greater	efficacy,	the	use	of	the	resources	available,	with	optimisation	
                                                  under maintenance was 6,600 units,              of internal control and minimisation of the risks involved, as well as
                                                  of which about 5,900 is under pre-              the costs of the audit processes.
                                                   ventative maintenance, such that
                                                    it was considered fundamental                 The	project	has	been	implemented	in	accordance	with	the	following	
                                                     to work with Maintenance and                 phases:	(i)	Identification	and	minimisation	of	the	risks	involved	in	the	
                                                      Engineering in the revision of the          business process; (ii) Improvement of the internal control of each
                                                       maintenance plans contained                Branch outside headquarters/Associated Companies; (iii) Extension
                                                       in the maintenance manage-                 of best practices to other entities, when feasible; (iv) Optimisation of
                                                        ment contract celebrated with             the average period of elaboration of audit reports.
                                                         the external provider, enabling
                                                          obsolete equipment or unsuit-           In	addition,	with	the	aim	of	providing	the	best	practices	identified	
                                                          able maintenance plans to be            in the benchmarking of the function with its counterparts of the



70   TAP Group   Annual Report 2010
                                                                                 Strategic Planning and Performance

transport sector, the Company has been promoting participation                 In the context of the TAP Serviços business model, aimed at the con-
in training actions, through the specialised centre (NASTIR – IPAI),          solidation	of	a	culture	driven	by	the	fulfilment	of	objectives,	various	
within the scope of the Portuguese Internal Audit Institute – IPAI,           procedures were continued in the Strategic Planning and Performance
as well as intervention in conferences, forums and workshops for             area, structured to provide support to the organisation’s strategy.
sharing experiences and improving professional methodologies
to be used, both from an IT (ACL) and procedures viewpoint.                In 2010, support thus continued to be provided to the TAP Serviços
                                                                          business unit, in the relationship with its Customers, as well as in the
Taking the concern of the external supervisory bodies and                development of the Costing, Pricing and Invoicing Model of the Devices
of the regulatory bodies on board, a new relevant focus                 rendered by the Business Unit. In a similar manner, during the year moni-
was given to the monitoring and control of the transver-               toring of compliance with the Service Level Agreements (SLA) with the
sal contractualisation processes in Group companies,                  different Customers, business units/companies of the Group was main-
involving the analysis of procedures, with respect to their          tained,	adapting	them	to	any	specificities	applicable.	The	measurement	
transparency and to identify potential incompatible                  of performance, a procedure that constitutes one of the factors that
internal and external situations, involving the corporate           characterises the practice of the Business Unit, was carried out systemat-
bodies of the service provision companies. The year of             ically, with the disclosure of a set of reports directed at the various levels
 2010 was a challenge from the viewpoint of the new               of	management,	on	the	fulfilment	of	objectives	and	on	the	operational	
 accounting and tax legislation framework, which led             performance	of	each	area	(efficiency,	cost,	efficacy,	times	and	quality)
 to a reinforcement of training within the scope of the
 Accounting Standardisation System (SNC – Sistema               The area continued to develop its mission, by providing advisory services
 de Normalização Contabilística) and preparation               to the Board of Directors, whenever requested and proactively, combin-
 relative to the new Social Security and VAT codes,           ing the know-how of the TAP Business Units, preparing analyses and
 in order to adequately respond to growing internal          issuing opinions of a qualitative and quantitative nature. In addition, it
 requests for opinions on aspects of tax legislation,       continued to prepare benchmarking studies and analyses, relative to the
 as	a	result	of	this	new	context.	A	specific	focus	        air transport business, performing in terms of competitive intelligence,
 was placed on the monitoring and analysis of the         which	translated	into	the	capacity	to	define,	collect	and	analyse	infor-
 reliability of the information and implementa-          mation to support decision-making.
 tion of new ticket issuing systems, as well as
 on the promotion of security procedures, with
 a view to the mitigation of the risk of fraud.




                                                       Evolution of the efficiency of
                                                       TAP Serviços with the growth
                                                       of its Customers' activity
                                                       2000–2010

                                                       Number of Aircrafts                             108.8%

                                                                 Number                        60.0%
                                                             of Stopovers
                                                                 Revenue                               130.6%
                                                            Passenger-Km
                                                                                                  + 99.8%
                                                                             Human Resources
                                                                             of TAP Serviços       - 34.3%



Overall Satisfaction                                     Knowing and accompanying the evolution of
                                                         Customers (internal Customer) perceptions
4
                                                         on the services offered by the Company has
3                                                        made an important contribution to the
                                                         improvement of TAP Serviços procedures.
2
                                                         4–    Very Satisfied
1                                                        3–    Satisfied
0                                                        2–    Disatisfied
                                                         1–    Very Disatisfied
    2005    2006    2007    2008     2009    2010




                                                                                                                                   Annual Report 2010    TAP Group   71
                                      € 126.5
                                      millions
                                      Revenue with Sales and Services
                                      rendered from Maintenance to
                                       Third Parties




                                         5.4%
                                          of the Group’s Turnover




                                             1,942
                                             Maintenance and Engineering
                                             Staff (31st December)




72   TAP Group   Annual Report 2010
Maintenance and Engineering

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.




                                                            Change of culture and processes
                                                            in order to respond to a more
                                                            demanding market

Maintenance Workforce                                       2010 showed some improvements in the results,
(000) Man-Hours                                             notwithstanding the growing difficulty in the
                                                            attraction of new customers. The improvement
    Other Works          Third Parties        TAP           resulted essentially from the achievement of better
                                                            sales margins, namely, in materials and the mainte-
                                                            nance of engines of Third Party Customers, through
                                                            the effect of more favourable conditions in the acquisi-
                                          1,518     1,497   tion of the units. In reality, the value of activity for Third
 1,418                         1,459
           1,399     1,407
                                                            Party Customers, in sales and services rendered, stood
                                                            at a value of approximately EUR 126.5 million, represent-
                                                            ing	an	increase	of	11.7%	relative	to	the	previous	year.	The	
                                                            maintenance	costs	of	TAP's	fleet	decreased	in	relation	to	
                                                            both the expected values and those of the previous year, as
                                                            a	result	of	the	implementation	of	more	efficient	processes	
                                                            which led to economies, in particular the increased interval
                                                            of hours between minor "A" inspections. A slight decrease
                                                            was recorded in terms of hours of production, compared with
 2005      2006       2007      2008      2009      2010    the	previous	year,	of	approximately	1.4%,	essentially	due	to	
                                                            the	9.2%	decrease	in	the	incorporation	of	hours	of	work	for	
                                                            TAP's	fleet.	In	turn,	the	value	recorded	for	work	for	Third	Party	
                                                            Customers	increased	by	approximately	7.2%,	in	line	with	the	
                                                            achieved results.


Revenue from Sales and Services                             Start-up and implementation of an SMS
Rendered from Maintenance                                   (Safety Management System)
to Third Party Costumers                                    In a year when the maintenance activity did not show consistent
EUR million
                                                            signs	of	recovery,	the	attention	was	directed	towards	the	identifica-
                             127                            tion	and	adoption	of	projects	which	should	enable,	in	the	short	term,	
              113
                                                            achieving improvements in terms of the value offered to the customer,
                                                            efficiency	and	productivity.	In	this	perspective,	the	implementation	of	
                                                            an Operational Safety Management System (SMS) was initiated, which
                                                            represents an evolution of the concepts of Safety and Quality manage-
                                                            ment, relative to the current practice in a traditional Quality Management
                                                            System, also enabling, in addition to the diagnosis and analysis of situa-
              2009           2010                           tions of risk, the prognosis of potential dangers, as well as their respective
                                                            mitigation and control, guiding and strengthening the focus of priorities
                    +11.7%                                  of an approved maintenance company and in this way permitting the offer,
                                                            to	Customers,	of	services	which	are	adjusted	to	their	specific	procedures,	
 Note: Values in accordance with the IFRS
 (International Financial Reporting Standards).             regarding	safety	and	quality.	The	beginning	of	the	project	involved	the	con-
                                                            stitution	of	a	Core	Team,	with	the	objective	of	centralising	the	definition,	
                                                            application and control of the respective implementation plan. Various initial



                                                                                                                                 Annual Report 2010   TAP Group   73
                                                                                                  Evolution in the concepts of management of
                                                                                                   safety and quality, focusing on a culture of con-
                                                                                                    tinuous improvement
                                                                                                     Consistent with the forecasts of the international analysts, the effect of
                                                                                                     the crisis in the aviation sector continued, in terms of maintenance com-
           training actions on SMS were also carried out, as well as a series of                      panies, during 2010.
           dissemination sessions, with preliminary versions of the SMS Manual
           and respective procedures having been drawn up. At the same time,                            In this context, the strategy of Maintenance and Engineering has
           the Commitment of the Senior Management was also drawn up and                                 focused on the anticipation of the obstacles which might occur, acting
           approved,	comprising	an	objective	and	succinct	description	of	the	                             in	accordance	with	a	line	defined	for	the	future,	instead	of	a	reac-
           commitment assumed by the Senior Management of Maintenance and                                  tive and short term position. In this perspective, the pillars of its
           Engineering in this process, and the Safety Policy was published, stating                        action have been based on the start-up of the implementation of
           Safety	as	the	first	priority	of	TAP–Maintenance	and	Engineering.                                  an Operational Safety Management System (SMS), as well as the
                                                                                                              necessary organisational alterations for the creation of a culture of
           Under the implementation plan, the initial evaluation was made of the                              Continuous Improvement.
           state of the Safety Culture at the end of the year, by the company Baines
           Simmons, based on the online collection of the anonymous questionnaire                           In a strategic perspective, 2010 represented the year which
           SCORE®, composed of 93 personalised questions for all aeronautical mainte-                        marked the start-up of the implementation of an Operational
           nance	personnel	which	recorded	a	significant	participation	of	the	Employees,	                      Safety Management System in Maintenance and Engineering,
           and	received	a	total	number	of	answers	that	was	higher	by	23.5%	of	the	                             representing	a	definitive	step	towards	the	achievement	of	the	
           objective	defined	as	essential.	During	2010,	the	practices	of	investigation	of	                      following level of the existing Quality Management System,
           occurrences were also updated, with the respective investigation reporting                            corresponding to an evolution in the concepts of Safety and
           model having been modernised. Using the information available for reactive                             Quality management, relative to those practiced in a tradi-
           analysis,	the	systematic	classification	of	the	risk	of	technical	occurrences	was	                      tional QMS (Quality Management System). In addition to
           started,	thus	enabling	the	fine-tuning	of	the	risk	matrix	in	use	at	TAP–Maintenance	                    the diagnosis and analysis of situations of risk, the SMS
           and Engineering.                                                                                         also enables the prognosis of potential dangers, as well as
                                                                                                                     their mitigation and control. Hence, the focus of priori-
                                                                                                                      ties of an approved maintenance company is thus guided
           Project of continuous improvement                                                                           and strengthened, in this way permitting the offer,
                                                                                                                        to	Customers,	of	services	which	are	adjusted	to	their	
           Pursuing	 the	 objective	 of	 the	 simplification	 of	 processes,	 the	 Organisational	                       specific	 procedures,	 regarding	 safety	 and	 quality.	
           Transformation area was created, composed of three Employees from various areas                                This system, being created in TAP–Maintenance and
           of	Maintenance	and	Engineering,	with	the	mission	to	lead	and	manage	the	projects	                               Engineering, will be integrated directly in the SMS of
           to be developed, in direct collaboration with the target areas. After recognition of the                         TAP Portugal and will comply with the requirements
           critical	areas,	the	best	market	practices	are	identified,	as	well	as	their	applicability	to	the	                  and recommendations of ICAO, EASA and IOSA.
           reality	of	Maintenance	and	Engineering.	The	projects,	which,	on	average,	last	between	
           4 and 6 months, are developed in accordance with the LEAN methodology, involving                                   From an organisational point of view, 2010 was also
           the mapping of the different phases of a process, with a view to the elimination of any                             marked by the introduction of a series of alterations
           actions	which	constitute	waste,	namely,	waiting	times.	Of	the	ten	projects	developed	in	                             with	 the	 objective	 of	 maximising	 productivity	
           the areas of Aircraft Maintenance, Components, Engines and Logistics, four have already                              and the use of the existing assets, promoting a
           been concluded: Dispatch of Material, Visual Management, Follow-up of Purchases and                                   change of attitude with a view to achieving, in
           A-Check A340 in 24 Hours.                                                                                              the future, a culture of continuous improve-
                                                                                                                                   ment, at an overall level. In this context, as a
           The Dispatch of Material	 project,	 developed	 in	 the	 areas	 of	 Engine	 Maintenance	 and	                             result of the work developed over the year,
           Logistics,	has	resulted	in	a	significant	reduction	of	the	average	leaving	time	of	parts	from	the	                         two areas were created in the Business Unit
           Engine workshop for repair outside. The Visual Management	project,	developed	in	the	area	of	                               structure, the Organisational Transformation
           Engine Maintenance, has resulted in the creation of a visual management tool to facilitate the                              area and the Negotiation area.
           organisation and planning of daily work, as well as to ensure the exchange of information in due
           time and the reliability of the shared information. The overview of the processes, provided by                   The Organisational Transformation area
           the tool, enables the assessment of the mutual implications in the development of the different                   seeks to ensure, through the application
           tasks, which is of the greatest importance in an activity based on shift work. In the context of the               of appropriate methodology, the con-
           Follow-up of Purchases	project	a	tool	has	been	developed	which	enables,	among	other	facilities,	                    tinuous improvement of the processes
           improving the supplier assessment procedures, monitoring the status of the orders and reduc-                         of the different areas, thus optimis-
           ing the time of the acquisition process. The A-Check A340 in 24 Hours	project	was	developed	in	                       ing the services which are developed
           Aircraft	Maintenance	with	the	objective	of	decreasing	the	downtime	of	this	aircraft,	during	minor	                     and contributing to ensure higher
           inspections.	The	development	of	the	project	resulted	in	benefits	both	for	the	operator,	through	the	                    standards	of	quality	and	efficiency.	
           reduction of aircraft downtime, and for maintenance, enabling the release of space in the hangar,                        The Negotiation area was created
           as well as labour for other activities.                                                                                   within the Logistics Department,
                                                                                                                                     with the mission to exhaustively
           The development of the process of continuous improvement, with very positive results, operationally                        identify the opportunities of
           and	financially,	is	also	reflected	favourably	in	the	organisation,	enabling	the	transfer	of	know-how	and,	                  saving, in terms of technical pur-
           principally, promoting cultural change and adaptation to the new market reality, at an overall level.                        chases which are indispensable
                                                                                                                                         to the activity, ensuring com-
                                                                                                                                          pliance with the requirements
           New area of negotiation in purchases                                                                                           of the operation and the
                                                                                                                                            quality requirements of this
           Cost-cutting is a concern which is transversal to all areas and companies of TAP Group and, while the opti-                       Business Unit, and ensuring
           misation	of	the	acquisition	of	goods	and	services	has	represented	an	objective	which	is	always	present	in	the	                     the execution of the best
           activity of TAP–Maintenance and Engineering, in July the Negotiation area was created, integrated in the Logistics                  purchasing and negotia-
           Department of this Business Unit. It should be noted that the volume of acquisitions of goods and services of                        tion practices.
           Maintenance and Engineering represents an important value in the costs of this unit, standing at an annual total
           of	EUR	150	million.	The	mission	of	this	new	area	involves	ensuring	the	identification	and	exhaustive	use	of	all	saving	



74   TAP Group   Annual Report 2010
                                             opportunities in terms of the acquisition of raw
                                             materials, products, equipment, consumer materi-
                                            als, rotational components, repairs and other services
                                           which are indispensable to the maintenance activities.
                                           The mission should also include ensuring compli-
                                          ance with the requirements of the operation, as well
                                         as quality, through the analysis of the supplier markets,
                                         purchasing patterns and needs of the operation, using
                                        the best purchasing and negotiation techniques.




                                    Maintenance of engines reduces costs
                                    and improves efficiency and in-house
                                   repair capacity

                                      For Engine Maintenance, the year maintained the outlook of
                                     significant	reduction	in	work	hours,	although	the	net	income	
                                    showed notable growth, through the effect of the provision of
                                   services, namely, for Third Party Customers and also due to the
                                  achievement of better margins. This increase in net income was the
                                 result of a considerable effort in the reduction of production costs.
                                For	this	purpose,	projects	were	implemented	for	various	processes,	
                               in particular for the repair of combustion chambers, for the repair
                               of honeycomb structures using vacuum brazing, and for the repair of
                              components using HVOF (High Velocity Oxy Fuel), with the alterations
                             made having resulted in a decrease of external subcontracting
                             by	over	20%	in	terms	of	volume,	and	by	over	17%	in	terms	of	value,	
                            without increasing the staff and with a favourable repercussion on the
                           respective	productivity	level.	In	the	context	of	efficiency	and	organi-
                          sation,	various	projects	aimed	at	improvement	were	developed,	using	
                         LEAN	techniques,	of	significant	impact	on	the	sustained	reduction	of	
                        Turnaround Time (TAT), generating, as a consequence, an increase in
                       capacity and cost reduction. In a commercial perspective, note should
                      be made of the signing of a four-year contract, under a regime of exclusiv-
                     ity, with Ukraine International Airlines, for the maintenance of the CFM56
                    engines	which	equip	the	Boeing	737	fleet,	representing	an	important	
                   upgrade in relations with this Ukrainian company, begun in 2007. In the
                  meantime,	the	project	for	the	expansion	of	the	workshop,	involving	installa-
                 tions and new equipment for the Cleaning and NDT areas, was concluded and
                is pending approval.




            Maintenance of components approved as ARF
           (Authorised Repair Facility) of the APU (Auxiliary Power
           Unit) manufacturer

           In the area of component repair, which is highly vulnerable to the appearance
          of new technologies, due both to the diversity and levels of complexity and
         investment involved, new workshop solutions were implemented (new test-beds
        and	tools)	for	a	variety	of	equipment	of	the	A320	and	A330	fleets,	thus	expanding	
       the	technical	capacity	to	support	the	fleets	of	both	TAP	and	Third	Party	Customers,	
       at lower costs levels. In view of the high value of the equipment in question, as well
      as the cost of repair normally associated to these units, special mention should be
     made	of	two	essential	projects:	the	upgrade	of	the	IDG	(Integrated	Driver	Generator)	
    test-bed	and	conclusion	of	the	installation	and	certification	of	the	new	APU	(Auxiliary	
   Power Unit) test-bed, with these developments also representing an important factor
   of differentiation, in terms of the attraction of new customers, in this activity area.

  Regarding	the	first	project,	its	successful	conclusion	currently	enables	the	testing	of	
 the	APU	and	IDG	electrical	generators	of	TAP's	entire	fleet,	with	significant	reductions	
in	 repair	 costs.	 Regarding	 the	 second	 project,	 the	 certification	 achieved	 represents	
an important milestone, where Hamilton Sundstrand, a manufacturer of this type of



                                                                             Annual Report 2010   TAP Group   75
                                                                                           Aircraft maintenance prepares for
                                                                                           the growing needs of an intensively
                                                                                           used fleet

                                          unit, having attributed the Components           The Aircraft Maintenance area ensured the total maintenance of
                                         Maintenance area with an approval as its          TAP's	fleet,	carrying	out	a	total	of	326	inspections,	corresponding	
                                         ARF (Authorised Repair Facility), a condition     to	a	lower	figure	than	that	of	the	activity	of	the	previous	year.	This	
                                        which, in addition to permitting repairs in        decrease, which took place essentially in terms of minor inspec-
                                       units, under the guarantee, in representation       tions, was basically the result of the manufacter's approval con-
                                      of the manufacturer, also enables access to          cerning	an	increasement	in	the	number	of	flight	hours	between	
                                     repairs which are not advertised and belong to        inspections, which increased from an interval of 600 FH (Flight
                                    it. The new equipment provides the area with the       Hours)	to	800	FH	in	Wide	Body	fleets	and	to	750	FH	in	Narrow	
                                   total capacity to repair and test the APU (APIC         Body	fleets,	in	this	way	enabling	a	reduction	in	fleet	maintenance	
                                   APS3200 model) which is currently re-equipping          costs. Furthermore, work was carried out relative to the phase-out
                                  TAP's	A320FAM	fleet.                                     of	two	airplanes	of	TAP's	A320	fleet.	The	Operating	Dispatch	tech-
                                                                                           nical	reliability	stood	at	98.95%	for	the	overall	value	of	the	fleets,	
                                Note should also be made, in this area, of the Project     continuing the trend of improvement recorded over the past
                               of Continuous Improvement, with the start-up of two         4 years.
                              pilot	 projects	 –	 Anticipating Material and Planning
                              Priorities – involving the adoption of the best practices    From a strictly technical point of view, note should be made of the
                             of the Industry, as well as the use of visual management      replacement	of	the	RIB5,	in	an	airplane	of	the	A320	fleet,	made	
                            tools to control the work in progress, with a view to          for	the	first	time	without	the	use	of	an	Airbus	team,	with	costs	and	
                           achieving	significant	improvements	in	productivity	and,	        downtime considerably lower than those budgeted by the manu-
                          consequently, in the reduction of the delivery deadlines         facturer. This fact is even more remarkable since it is extremely
                          of the units.                                                    uncommon for a maintenance organisation to carry out an
                                                                                           operation of this complexity through the exclusive use of its own
                           The Components Maintenance area has an intervention             resources. During 2010, improvements were made to the Cabin
                         capacity	in	approximately	70%	of	the	components	of	TAP's	         Interior workshop, with the creation of a Clean Room, which ena-
                         Airbus	fleet,	and	also	provides	total	support	to	various	Third	   bles repairs in larger and more complex composite structures than
                        Party Customers, namely, SATA and the French Air Force (FAF).      had been the case up to date, thus avoiding the subcontracting
                        Of all the interventions carried out in both segments, TAP and     of this type of work outside, considered extremely costly. In terms
                       Third	Party	Customers,	approximately	81.5%	was	guaranteed	          of	major	inspections,	the	share	of	Third	Party	Customers	currently	
                      in-house. In terms of activity, the number of interventions,         stands	at	about	25%,	with	the	maintenance	having	been	ensured	
                     in aircraft units, stood at the same level as the previous year,      to SATA, WHITE, FEDEX and AIR ARÁBIA MAROC aircraft. The
                    with	approximately	71.0%	corresponding	to	units	of	TAP's	fleet.	       maintenance of the two A340 of the French Air Force continues to
                   There	was	an	increase	of	4.3%,	relative	to	the	previous	year,	in	the	   be	entirely	ensured,	with	a	dispatch	reliability	of	99.73%,	repre-
                   number of interventions in units of Third Party Customers, with         senting a higher level than the previous year and which was, once
                  this segment continuing to be an important portion, corresponding        again, highly praised by this Customer.
                 to	22.1%	of	the	total	work	of	the	labour	force	of	this	area.
                                                                                           Under the agreement of the provision of assistance to TAAG,
                                                                                           started in 2009, EASA certification was obtained for Line
                                                                                           Maintenance	in	B777	aircraft,	in	Lisbon,	with	the	final	phase	of	
                                                                                           certification	being	underway	for	the	GRU	(Sao	Paulo)	and	GIG	
                                                                                           (Rio de Janeiro) stations in Brazil, thus contributing to the main-
                                                                                           tenance of this company in the list of operators authorised to
                                                                                           fly	over	European	air	space.	Still	in	the	context	of	certifications,	
                                                                                           TAP–Maintenance and Engineering in Lisbon, also obtained
                                                                                           EASA	certification	for	Basic	Maintenance	of	A330	aircraft,	with	




76   TAP Group   Annual Report 2010
                                                               National and International Certifications
                                                               PORTUGAL            IPAC (Inst. Port. de Acreditação): NP EN ISO / IEC 17025:2005

                                                               PORTUGAL / UE
                                                                                   INAC / EASA: EASA Part-145

                                                                                   INAC / EASA: EASA Part-M Subparts G e I (CAMO)
                                                                                   INAC / EASA: EASA Parte-147

                                                               FRANCE              French Air Force / DGA: AQAP 2120 / ISO 9001:2008

                                                               EU                  EASA: EASA Part-21 Subpart J (DOA)

                                                               USA                 FAA: 14 CFR Part 145

                                                               INTERNATIONAL       IOSA: IATA
                                                                                   Bureau Veritas: NP EN ISO 9001:2008 / AS EN 9110:2005




                                                               Quality certification


RR Trent 700 engines, which enabled carrying out work          TAP–Maintenance and Engineering received the IOSA audit (IATA
for IBERWORLD.                                                 Operational Safety Audit) during which no non-conformity was
                                                               recorded. Likewise, there were various renewal audits by accredited
One	 of	 the	 strategic	 objectives	 of	 Maintenance	 and	     entities, such as the Bureau Veritas audit (ISO 9001 and EN 9110
Engineering is to continue to represent an attractive main-    standards), the IPAC (Portuguese Accreditation Institute) audit of the
tenance option for its internal customer, TAP. For this        Calibrations	Laboratory,	as	part	of	the	certification	under	the	NP	EN	
purpose,	 various	 projects	 were	 developed,	 namely	 the	    ISO / IEC 17025:2005 Standard and, in November, the usual annual
Cabin Appearance project with a view to improvement in         quality audit of the FAA (Federal Aviation Administration). This
terms of the passenger cabin during the more thorough          audit is essential for the annual renewal of the FAA Repair Station
"C" inspections, under which interventions have already        approval	certificate,	which	the	Business	Unit	has	held	since	7	July	
been made to 10 airplanes. Likewise, a Reduction of Turn       1983. Apart from being a prior condition for the carrying out of
Around Time has been achieved in the minor "A" inspec-         maintenance	work	for	American	operators,	this	certification	is	
tions of A340 aircraft, which has fallen from 36 hours to      also a source of prestige for TAP–Maintenance and Engineering
24 hours, well in line with the Company's commercial inter-    in the MRO market.
ests, with respect to the minimisation of aircraft downtime.
                                                               Note	should	also	be	made	of	the	obtaining	of	the	certifica-
                                                               tion by Egypt's Civil Aviation Authority, which will enable the
                                                               achievement of maintenance contracts of operators based
                                                               in that Country. Also during 2010, other quality audits were
Guaranteed career development                                  made by the aviation authorities and their customer opera-
and renewal of staff                                           tors, essential for the maintenance of various approvals
                                                               within the scope of its activity. In order to support the
                                                               Marketing and Sales efforts of the Business Unit, in the
The average number of staff in 2010 was 1,963 employ-          attraction of new customers, it is expected that there
ees,	some	0.3%	above	the	level	of	the	previous	year,	          will	be	a	need,	in	2011,	to	prepare	and	obtain	certifi-
having reached 1,942 employees as at 31 December               cation from aviation authorities of other countries,
2010, corresponding to 19 less employees than at the           with various possibilities currently being under study.
end of 2009. During the year, 122 employees left the           It is expected that the transition will begin from the
Company while 96 were recruited, and 180 employees             current ISO 9001 and AS 9110 standards to new
were made permanent staff members (excluding direct            ones, with the respective updating of procedures
admittance into the permanent staff). In 2010, a total         and manuals, in anticipation of the renewal audit
of 615 training sessions were carried out, over a total of     of Bureau Veritas. During 2011, the procedures of
108,454	hours,	in	classrooms	and	on-the-job	situations,	       TAP–Maintenance and Engineering will also be
covering a total of 8,705 trainees, corresponding to a level   reviewed and updated, in order to be adequate to
of	opportunity	of	95%.	In	relation	to	the	previous	year,	      the 3rd review of the ISARP of IOSA.
this	training	programme	increased	by	39.9%	in	terms	of	
trainees	and	by	7.9%	in	terms	of	level	of	opportunity.




                                                                                                                                   Annual Report 2010   TAP Group   77
     Information Systems
     and Technological Development




      2010	was	marked	by	the	implementation	of	the	CITP	Project	(Common	                   The Documental Management consolidated the developments
      Information Technology Platform), with the integration, in March, of the             which,	having	initially	promoted	the	acquisition	of	a	specific	tool,	also	
       TAP Booking and Inventory functionalities in the Amadeus Altea system               responded	to	a	significant	increase	in	requests,	with	a	view	to	optimis-
        and with the migration of the TAP stopovers to the new passenger con-              ing	and	adding	further	flexibility	to	documental	processes,	in	the	entire	
         trol and boarding platform, started at the end of 2010, with the Porto            Company. In this context, special attention was given to its integration
          stopover.	The	migration	of	the	last	stopover,	expected	for	the	first	half	of	    with various other systems which already existed in TAP, amongst which,
           2011,	will	finally	conclude	a	project	which	will	allow	TAP	to	adopt	new	        in particular, the DOV Portal, intranet, complaints management sys-
            processes as well as explore, in a more effective manner, the advan-           tem and the operating systems of TAP–Maintenance and Engineering,
             tages	and	synergies	resulting	from	having	joined	the	STAR	Alliance.	          permitting greater integration and optimising the entire procedural
              The	finalisation	of	this	project	will	also	mark	the	conclusion	of	the	1st	   component associated to daily operations. The digitalisation of docu-
               phase of the implementation of the new services oriented architec-          ments constituted another important initiative, with a procedure having
               ture, aimed at enabling the meeting, in a faster and more effective         been developed for the daily entry of thousands of documents, in this
                way, of the growing demands of the commercial aviation business.           platform.	Also	included	in	this	initiative	were	the	flight	processes	and	
                                                                                           the correspondence with the Speak to Us (Fale Connosco) unit, increas-
                 Also	of	particular	note	was	the	finalisation	of	the	first	phase	of	       ing the resident documental collection. In terms of the documental
                 the	COSMOS	Brazil	project,	whose	main	objective	is	the	inte-              and information exchange lifecycle there are permanently an average
                  gration and standardisation of the maintenance processes                 of	12,000	active	workflows	which	produce	and	provide	information	to	
                   between the Portuguese and Brazilian units. In this context,            and	from	employees.	The	main	objectives	of	these	projects	continue	to	
                    new solutions were implemented to support the operating                be focused on the interconnection and management of the information
                    and audit processes of aircraft maintenance quality and for            which circulates in the business processes transversal to the organisa-
                     the management of technical manuals. At the same time,                tion,	and	which	are	very	largely	supported	by	official	documentation,	
                      and	in	accordance	with	the	overall	plan	of	the	project,	             requiring control and security. Documental Management is currently
                       activities took place for the renewal of its technological          a fundamental source of support in the demonstration of the required
                       infrastructure and information technology equipment.                conformities, in the context of the various audits carried out at TAP.

                         The production of Key Performance Indicators and                  Also noteworthy were the technological updates carried out in the
                          the provision of the information in the form of dash-            SAP	systems,	with	this	project	having	take	place	at	the	same	time	as	
                           boards and reports constituted one of the main tools            the technological migration of the SAP system of TAP– Maintenance
                            supporting the decision-making of the Company's                and Engineering Brazil to the Lisbon data processing centre. This is
                             management, requested by a growing number of                  a	technological	evolution	which	currently	permits	benefiting	from	
                             areas, in the context of the Group. For this purpose,         the functionalities existing in the last version available on the market,
                              a notable effort was made in the consolidation of            in both Maintenance and Engineering units. This also permitted the
                               information, quality of the data as well as in the          implementation of the electronic bill of sale functionality for TAP–
                                construction of a single vision of information             Maintenance and Engineering Brazil, a development which, apart
                                 to support decision-making. New indicators,               from enabling the implementation of a legal requirement, represents a
                                  reports and dashboards were created associ-              significant	procedural	and	technological	leap,	for	the	Brazilian	opera-
                                   ated	to	the	financial	and	analytical	information	       tion.	Furthermore,	various	significant	developments	were	carried	out	
                                   on bookings and boarding, of the Victoria pro-          in	SAP,	in	particular	the	integration	of	new	financial	areas	(Venezuela	
                                    gramme, crew, fuel and CO2. emission rates.            Representation and the mergers of AP TOURS and Reaching Force), and
                                     As a consequence of the increased number of           the evolution of the Treasury solutions; the expansion to the entire TAP
                                      requests,	in	this	context,	a	significant	invest-     Group	of	the	Supplier	Cockpit	system,	thus	increasing	the	efficiency	of	
                                       ment was made in the processes of support           the entire invoice approval process inside the Group; the conclusion
                                        to and development of the information and          of the renovation of the Clock-in system and respective time collec-
                                         project	management	architectures.                 tion	clocks	and,	finally,	the	implementation	of	a	Caterers	Management	
                                                                                           Portal, in order to optimise and centralise the management of these
                                                                                           suppliers, in national stopovers.




78   TAP Group   Annual Report 2010
Most representative developments in progress at the Company


TAP, S.A.
AIR TRANSPORT
Common IT Platform (CITP)                    Operationalisation, on 14th March, of the Booking, Ticketing and Inventory system;
                                             Operationalisation of the Departure Control system, started for the Porto stopover, as a pilot stopover, on 9th November,
                                             followed	by	the	Lisbon	stopover,	on	7th	December.	The	CITP	project	will	be	concluded	in	2011,	with	the	migration	of	the	
                                             last stopover still using the former system;

PROS (Revenue Management)                    The creation of a new interface with the booking system has permitted altering the system's optimisation logic.
ATHOS                                        Creation of models for various clusters of information, namely: Operation (Crew, Fuel, ATC costs, ETS, AGS); OCC
Business Inteligence Project                 (Punctuality,	Baggage);	Production	(Traffic);	Marketing	(Victoria	Programme);
CARGOSPOT                                    Start-up	of	the	implementation	project	of	the	new	Cargo,	Mail	and	Revenue	Accounting	system;
Fast Travel                                  Beginning	of	the	analysis	phase	of	this	project,	promoted	by	IATA,	aimed	at	ensuring	greater	convenience	to	the	passenger	during	
                                             the	journey,	and	includes	the	following	services:	Document	check;	Bags	ready	to	go;	Flight	rebooking;	Self-boarding;	Bag	recovery.

TAP–MAINTENANCE AND ENGINEERING
DEVELOPMENTS OF THE INTEGRATED INFORMATION SYSTEMS PLATFORM – COSMOS

DRACO (Directive Airworthiness               Implementation of Phase II;
Control System)
GENESIS V2 (General Engine Shop              Under development;
Information System)
SPACE (System for Planning and Control       The Short Term Planning module is under development;
of Aircraft Maintenance)
SCORPIUS (System for Control, Ordering       Module for the management of customer complaints;
and Procurement Inventory)
New website of TAP–Maintenance and
Engineering
Signing of the contract with AIRBUS          For	the	supply	of	RFID	(Radio	Frequency	Identification)	solutions	for	the	Engine	area	and	start-up	of	its	development;
Various developments in the platform         Namely accesses to applications in the area of Quality, online Intervention requests, link to TAP– Maintenance and
associated to CAMPUS-TAP–Maintenance         Engineering Brazil, transfer of inspection protocols, amongst others.
and Engineering

DEVELOPMENTS IN THE CONTEXT OF THE PROCESS OF REORGANISATION OF TAP– MAINTENANCE AND ENGINEERING BRAZIL

Start-up of the COSMOS platform              TAP–Maintenance and Engineering Brazil SAP Upgrade and Migration;
implementation project
                                             Implementation of the NF-e modules (Electronic Bill of Sale);
                                             Start-up of the implementation of the new micro-computer equipment.
OTHER DEVELOPMENTS
ADP 2010                                     Assessment of Performance and Potential, via an online platform;
ADP TAP–Maintenance and Engineering Brazil   Assessment of Performance and Potential for TAP–Maintenance and Engineering; Brazil.

TAP SERVIÇOS
SAP                                          Introduction of new functionalities derived from technological updates;
Traffic Revenues                             Implementation of the new allocation system;

                                             Conclusion of the 1st phase of the refund management system.

Communication in the context of the Group    Renovation of the intranet, including the implementation of the Communication Portal
Travel Office Portal                         Conclusion	of	the	1st	phase	of	the	project,	developed	with	the	objective	of	optimising	and	automating	the	process	of	man-
                                             agement of travel facilities requests;
Assessment of Performance                    Start-up of the implementation of the tool to support the process;
Confirmation of Fuel Invoices                Beginning	of	the	project	for	the	implementation	of	a	solution	to	support	financial	and	logistics	processes.


SPDH–Serviços Portugueses Handling, S.A.
INFORM                                       Activities	supporting	the	implementation	of	the	project,	expanded,	in	2010	to	various	areas;
Alteration of the fiscal year                Restructuring	of	the	different	modules	of	the	supporting	information	technology	system	(financial,	logistic	and	HR),	as	well	
                                             as the system of indicators.


PORTUGÁLIA–Companhia Portuguesa de Transportes Aéreos, S.A.
BSC – Balanced Scorecard System              Implementation of indicators and reports on the activity;
Campus PGA                                   Replacement of the existing intranet;
NetLine Crew / ILOG Rules                    Participation	in	the	project	which	will	enable	an	automatic	control	of	the	rules	relative	to	Crew	Management.




                                                                                                                                             Annual Report 2010      TAP Group    79
     Human Resources
                                                                                                                             Employees of TAP Group companies
                                                                                                                             on 31 December

                                                                                                                                                           53.8% TAP, S.A.(excl. Participated Comp.)
                                                                                                                                                           34.9%       Air Transport
     During 2010, the new Human Resources                                                                                                                    6.1%        Flight Deck Crew
     Management model was consolidated in TAP                                                                                                               17.7%        Cabin Crew
                                                                                                                                                            11.1%        Ground Staff
     Group which, aimed at the optimisation of
     resources, through the use of synergies of scale                                                                                                      14.8%   Maintenance and Engineering
     and the standardisation of the procedures associ-                                                                                                      3.8%   TAP–Serviços
     ated to this function, is based on two structural                                                                                                      0.3% Other Staff of TAP, S.A.
     pillars: a functional team of Human Resources                                                                                                         18.2% SPdH, S.A.
     managers – Human Resources Business Partners                                                                                                          28.0% Remaining Companies
     and a central team of specialists – Shared Services
     of HR Specialists.

     Likewise, during the year, the strengthening of
     the alignment of the HR policies with the strat-
     egy of the organisation, and the continuation of
     a policy of innovation of processes, were main-
     tained	as	key	objectives	of	the	Group's	Human	        TAP Group Staff
     Resources function.
                                                           As at 31 December 2010, TAP Group (TAP, S.A.                          reductions in the companies UCS and Megasis,
     In this area, special note should be made of the      and other participated companies) employed                            of 6 and 2 Employees, with 13 having been the
     aspects of transversal character, covering, in        a staff of 13,113 workers, 284 less than as at                        result of the extinction of AP Tours, through
     this focus, processes as well as the implemen-        31 December 2009. This fact was essentially                           merger with TAP, S.A. in June 2010. There was
     tation of tools using Information Technologies        due to the reductions of employees in the                             also	growth	in	the	companies	Cateringpor	(+4),	
     (HR). The strong investment carried out, aimed        other remaining companies as a whole as well                          LFP	(+44)	and	PGA(+3).
     at the optimisation of the management, as             as in the associated company SPdH–Serviços
     well as the reduction of the cost of adminis-         Portugueses	de	Handling.	The	most	significant	                        By the end of the year, TAP, S.A. accounted for
     trative task services, per employee, also aimed       alterations in TAP, S.A. took place in the staff                      53.8%	of	the	Group's	total	number	of	employ-
     to promote decreased dependence between               of the Maintenance and Engineering, and Air                           ees, SPdH–Serviços Portugueses de Handling
     the Human Resources services and employees,           Transport Business Units, with a reduction of 19                      employed	 18.2%	 and	 the	 Other	 Companies	
     through a greater degree of employee auton-           and an increase of 93 employees, respectively.                        28.0%.	The	average	number	of	active	staff	of	
     omy, thus making the employee responsible for         The total staff of TAP, S.A. (7,055 employees)                        TAP Group, excluding the Other Companies,
     the	use	of	and	benefit	provided	by	the	systems.       increased by 69 persons, with alterations hav-                        reached a total of 9,407 employees, of whom
                                                           ing taken place Flight Deck Crew staff (-7 Pilots,                    560	were	located	abroad.	This	figure	is	lower	
     The following were of particular importance in        +38	 Flight	 Attendants	 and	 Stewards)	 and	                         than	that	for	2009,	by	162	employees,	reflect-
     this context:                                         Ground	Staff	of	Air	Transport	(+62	Employees).	                       ing the staff reductions across the Company.
                                                           The staff of the other companies (3,676 employ-
     ρ   Implementation of the Communication               ees) decreased by 296 employees, largely due
         Portal of TAP Group: Concentration, in            to the reduction of 326 Employees in the com-
         a single dedicated space, of institutional        pany TAP–Maintenance and Engineering Brazil.
         information and communication, internal           While	 of	 lesser	 significance,	 there	 were	 also	
         and external, relative to the Group (part-
         nership established between the Human
         Resources area and the Communications
         and Public Relations area).                       TAP Group Staff                                                      Employees                    % Total          Variation
                                                           Situation on 31 December 2010
     ρ   Implementation of the Home Page of
                                                                     Ground Staff, Portugal                                               918                    7.0%           5.5%        48
         TAP Group: The solutions seek to meet
         the Group's needs, encouraging the gen-                     Ground Staff, Abroad                                                 543                    4.1%           2.6%        14
         eral use of a single institutional intranet of          Total Air Transport – Ground Staff                                    1,461                    11.1%           4.4%        62
         TAP Group;
                                                                     Cabin Crew                                                        2,319                    17.7%           1.7%        38
     ρ   Implementation of Electronic Forms                          Flight Deck Crew                                                     802                    6.1%          -0.9%         -7
         and Digitalisation of Printed Forms of TAP
         Group: Increased efficiency of approval                 Total Air Transport Flight Crew                                       3,121                    23.8%           1.0%        31
         processes and responses to Employees;                Air Transport Staff                                                      4,582                   34.9%           2.1%         93
                                                              Maintenance and Engineering Portugal Staff*                              1,942                   14.8%          -1.0%         -19
     ρ   Implementation of the Clock-in System                TAP Serviços Staff                                                         496                     3.8%         -0.4%          -2
         on the Intranet: Clock-in System,                    Other Staff of TAP, S.A.                                                     35                    0.3%         -7.9%          -3
         included in HR electronic system, with new         Total TAP, S.A.**                                                          7,055                   53.8%           1.0%         69
         functionalities, greater reliability and sim-
                                                            Total SPdH, S.A.***                                                        2,382                   18.2%          -2.3%         -57
         plified treatment of attendance data;
                                                            Remaining Companies                                                        3,676                   28.0%          -7.5% -296

     ρ   Strengthening of the e-Learning training           TOTAL TAP, SGPS, S.A.                                                    13,113                     100%          -2.1% -284
         system, with intensification of the offer of
         e-Learning training actions.                      *   Includes staff Abroad, of a total of 25 and 19 employees, in 2010 and 2009, respectively.
                                                           ** Not including non-placed and non-active staff
                                                           *** Associated Company



80   TAP Group   Annual Report 2010
    Active Staff
    on 31 December
    Number of Employees (SPdH, S.A. and TAP, S.A.)

        Ground Staff, Portugal       Flight Crew
        Ground Staff, Abroad         Total Staff - Dec 31
                                     Total - Average Staff
    12,000
    10,000
     8,000
     6,000
     4,000
     2,000
         0
               2006      2007      2008     2009     2010




Training

The development of Training at TAP takes places along               New Opportunities Initiative
two different lines:
                                                                    Maintaining its commitment to the constant enhancement
ρ       Initial Training: with	the	objective	of	preparing	new	      of the value of its Employees, TAP continued, in 2010, with
        Employees for their integration into the Company            the process of operationalisation of the New Opportunities
        and workplace, aimed at the correct and suitable            Initiative, which continued to be developed as an itinerant
        job	performance;                                            scheme by the New Opportunities Centre (CNO) of Eça de
                                                                    Queirós Secondary School, since the Company is included in
ρ       Continuous Training:	with	the	objective	of	main-            the	Education	Letter	of	the	area	of	influence	of	that	CNO.
        taining	the	proficiency	of	its	Employees,	aimed	
        at ensuring the quality and safety of the service
        performed;

TAP Group Volume of Training
                                    TAP, S.A.                             TAP Group
                           2009           2010          Var.     2009        2010       Var.
Training Actions           1,220          2,492      104.3%       2,943       5,009    70.2%

Participants              12,598      17,672          40.3%      23,761      32,944    38.6%

Training Hours             243.7          303.7       24.6%       557.4       669.7    20.1%
(000)


At	TAP,	the	Training	process	includes	both	Specific	                In 2010, the enrolment was as follows: 84
Technical Training (initial and continuous) and                     Adults in Elementary Education and 353
Transversal	Training.	The	first	aspect	is	directed	at	the	          Adults in Secondary Education. By the end of
performance of duties in each Area of the Company,                  the year, 22 Adults in Elementary Education
corresponding to any needs encountered as well as                   and 21 Adults in Secondary Education lev-
compliance with national and international rules                    els had concluded the process and received
for Commercial Aviation. In the second aspect,                      Certification.
the actions are chosen carefully in order that they
might	 also	 be	 of	 benefit	 to	 the	 Employee	 and	 the	
Company. In order to minister this Training (apart from
on-the-job	training),	TAP	has	a	Professional	Training	              School-Company relationship
Centre in a specific building, with fully equipped
Training Classrooms, Workshops, Laboratories,                       Another aspect of the Vocational
Technical Training Classrooms, a Classroom for                      Training responsibility consists of
Distance Training (e-Learning), Mock-ups and Flight                 the coordination of the Curricular
Simulators. This Training model adopted by the                      Internships, developed in different
Company is based on the use of internal Trainers, for               Areas of the Company. Upon the
motives	related	to	the	strict	specificity	of	its	corpo-             request of Schools, or through the ini-
rate reality. Likewise, the internal development of                 tiative of TAP, in 2010, 92 Curricular
the	e-Learning	Training	has	been	intensified,	with	all	             Internships were carried out.
the Training being designed by internal Trainers, duly
supervised by a technical and pedagogical team.




                                                                                                                                  Annual Report 2010   TAP Group   81
     Other Activities
     of TAP Group




           With regards to the remaining shareholdings
           held by TAP, SGPS, S.A., it is important to men-
            tion 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 con-
               trol 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              In May 2010, the company Reaching Force, S.A. was extin-
                   that the development of the respective activities          guished through merger by incorporation into its only
                    contributes to the strengthening of the Group’s            shareholder TAP, SGPS, S.A.. This company was originally
                     main businesses, through returns on the capital            created as a vehicle company for the purpose of acquiring
                     invested, held by TAP, directly or indirectly, wholly       a	stake	of	strategic	interest	in	VARIG	(Brazil).	This	project	
                      or only as part of the share capital of that group         materialised in the acquisition of the Brazilian company
                       of companies.                                              AERO-LB which, in turn, acquired Varig Manutenção,
                                                                                   currently TAP–Maintenance and Engineering Brazil.
                           With	 the	 fundamental	 objective	 of	 supervis-         The	mission	of	Reaching	Force	has	thus	been	fulfilled,	
                           ing the management of some of its subsidiaries,          and there is no longer any reason to maintain it. Also
                            which are non-aviation companies, TAP also has a         of importance was the disposal of TAP's indirect stake
                             company which functions as a holding company,            in Air Macau Cª Lda., with the company SEAP having
                              TAPGER–Sociedade de Gestão e Serviços, S.A..             been extinguished as a consequence.

                               Similarly to the trend in the Industry, TAP holds                The company Air Portugal Tours, following the adop-
                               its	financial	investments	in	the	following	areas:	               tion of more up-to-date instruments with greater
                                Catering, Information Systems, Airport Shops and                 efficiency	levels,	was	extinguished,	through	merger	
                                 In-flight	Sales;	Health-Care	Services	and	Ground	                with TAP, S.A., on 4th August 2010.
                                  Handling Services.




        Other TAP Group shareholdings                                                                            Stake of TAP
                                                                                                                                Amount of
                                                                                                                                                 Net
        on 31 December 2010                                                                                                      TAP Share
                                                                                                                          (%)                Income
        (EUR thousand)                                                                                                             Capital

        Portugália, S.A.                                                                                                 100      15,000.0    (6,143)

        AeroLB, Participações, S.A.                                                                                      100      27,544.8   (71,799)
                                                       TAP–Maintenance and Engineering Brazil, S.A.                     98.64    207,057.7   (73,104)

        TAPGER–Sociedade de Gestão e Serviços, S.A.                                                                      100       2,500.0     4,054
           Catering                                    Cateringpor–Catering de Portugal, S.A.                             51       1,785.0     1,589
           Airport Shops and In-flight Sales           LFP–Lojas	Francas	de	Portugal,	S.A.                                51         280.5     7,354
           Information Systems                         Megasis–Soc. de Serviços e Engenharia Informática, S.A.           100         500.0       144
           Health-Care Services                        UCS–Cuidados Integrados de Saúde, S.A.                            100         500.0        n/a




82   TAP Group   Annual Report 2010
Communication
An attitude with transversal effects on all the
companies of TAP Group




                                                  Annual Report 2010   TAP Group   83
                                                        Portugália–Companhia Portuguesa de Transportes Aéreos, S.A.


                                                        In 2010, Portugália (PGA) completed 20 years of existence. Two decades of history with very
                                                        different periods but, always of growth and adaptation to the changes. This commemoration, on
     General Meeting Committee                          7th July, was marked with the launch of the company's new website, which communicates the
                                                        company's new reality and its focuses on the ACMI market, of aircraft maintenance services and
     Chairman Alda Maria dos Santos Pato                training. This is intended to be an interactive tool for positioning on the civil aviation market.
     Secretary José Carlos Magalhães Ferreira
                                                        During 2010, PGA continued the process of consolidation of the business model resulting from
                                                        the restructuring which took place in 2007, and maintained since July of that year: flight capacity
     Board of Directors                                 provider of TAP Group, under the Wet Lease contract with the company Transportes Aéreos
     Chairman Fernando Abs da Cruz Souza Pinto          Portugueses, S.A.. In 2007, the company was integrated in TAP Group, directed towards a new
                                                        core business. During 2010, PGA continued to valorise the Group's synergies and operating
     Member Fernando Jorge Alves Sobral                 matrices	identified	in	previous	years.	The	company	maintained	the	operation	with	the	same	fleet,	
     Chief Executive Officer Luiz Filipe Plácido Lapa   composed of six Fokker 100 and eight Embraer 145, with a capacity of 97 passengers and 49 pas-
     Member Manoel José Fontes Torres                   sengers, respectively. The average Flight Hours per day continued higher than that recorded by
                                                        similar European companies operating with the same type of aircraft, a performance which was
     Member Michael Anthony Conolly
                                                        possible only through improved productivity, always combined with safety. The IOSA audit (IATA
                                                        Operational Safety Audit) is expected in 2011, being an audit that PGA has passed with distinc-
     Audit Committee                                    tion since 2005, complying with the approximately 900 established requirements, without which
                                                        it could not continue registered at IATA.
     Chairman Luís Miguel Tavares de Almeida Costa
     Member Maria de Fátima Castanheira Corte           In 2010, the investment in People continued, through programmes of development of the respec-
     Damásio Geada                                      tive technical, social and management skills, which are essential to sustain the business competitive
     Member Maria Paula Rodrigues da Costa              advantage. Management processes and practices were also promoted, contributing to satisfac-
                                                        tion	at	work	and	to	the	Employees'	dedication	to	achieve	PGA's	objective,	in	the	perspective	of	
                                                        consolidation of the Human Resources Policy in TAP Group. The recognition of excellent perform-
     Chartered Accountant                               ance	by	the	Employees	has	been	encouraged	and	promoted	by	the	company	which,	for	the	first	
     PricewaterhouseCoopers & Associados,               year, participated in TAP's Sympathy and Recognise programmes. The Sympathy Programme is
     SROC, Lda.                                         based on allowing passengers/customers to positively distinguish Employees with whom they
                                                        have direct contact, with twelve members of the Cabin Crew Service having been distinguished
                                                        by passengers. In the Recognise Programme, four Employees were praised for their exceptional
     Registered Office                                  work,	with	direct	impact	on	the	company's	final	result.	The	promotion	of	Employee	Health	also	
                                                        represented one of the measures which were developed. The Health Insurance now includes two
     Aeroporto de Lisboa, Rua C – Edifício 70
                                                        new	areas	of	coverage:	stomatology	and	artificial	eyes.	Also	in	this	context,	PGA	joined	the	Saúde+
     1749-078 Lisboa                                    Programme promoted by the company UCS.
     Tel.	+351	21	842	5500
     Fax +351	21	842	5625                               Under	the	project	of	Good	Practices	and	continuous	improvement,	Human	Resources	imple-
                                                        mented the sending of the pay slip to the Employee's e-mail address, permitting administrative
                                                        and	financial	gains,	the	elimination	of	paper	as	well	as	data	security.	The	clock-in	system	for	the	
     Email: [ pga@pga.pt ]                              Ground Staff – TempusNET was upgraded, facilitating its use and simplifying the processing of
     [ www.portugalia-airlines.pt ]                     attendance data and, meeting the needs of the operating area. Furthermore, the Regulation
                                                        on Professional Careers of the Ground Staff was completely implemented. The total number
                                                        of	Employees,	as	at	31	December	2010,	was	534,	with	68%	being	in	the	Flight	Operations	
     Share Capital EUR 15,000,000                       Department	(Flight	Deck	Crew	and	Cabin	Crew),	20%	in	the	Maintenance	and	Engineering	
     Taxpayer no. 502 030 879                           Department	and	12%	in	other	supporting	areas.	Of	the	total	number,	42%	are	women	and	58%	
                                                        are	men.	It	should	be	noted	that	42%	of	the	Employees	are	less	than	35	years	old,	and	47%	have	
                                                        more than 10 years of active service. The average age is 37 years.
     Main Activity
     Air transport.
                                                        Operating performance

                                                        There	has	been	an	increase	of	3%	in	the	block-hours	flown	compared	with	2009,	related	to	the	
                                                        pilots'	strike	which	occurred	during	this	year	and	a	decrease	of	5%,	relative	to	the	budget	arising	
                                                        mainly from the cancellations of operations due to the cloud of volcanic ash (from the Icelandic
                                                        volcano,	Eyjafjallajökull)	and	strikes	of	the	ATC	(Air	Traffic	Controllers),	namely,	in	Spain.




                                                        Maintenance and Engineering

                                                        Following	the	process	initiated	in	2009,	certification	was	obtained	for	the	structures	workshop,	
                                                        cabin interiors and the scope of the battery workshop was enlarged, thus expanding the offer of
                                                        services.	The	projects	in	the	training	area,	in	coordination	with	TAP's	Training	Centre,	continued	to	
                                                        be	a	priority.	In	the	context	of	internal	training,	contacts	with	ATEC	were	initiated	for	the	definition	
                                                        of a programme for the training of Aircraft Maintenance Technicians and a transversal behav-
                                                        ioural training programme. Within TAP Group, in coordination with the TAP's Training Centre



84   TAP Group   Annual Report 2010
and Maintenance and Engineering Department, basic training courses were given for Aircraft Maintenance
Technicians	with	A	and	B1	certification	level.	This	programme	had	great	impact,	involving	approximately	
10%	of	the	available	labour	in	the	labour	plan	programmed	for	work	on	PGA's	fleet.	Therefore,	in	view	of	
the additional work, use was made of subcontracted labour as well as the provision of overtime. In contrast,
this	training	ensures	present	needs	in	terms	of	personnel	as	well	as	certification,	and	also	corresponds	to	an	
investment	for	the	future.	For	2011,	the	installation	of	greater	workshop	capacity	has	been	defined	for	wheels,	
brakes and electrical material.

Regarding the optimisation of processes and cost reduction, the introduction of the Crew Concept will lead to
improvements in the service rendered, releasing the Aircraft Maintenance Technicians for work which is more
specialised	and	with	greater	added	value.	This	project	implies	improved	coordination	between	the	Flight	and	
Maintenance areas, as well as greater demands on the handling provider (Groundforce) in Lisbon and Porto.
For this purpose, an apron supervision sector was created to function in PGA's hangar, including the assess-
ment of the provider's service quality, also in coordination with TAP's stopover (Customer Attendance Service).
Regarding	contractual	matters,	note	should	be	made	of	the	review,	started	in	2009,	of	very	important	and	major	
contracts in terms of costs, such as is the case of the contracts relative to component maintenance (EUR 2 million
per	year).	In	addition	to	the	significant	impact	in	terms	of	cost	reduction,	this	change	of	service	provider	also	led	
to	improvements	in	the	quality	of	the	service,	since,	in	the	Fokker	fleet,	precautions	were	taken	against	the	prob-
lems arising from the existing obsolescence and penalties. This programme will continue in 2011 with the Embraer
fleet	contracts	for	Brakes	and	Components,	thus	leading	to	expectations	of	more	favourable	financial	conditions	
and improved guarantees and services provided. The total impact will be analysed at the end of 2011. Regarding the
possibility of the provision of services by TAP–Maintenance and Engineering Brazil, a visit was made and a proposal
prepared, with the potential business thus brought inside the Group being about EUR 1 million/year (maintenance of
landing gear and other Embraer 145 components), phased over 4 years.


Quality

Safety: The monitoring of the Industry's requirements continued with respect to the improvement of the safety man-
agement system, in compliance with the internal requirements and those of the international and national regulating
entities. The ongoing evolution in this area resulted in the development of new processes, with the appropriate means being
implemented.

Flight Staff: The constant dedication to the improvement of Customer service quality was maintained, within the parameters
required	by	TAP.	The	number	of	complaints	made	by	Passengers	of	PGA	fleet	TAP	flights	is	an	indicator	that	the	company	is	on	
the right path towards providing a Service of Excellence to the Passenger.

Environmental Policy: In the context of the integration of aviation in the greenhouse gas emissions trading scheme (EU ETS),
PGA monitors the CO2 emissions of its aircraft and tons per kilometre. The latter, carried out only during 2010, permits the applica-
tion of a free quota of emission permits for the period between 2012 and 2019. The monitoring process is managed autonomously
by PGA, with TAP being responsible for the reporting for the two companies to APA (Portuguese Environment Agency). Moreover,
demonstrating,	once	again,	its	environmental	awareness,	the	company	joined	the	More Value programme in May 2010. This pro-
gramme consists of the sending of the organic waste from the canteen to Valorsul Organic Treatment and Valorisation Plant, for
transformation into organic compost for agricultural purposes, without chemical additives, producing electrical energy from the
combustion of the biogas resulting from the composting process.

Jet Fuel: PGA	manages	its	Fuel	Conservation	project	internally.	Through	the	work	coordinated	by	the	Flight	Operations	Department	
and Maintenance and Engineering Department, the fuel policy was created characterised by measures to optimise fuel consumption,
with	ongoing	fine-tuning.	However,	the	effective	reduction	of	fuel	consumption	is	possibly	only	through	the	commitment	of	full	involve-
ment, valorising the systematic sum of small gains, a principle which has guided the implementation of various measures.




                                                                                                                              Annual Report 2010   TAP Group   85
                                                     SPdH–Serviços Portugueses de Handling, S.A.


                                                     The Strategy – continuous improvement of service quality
     General Meeting Committee
                                                     2010 was marked by the phase of consolidation of Service Quality, where Corporate Customers
     Chairman Alda Maria dos Santos Pato             Satisfaction	improved	from	77%	to	81%,	as	well	as	that	of	Passenger	Customers	from	78%	to	84%.	It	
     Deputy Chairman Carlos Pedro Silva              was also the year of the full implementation of the new Groundforce management, where the struc-
     Secretary Carlos Pedro Silva                    ture	based	on	well	defined	Key	Processes,	and	their	respective	indicators,	became	an	integral	part	
                                                     of the company's culture. While the global economic recovery is still a distant promise, in addition to
                                                     the	cancellation	of	hundreds	of	flights	due	to	the	natural	phenomena	which	occurred	in	Europe,	the	
     Board of Directors
                                                     company managed to achieve strict control of the programmed costs, with this effort having been
     Chairman Luís Manuel Miguel Correia da Silva    reflected	in	a	recovery	of	the	loss,	of	over	EUR	5.5	million,	in	relation	to	the	previous	year.
     Chief Executive Officer Fernando Alberto
     Mesquita de Melo
     Member Carlos Gomes Nogueira                    Quality – a strategic factor in development
     Member José Manuel Fragoso de Sousa
                                                     Groundforce perceives Quality as one of the strategic factors in the development of the organi-
     Member Luís Manuel da Silva Rodrigues           sation, considering the Customer, external or internal, as the point of convergence of all its
                                                     efforts. With this commitment, the company assumes a Policy of the Integrated Management
     Statutory Auditor                               of Quality, complying with and stimulating the Integrated Management System, in the areas
                                                     of Quality, Safety and Security, Health and Safety at Work, as promoting ethical behaviour and
     Permanent PricewaterhouseCoopers &              social responsibility, with a view to the path towards Excellence.
     Associados SROC, Lda.
                                                     Under this Policy of the Integrated Management of Quality, the ISO 9001:2008, ISAGO/IATA,
     Registered Office                               OHSAS	18001:2007	and	Cargo	2000	(C2K)	Certificates	which	have	been	obtained,	follow-
                                                     ing	the	objectives	defined	for	2010,	as	well	as	the	Investors	in	People,	Environment	and	Social	
     Edifício 25–6°, Aeroporto de Lisboa
                                                     Responsibility	certificates,	to	be	obtained	in	the	short	term	and	the	EFQM	Model	of	Excellence,	
     1700-008 Lisboa                                 to be obtained in the medium term, will certainly enable achieving the entirety of the good
     Tel.	+351	21	891	8700                           practices, which are essential to ensure operational excellence. Groundforce pursues an orien-
     Fax +351	21	891	8701                            tation	based	on	these	principles.	The	company	is	an	ISO	9001:2008	certified	entity,	it	is	proud	
                                                     to	be	part	of	the	first	group	of	European	handlers	to	receive,	in	all	of	the	Stopovers	in	which	it	
     Email: [ welcome@groundforce.pt ]               operates,	the	ISAGO	IATA	certification,	a	reference	in	the	sector,	and	achieved,	on	23	August	
                                                     2010,	the	Cargo	2000	(C2K)	certification,	for	the	period	of	3	years,	contributing	decisively	to	the	
     [ www.groundforce.pt ]
                                                     established standard of Excellence.

     Share Capital EUR 500,000                       Concerning	Safety	and	Health	at	Work,	in	2009	the	NP4397:2008/OHSAS18001:2007	certifica-
     Taxpayer no. 506 651 649                        tion	process	began,	and	a	significant	effort	was	made	over	2010	in	order	to	meet	the	necessary	
                                                     conditions	for	this	certification,	which,	when	achieved,	will	represent	a	milestone	of	the	great-
                                                     est importance for Groundforce.
     Main Activity
     Provision of ground handling services for air   Complementarily, Groundforce, convinced that the extent of the success of companies is
     transport.                                      increasingly based on the interests of the different stakeholders, started, in October 2010,
                                                     the	NP	EN	ISO	14001:2004	and	SA	8000	certification	process,	with	the	integration	of	Social	
                                                     Responsibility in its Management Practices, in this way establishing the desirable balance
                                                     between economic, environmental and social performance. In 2010, the process of implemen-
                                                     tation of the EFQM Excellence Model was initiated in order to increase the company's Operating
                                                     Efficiency	and	improve	the	balance	of	the	stakeholders,	with	the	objective	for	2011	having	
                                                     defined	as	the	company's	candidature	to	the	APQ	(Portuguese	Quality	Association).


                                                     The Business – commercial attitude as a factor of differentiation

                                                     In the context of the development of sales, 25 contracts were renewed and 6 new customers
                                                     were	attracted,	reflecting	the	clear	and	fair	commercial	attitude,	which,	by	promoting	a	clear	
                                                     differentiation of the service provided, leads Customers to attribute their preference to the com-
                                                     pany. In the Sales process, technical and organisational interfaces are established in order to
                                                     control the allocation of resources. With the development of a progressively more competitive
                                                     and demanding market, knowledge on Customer requirements is of extreme importance. For this
                                                     purpose, careful and attentive management of all the services complementing the core activity,
                                                     frequently	defined	in	accordance	with	the	specific	needs	of	each	Customer,	invariably	contributes	
                                                     to the Customer's satisfaction. Services which are already consolidated, such as the Blue Lounge,
                                                     Groundcare, Baggage Delivery and Personalised Assistance, enable the provision of an integrated
                                                     offer and which is progressively more complete. In the area of increased revenue, a Turnover
                                                     Maximisation	Programme	has	been	prepared	with	the	main	objective	of	boosting	turnover,	in	
                                                     an	effective	manner,	combining	benefits	for	corporate	Customers,	and	always	including,	to	the	
                                                     greatest	extent	possible,	specific	products,	in	order	to	add	value	to	the	offer.	Note	should	be	




86   TAP Group   Annual Report 2010
                                                                                                             Attended Passengers
                                                                                                             in Lisbon
                                                                                                             million
                                                                                                                TAP              Third Parties




                                                                                                                                                10.3
                                                                                                                        10.0        9.7




made of the current trend of the airline companies of the charging of items, as an addition to their basic
ticket price, and therefore as a means to increase the respective revenue. Groundforce, as a handling
agent, should be the principal mobilizing agent of this policy, and strictly follow these practices of its
                                                                                                                       2008        2009        2010
Customers,	since	this	policy	will	also	be	reflected	in	the	achievement	of	additional	revenue.


The Organisation and Human Resources – People are Groundforce's competitive factor
                                                                                                             Total Weighted
Groundforce has gradually consolidated a series of good practices of Human Resources, in accord-
ance with the key principle that Motivated, trained and productive people provide a quality service,         Attended Movements
which in turn is transformed into customer satisfaction, and as a consequence brings the company             in Lisbon
sustained development, which will create value for the shareholders and for people.                          thousand

                                                                                                                TAP            Third Parties       Variation
Regarding Communication, particular note should be made of initiatives such as the Newsletter
Investors in People, which provides information to the Employees on the good practices of manage-
ment which have been consolidated in Groundforce, as well as the Quick Reference on the Skills of                      54.6
                                                                                                                                  51.5         52.7
Leaders, summarising the behaviour inherent to the Leaders of Groundforce, and Open Doors, an ini-
tiative which seeks to ensure that all Employees have more direct access to the Department of Human                                              2.2%
Resources, whenever necessary. Concerning Training, special importance is given to training in the
Management of Change, aimed at the senior management positions, with a view to stimulating posi-                                  -5.7%
tive leadership and fostering the search for excellence, as well as Customer satisfaction and Customer
Service, directed towards the development of skills, in the area of behavioural and communication
techniques as well as the Trainers Meeting, in all of the Stopovers in which Groundforce operates.
Regarding the Assessment of Performance, the process has been restructured, covering the character-                2008          2009          2010
istics	of	the	Competences	and	Objectives	of	each	one	of	the	Key	Processes	of	the	company's	Business	
Model. For the middle and senior management structure, the 360º Assessment has been implemented
for personal development, enabling assessment by part of a group of people, namely the leadership,
peers and direct Employees, in addition to the middle or senior manager. Note should also be made of
the Employee Satisfaction Assessment Survey, greater control, rigour and discipline in the management
of	resources,	the	review	of	the	Portfolio	of	Skills,	as	well	as	the	readjustment	of	the	Planning	Process.

The	number	of	full	time	equivalent	staff	(FTE)	decreased	by	7.9%,	(2,579	FTE	in	2009	to	2,374	FTE	
in 2010), in relation to the average of the previous year.


Operating performance

In 2010, the Company assisted 87,415 movements, 15.7 million passengers and 112 thousand tons
of cargo.

Regarding service quality, Groundforce has improved its operating performance, both in terms of
number of baggage items left behind, which decreased from 26 in 2009 to 20 in 2010, and in terms of
baggage delivery times, having achieved, in 2010, an average time of 20 minutes in the delivery of the
first	piece	of	baggage.	Note	should	also	be	made	of	the	slight	decrease	of	Groundforce's	punctuality	
index,	from	99.1%	in	2009	to	98.9%	in	2010,	as	a	consequence	of	various	natural	phenomena,	such	
as the eruption of the Icelandic volcano and the poor weather conditions in Europe, as well as various
strikes	of	air	traffic	controllers	in	the	European	air	space.


Economic performance

Turnover	reached	EUR	115.1	million,	representing	a	decrease	of	0.3%	in	relation	to	the	previous	year.	
This	evolution	reflected	the	general	performance	of	the	market,	in	which	Groundforce	Portugal	reg-
istered a slight loss in market share (-3 p.p.).




                                                                                                                                  Annual Report 2010           TAP Group   87
                                                 TAP–Manutenção e Engenharia Brazil, S.A.


     Board of Directors                          For the development of its activity of overhaul of Aircraft and Components, TAP–Maintenance
                                                 and Engineering Brazil has two Maintenance Centres, situated in the city of Rio de Janeiro (GIG)
     Chairman Luís Manuel da Silva Rodrigues     and in Porto Alegre, covering a total area above 370,000 m2.
     Member Nestor Mauro Koch
     Member Maria Teresa da Silva Lopes          The	company	has	a	productive	capacity	above	1,600,000	MH	year,	and	has	been	certified	by	the	
                                                 main international certifying bodies (EASA; FAA; TCCA; ANAC) to carry out the general overhaul
                                                 of all aircraft models of the Airbus family (except A-380); Boeing and Embraer (Authorised Service
     Executive Directors
                                                 Centre), in addition to over 17,000 P/Ns of aeronautical components (Engines; Landing Gear;
     President and Executive Director Nestor     Accessories).
     Mauro Koch
     Vice-President and Executive Director,      In	the	area	of	the	reformulation	of	its	Customer	portfolio,	aimed	at	its	expansion	and	diversifica-
     Administration & Finance Glaucia Loureiro   tion, the company faced challenges which led to a reduction of revenue of R$ 151.9 million, to
     Vice-President and Executive Director,      R$	125.6	million,	equivalent	to	17.3%.	The	decline	was	mainly	due	to	the	general	recession	of	the	
     Operations Valter Fernandes                 aircraft maintenance and engine overhaul industry, a deterioration in the company's image which
                                                 began	to	be	inverted	only	at	the	end	of	the	year,	the	loss	of	the	customer	Webjet	and	also	the	sales	
                                                 of material having been lower than that expected.
     Registered Office
     Estrada das Canárias, 1862                  However,	in	2010	there	was	a	significant	decrease	in	financial	costs,	arising	mainly	from	the	
     21941–480 Rio de Janeiro / RJ               adherence	to	REFIS,	which	led	to	a	reduction	of	the	fines	on	tax	liabilities.	The	negative	net	income	
     Brazil                                      decreased from R$ 56.3 million in 2009, to R$ 42.8 million in 2010.
     Tel.	+55	21	3383	2782
                                                 In December, a provision was constituted for the restructuring of the staff, of the value of R$ 5
     Fax +55	21	3383	2047                        million, relative to indemnities payable. The situations covered by this provision will generate a
                                                 reduction in staff costs in the order of R$ 17 million in 2011, without loss to the productive capa-
     Email: [ marketing@tapme.com.br ]           city. Furthermore, the company proceeded with the creation of a new cost-cutting programme,
                                                 including measures of waste reduction, contract renegotiation, change of suppliers, change of
                                                 the administrator of the employees' pension fund, and various other actions, which are expected,
     Shared Capital R$ 568,022,848
                                                 overall, to lead to a decrease of costs of the value of R$ 18.5 million.

     Main Activity
     Aircraft Maintenance and Engineering.
                                                 Operating performance

                                                 In 2010, TAP–Maintenance and Engineering Brazil, S.A. continued its process of development of
                                                 actions	with	the	objective	of	improving	its	operating	performance.

                                                 Following the decrease in the level of activity, there was an increase of costs related to idle labour,
                                                 from R$ 49.3 million in 2009 to R$ 92.2 million in 2010. The workshop business unit presented
                                                 an	idle	labour	force	of	71%,	which	was	the	highest	contribution	to	the	company's	total	average,	
                                                 standing	at	57%.

                                                 Likewise, in the logistics area, efforts are being pursued with a view to the sale of the material in
                                                 stock, whose balance, as at December 2010, stood at R$ 227.8 million. For this purpose, constant
                                                 contacts	are	maintained	with	potential	customers	and	significant	negotiations	of	batches	are	car-
                                                 ried out, with more attractive prices for current customers.

                                                 The	control	of	the	results	generated	for	each	business	unit	of	the	company	has	been	fine-tuned,	
                                                 with	a	view	to	accelerating	the	process	of	improvement	in	contract	profitability.	Plans	have	been	
                                                 made for the following months regarding the review of cost distributions, as well as the updating
                                                 of the administrative costs of importance in the formation of retail prices.

                                                 During the second half of the year, thorough work was carried out to analyse and diagnose the
                                                 general situation of the company for assessment and immediate implementation.




88   TAP Group   Annual Report 2010
Results

In 2010, the company presented losses of R$ 167.4 million.

The consolidation of the debits of REFIS, forecast for next year, will gener-
ate a reduction of tax liabilities of R$ 124.1 million, in this way enabling
a	reduction	of	the	annual	financial	costs	of	the	value	of	R$	14.5	million.




Outlook

Based on the forecast results, it is expected that over the next three
years	its	negative	financial	and	operating	situation	may	be	reversed.	
At the same time, studies are being carried out, together with
TAP–Maintenance and Engineering Portugal, aimed at the capitali-
sation of the loan contracts, with its Controller.

The	sales	strategy	for	2011	aimed,	amongst	other	objectives,	at	
reducing the idleness of the hangars unit. Regarding produc-
tion for 2011, the company plans to reduce the idleness, by
December	2011,	to	20%	of	the	available	capacity,	thus	closing	
the	year	with	an	average	idleness	of	35%.




                                                                                Annual Report 2010   TAP Group   89
                                                    TAPGER–Sociedade de Gestão e Serviços, S.A.


     General Meeting Committee                      The	objective	of	TAPGER	is	the	supervision	of	the	management	of	its	participated	companies,	par-
                                                    ticularly	their	respective	financial	and	economic	performance,	and	the	provision	of	assistance	and	
     Chairman Alda Maria dos Santos Pato            support	to	the	companies	Lojas	Francas	de	Portugal,	S.A.	and	Cateringpor–Catering	de	Portugal,	
     Secretary José Carlos Magalhães Ferreira       S.A.,	in	specific	areas,	as	established	under	the	Joint	Venture	Agreement	and	the	Technical	Service	
                                                    Agreement, respectively.
     Board of Directors
                                                    In the General Meetings for the approval of the accounts for 2009 of the associated compa-
     Chairman Fernando Abs da Cruz Souza Pinto      nies, pursuant to Order number 11420/2009, of 11 May 2009, of the Secretary of State for the
     Member Mário Marmelo Castanheira Guilherme     Treasury and in the context of TAP guidelines, a statement was read on the remunerative policy
     Member Michael Anthony Conolly                 and assessment of the performance of the management for the companies of TAP Group, which
                                                    thereafter became conditioned to the future guidelines that TAP, SGPS would receive from its
                                                    shareholder.
     Statutory Auditor
     Permanent PricewaterhouseCoopers &             Likewise,	in	compliance	with	Decree-Law	number	225/2008,	of	20	November,	which	qualifies	
     Associados SROC, Lda.                          the	company	Lojas	Francas	de	Portugal,	S.A.	(LFP)	as	an	entity	of	public	interest,	obliging	the	
                                                    alteration of its Supervisory Body, in the respective Annual General Meeting, held on 30 March
     Registered Office                              2010, where its Articles of Association were amended, thus enabling, in the Supervisory Body,
                                                    the replacement of the Statutory Auditor by an Audit Board and a Chartered Accountant or
     Aeroporto de Lisboa                            a Chartered Accountants Firm (SROC), which is not part of the Audit Board.
     Reduto TAP, Edifício 25 – 8°
     1704–801 Lisboa                                The	Nuance	Group	(UK),	a	partner	company	in	LFP,	notified	TAPGER	on	the	sale	of	shareholdings	
     Tel.	+351	21	841	5978                          of its indirect shareholder, Noel International S.A., representing a change of control, which under
                                                    no circumstances collides with the terms of the Nuance/TAPGER partnership, in LFP.
     Fax +351	21	841	6666
                                                    Through letter of 17 June 2010, B.V. NATIONALE LUCHTVAARTSCHOOL (NLS) exercised its right
     Share Capital EUR 2,500,000                    to acquire the rest of the 2,200 shares that TAPGER still owned in the share capital of Academia
     Taxpayer no. 503 986 798                       Aeronáutica de Évora (AAE), with AAE thus leaving the TAPGER universe. The call option, as
                                                    well as the respective price had been established in the version of the Shareholders Agreement,
                                                    in force since 1 July 2008.
     Main Activity
     Provision of commercial consulting and man-
     agement services, studies and preparation of
     contracts and support to international trade
     operations.




90   TAP Group   Annual Report 2010
LFP–Lojas Francas de Portugal, S.A.


For LFP, 2010 represented a notable year, from various perspectives. The company obtained its            General Meeting Committee
best result ever, having fully recovered the turnover lost in the previous year. The sustained growth
in the number of passengers in the main national airports constituted a determinant factor for           Chairman Peter Christopher Wood
the growth of the company's sales. Likewise, note should be made of the expansion of the busi-           Secretary Anabela Gomes Lopes
ness development to include Madeira airport, through the opening of four shops in October,
following an international public tender. This initiative thus consolidated the position of LFP in the   Board of Directors
Portuguese airport panorama, with the company currently being present in all the international
airports in our country. In the year that LFP celebrated its 15th anniversary, this is, without any      Chairman Luiz da Gama Mór
doubt,	a	milestone	of	special	significance.                                                              Chief Executive Officer Nuno Filipe Martins
                                                                                                         do Amaral
Regarding the total number of passengers who boarded, for all Portuguese airports, which                 Member Alex Anson
reached	3	million	people,	there	was	an	increase	of	9.4%,	while	in	TAP,	the	7.5	million	passengers	       Member Andrea Belardini
transported	grew	by	7.8%.	As	a	result	of	the	management	measures	and	criteria	introduced	in	
                                                                                                         Member Luís António Domingos Fernandes
the recent past, LFP has managed to obtain higher rates of growth, and ended the year with total         Silvério Monteiro
sales	of	over	EUR	134	million,	representing	growth	of	12.5%,	in	relation	to	the	previous	year.	
Strongly contributing to this excellent performance was not only the overall increase of passen-
gers in Porto and Faro airports, but also, and mainly, the sharp increase of long-haul passengers,       Audit Board
at	Lisbon	airport.	The	In-flight	Sales	business	also	contributed	to	the	growth	of	sales,	having	         Chairman José Vieira dos Reis
recorded	a	very	significant	increase	in	the	inter-continental	passenger	segment.
                                                                                                         Member Benjamin	Harmstorf
As a result of this positive sales behaviour, the company was able to reach the end of 2010 with         Member Maria de Fátima Castanheira Corte
                                                                                                         Damásio Geada
earnings	before	tax	(EBT)	of	EUR	10.2	million,	which	represents	an	increase	of	22.7%,	relative	the	
value	recorded	for	2009.	Likewise,	a	significant	improvement	was	also	achieved	in	the	different	
operating	and	financial	ratios,	in	particular	a	growth	in	the	EBITDA	margin,	from	7.7%	to	8.2%,	         Chartered Accountant
with this value currently standing at EUR 10.9 million. This increase is even more remarkable, con-
                                                                                                         PricewaterhouseCoopers & Associados, SROC,
sidering	that	2010	represented	the	first	year	of	operation	under	the	operating	licenses	negotiated	
                                                                                                         Lda.
under	the	condition	of	an	increase	in	the	profitability	of	the	airport	entity.	Also	contributing	to	
these results were the measures of optimisation and streamlining of the management, initiated
in previous years, namely, the increase in operating margins, additional revenues and, principally,      Registered Office
the strict cost control.                                                                                 Aeroporto de Lisboa, Rua C, Edifício 10, Piso 0
                                                                                                         1700–008 Lisboa
This notable growth in results, as well as the speed of the company's recovery from 2009, a less
positive	year,	demonstrates	its	greater	agility	and	flexibility,	whereby	the	company	is	now	pre-         Tel.	+351	21	841	5685
pared to face the challenges of the future concerning changes in macroeconomic circumstances,            Fax +351	21	841	5373
as well as new prospects of growth, should these take place.
                                                                                                         Email: [ geral@lfp.pt ]
                                                                                                         [ www.lfp.pt ]

                                                                                                         Share Capital EUR 550,000
                                                                                                         Taxpayer no. 503 346 128


                                                                                                         Main Activity
 Sales
                                                                                                         Operation	of	Airport	Shops	and	In-flight	Sales.
 EUR million

 140

 120

 100

  80

  60

  40

  20

    0
        2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010




                                                                                                                             Annual Report 2010   TAP Group   91
                                                         Megasis–Sociedade de Serviços e Engenharia Informática, S.A.

                                                         The attention of Megasis remained, as always, focused on providing support to the companies
                                                         of the Group, where priority is given in its action to the provision of services related to informa-
     General Meeting Committee                           tion	technologies,	with	the	necessary	quality	to	pursue	the	strategic	objectives	of	the	Group.
     Chairman Alda Maria dos Santos Pato
                                                         During	2010,	various	projects	were	pursued	in	areas	considered	fundamental	for	the	business	
     Secretary José Carlos Magalhães Ferreira            of the companies of the Group, in particular:

     Board of Directors                                  ρ      The	project	for	the	migration	of	the	booking	and	passenger	boarding	systems,	named	the	
                                                                CITP – Common IT Platform, for the Amadeus Altea system. The migration of the book-
     Chairman Michael Anthony Conolly
                                                                ing system took place during the first quarter of 2010, which was followed, at the end of
     Chief Executive Officer Eduardo Jorge Dias                 the same year, by the initiation of the migration of the passenger boarding system, which
     Rodrigues                                                  should be concluded during the first semester of 2011;
     Member Maria dos Prazeres Nunes Ramalho             ρ      The	conclusion	of	the	first	phase	of	the	COSMOS	Brazil	project,	whose	main	objective	is	the	
     Monteiro                                                   technological and application transformation of the maintenance unit TAP–Maintenance
                                                                and Engineering Brazil, as a form of ensuring the adequacy of the operating and busi-
     Statutory Auditor                                          ness management processes to the best practices, which are already followed by
                                                                TAP– Maintenance and Engineering Portugal;
     Permanent Deloitte e Associados, SROC, S.A.         ρ      The improvement of the services provided to TAP's Customers, with particular incidence on
                                                                the areas of the Call Centre and electronic services;
     Registered Office                                   ρ      The	implementation	of	collaborative	technologies	with	the	objective	of	increasing	the	
                                                                Company's communication and productivity.
     Aeroporto de Lisboa, Reduto TAP, Edifício 19
     1704–801 Lisboa                                     Internally, and with a view to increasing the level of satisfaction of the companies of the Group
     Tel.	+	351	21	841	6888                              through the technological support provided, in 2010 Megasis developed a series of initiatives
     Fax +351	21	841	6344                                aimed at strengthening three fundamental pillars in order to maintain the consistency and sus-
                                                         tained development of the Group's information system:
     Email: [ servico.cliente.megasis@tap.pt ]
                                                         1. Operational excellence of the technological infrastructure;
     [ www.megasis.pt ]                                  2. Flexibility of the application architecture;
                                                         3. Integration of the information and processes, through the creation of a service driven
     Share Capital EUR 500,000                              architecture.
     Taxpayer no. 502 199 210
                                                         Particular note should also be made of the strengthening of the structuring of the relations
                                                         between Megasis and the companies of the Group, in business centres with competences and
     Main Activity                                       know-how capable of contributing, in a very evident and proactive manner, to the improve-
     Provision of services in the area of the develop-   ment	of	the	business	processes	and	quality	of	the	final	service	provided	to	the	Customers.
     ment and maintenance of computer software.
                                                         To	finalise,	it	should	also	be	pointed	out	that	Megasis	has	met	its	commitments	to	the	share-
                                                         holder, by boosting productivity based on the increased quality and quantity of the services
                                                         offered and, concomitantly, maintaining the Company’s levels of competitiveness.




                                                         Users of
                                                         TAPNet services
                                                         Total Users                                                       14,300   e> activity (search)
                                                                                                                      12,700        thousand

                                                                                                                 10,100
                                                                                                                                                        52,361
                                                                                                             8,500
                                                                                                     8,000
                                                                                             7,000                                             39,352
                                                                                                                                    31,408
                                                                                     5,150
                                                                             3,950
                                                                     3,250
                                                             2,750



                                                             2001 2002 2003 2004 2005 2006 2007 2008 2009 2010                       2008      2009     2010




92   TAP Group   Annual Report 2010
CATERINGPOR–Catering de Portugal, S.A.



The	aviation	catering	activity	is	directly	related	to	the	evolution	of	air	traffic,	in	particular	in	the	         General Meeting Committee
airport	structure	in	which	it	is	situated,	as	well	as	the	profile	of	the	transporters	which	operate	
                                                                                                                  Chairman Alda Maria dos Santos Pato
therein and constitute its potential market.
                                                                                                                  Secretary José Carlos Magalhães Ferreira
In	spite	of	various	significant	external	disturbances,	of	meteorological	and	social	nature,	the	
year under consideration showed a considerable increase in terms of production and turno-                         Board of Directors
ver, determined essentially by the growth of the main Customers, especially TAP, as well as the
                                                                                                                  Chairman Luiz da Gama Mór
attraction of the Angolan national carrier, TAAG. Consequently, a sharply positive variation in
the	activity	was	recorded,	of	approximately	10%	in	the	number	of	meals	and	4%	in	the	flights,	                    Chief Executive Officer Mário José Santos de
in	relation	to	2009,	with	particular	incidence	on	long-haul	flights.                                              Matos
                                                                                                                  Member Sílvio Canettoly
The company also developed actions to improve control and simplify its internal processes, as
well as greater integration in the Customers' value chain, by providing and making available new                  Audit Board
and	more	efficient	services	to	monitor	the	operating	information,	plans	and	loading,	supported	
by innovative IT functionalities.                                                                                 Chairman Maria de Fátima Castanheira Corte
                                                                                                                  Damásio Geada
                                                                                                                  Member Miguel de Azeredo Perdigão
                                                                                                                  Member PricewaterhouseCoopers &
                                                                                                                  Associados, SROC, Lda
Number of meals                                    2010            2009           var. (%)        var. abs.
TAP                                         7,741,374        7,054,887                   9.7%       686,487       Registered Office

Other companies                             1,559,109        1,371,087                  13.7%       188,022       Aeroporto de Lisboa, Rua C, Edifício 59
TOTAL                                      9,300,483        8,425,974                   10.4%       874,509       1749–036 Lisboa
                                                                                                                  Tel.	+351	21	854	7100
                                                                                                                  Fax +351	21	854	7199
Number of flights attended                         2010            2009           var. (%)        var. abs.
                                                                                                                  Email: [ catering@cateringpor.pt ]
TAP                                            41,870           40,528                   3.3%            1,342
                                                                                                                  [ www.cateringpor.pt ]
Other companies                                    8,913           8,154                 9.3%             759
TOTAL                                          50,783           48,682                  4.3%             2,101
                                                                                                                  Share Capital EUR 3,500,000
                                                                                                                  Taxpayer no. 502 822 112


                                                                                                                  Main Activity
                                                                                                                  Preparation	and	sale	of	in-flight	meals	as	well	
                                                                                                                  as provision of services and logistics support to
                                                                                                                  aircraft.




Number of Meals                                             Number of flights attended
thousand                                                    thousand

   TAP        Other companies                                  TAP            Other companies


                                           9,300                                           50.0            50.8
                           8,611   8,426                                                          48.7
                   7,585                                                         40.0                       8.9
                           1,274           1,559                       37.5                7.7
           6,909                   1,371                    36.0                                  8.2
 6,233             1,406                                                          8.1
           1,250                                                       7.7
 1,314                                                       8.3


                           7,337           7,741                                           42.3            41.9
                                   7,055                                         31.9             40.5
           5,658   6,178                                    27.7       29.8
 4,920



 2005      2006    2007    2008    2009    2010             2005     2006       2007      2008    2009     2010




                                                                                                                                    Annual Report 2010   TAP Group    93
                                                             UCS–Cuidados Integrados de Saúde, S.A.


     General Meeting Committee                               In line with what appears to be a general trend in healthcare services, namely in those outside
                                                             the State National Health Service, in 2010 there was a moderated decrease in overall activity,
     Chairman Anabela Gomes Lopes                            in terms of number of appointments, supplementary diagnostic tests and therapeutic action.
     Secretary José Carlos de Azevedo Magalhães              While this phenomenon will need to be re-assessed in a longer term perspective, it has cur-
     Ferreira                                                rently encouraged an even more attentive monitoring of the activity, always with the concern
                                                             of	ensuring	the	permanent	adequacy	of	the	profile	of	services	provided	to	the	needs	of	TAP's	
     Board of Directors                                      customer.

     Chairman Michael Anthony Conolly                        However, the activity of UCS and the range of services it provides to the Group go far beyond
     Chief Executive Officer Maria Helena Arrobas            the direct provision of clinical action. The prevention and health promotion interventions, of
     do Carmo Paiva Peixoto                                  longer term scope and extent, as well as the intense permanent consultancy activity, with spe-
     Member Orlanda do Céu Silva Sampaio                     cial incidence on support to decision-making and aviation operations, are two areas where the
     Pimenta d’ Aguiar                                       activity of UCS has consistently grown and consolidated.

     Statutory Auditor                                       Hence, in 2009, UCS had already initiated the Saúde+ Programme,	with	the	objective	of	estab-
                                                             lishing an overall Education and Health Promotion Plan (PEPS) for the employees of TAP Group,
     Permanent Deloitte e Associados, SROC, S.A.             complementing and expanding the prevention actions in the context of occupational health
                                                             with an all-encompassing structure and with actions also extended to the respective families.
     Registered Office                                       This	plan,	the	actual	field	implementation	of	which	started-up	in	2010,	systematised	in	a	con-
                                                             certed manner the prevention strategies relative to health that UCS proposes to the employees
     Aeroporto de Lisboa, Edifício 35
                                                             of TAP Group, mobilising and optimising the existing resources.
     Apartado 8426
     1804–001 Lisboa                                         The	project	covers	seven	important	action	programmes	in	the	following	areas:	nutrition,	physi-
                                                             cal exercise, cardiovascular health, reproductive health, mental health, oral health and cancer
     Tel.	+	351	21	843	6300                                  screening. In the development of this initiative, which focuses on direct communication with
                                                             the workers, carried out in an attractive manner, UCS intends to expand knowledge on health
     Fax +351	21	843	6310
                                                             issues, and encourage the adoption of healthy behaviour and lifestyles. In this case, we high-
                                                             light, as notable examples, the interventions in the context of the refectory, the promotion of
     Email: [ ucs@ucs.pt ]                                   footpaths in the Company, the prenatal courses and the screening for risk factors, all of which
     [ www.ucs.pt ]                                          were	implemented	with	significant	impact	during	2010.

                                                             In another context, UCS provides a Permanent doctor's consulting room to the Group, as well
     Share Capital EUR 500,000
                                                             as	representation,	before	third	parties,	in	health	incidences,	defining	and	supervising	manage-
     Taxpayer no. 503 486 647                                ment strategies, relative to public health factors, of impact on the safety and continuity of the
                                                             operations. The management of health information in the Group and respective external inter-
     Main Activity                                           faces, constitutes yet another interrelated activity.
     Providing out-patient health-care (medical
     appointments, complementary diagnostic                  The permanent technical consultancy supports TAP's different Business Units, Public Relations,
     tests and treatment); implementation of safety,         the stopovers of the TAP World and the operation in general, providing solutions to over 750
     hygiene and health at work activities; medical          requests	per	year,	of	which	approximately	30%	imply	ongoing	interventions.
     certification	of	pilots	and	air	traffic	controllers;	
     consultancy in the organisation and management
     of health-care services.




                                                             Clinical Activity
                                                                  Complementary Diagnostic        Therapeutic Acts    Medical Appointments

                                                             Clinical Acts

                                                                 160,000
                                                                 140,000
                                                                 120,000
                                                                 100,000
                                                                  80,000
                                                                  60,000
                                                                  40,000
                                                                  20,000
                                                                             0
                                                                                 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010



94   TAP Group   Annual Report 2010
Annual Report 2010   TAP Group   95
     Risk Management




                                                                                                 Entity




                                                                                              Departments
                       COSO Model
     Risk Assessment

                                SWOT Analysis



                                                the Company
                                                developed at
                                                  Activities




                                                                                                                                      Activity and Processes
                                                                                    Business Unit Processes                            subject to Auditing




                                                               Assessment and
                                                                                               Identification   Assessment of the
             Risk identification                                attribution of the degree                                           Development of              Monitoring
                                                                                               of the causes   risk management
             and systematisation                               of criticalness and priority                                        an action plan              and reporting
                                                                                               of the risks    strategies
                                                               of the risks




                                                                  The process of risk management


                                                                  As a structured and disciplined approach aligning strat-                           methodology, which follows the COSO (Committee of
                                                                  egy, processes, people, technologies and knowledge, risk                           Sponsoring Organizations of the Treadway Commission)
                                                                  management is integrated in TAP's entire business process.                         model closely, regarding the activities linked to Maintenance
                                                                  Its	objective	is	to	identify,	assess,	manage	and	mitigate	the	                     and Engineering and Air Transport – Flight Operations, and
                                                                  uncertainties and threats faced by TAP's businesses in the                         the dynamics of the activities and handling, as well as the
                                                                  pursuit	of	its	objectives	of	creation	of	value.                                    identification	and	scrutiny	of	business	risks,	which	involves	
                                                                                                                                                     the planning and organised, systematic and consistent
                                                                  Always taking into account the need to focus the Audit                             assessment of business risks, taking into consideration the
                                                                  activity	in	terms	of	risk,	significant	effort	has	been	dedicated	                  opportunities and threats, identifying the strengths and
                                                                  to the risk assessment procedures implemented transver-                            weaknesses and covering the activities developed within
                                                                  sally in the Group. The operating risks have been worked                           the Company at all levels:
                                                                  in accordance with an ERM (Enterprise Risk Management)
                                                                                                                                                     ρ     At the level of the Entity/Company;
                                                                                                                                                     ρ     At the level of the Departments;
                                                                                                                                                     ρ     At the level of the processes of the Business Units.




96   TAP Group                                    Annual Report 2010
                                                                             valuation as well as the imple-
                                                                             mentation of control measures.




Risk factors and their                                                       Management of
management                                                                   the financial risk
                                                                             General aspects
Operating risk (Security | Safety)
                                                                             The management of financial risk
Security – Model of action whereby the possibility of damage,                continues to be conducted and super-
to people and goods, is low and maintained at an accept-                     vised by the Group, covering its many
able	level,	through	a	continuous	process	of	identification	of	               and	complex	aspects,	and	is	the	object	
situations of potential danger and the management of the                     of ongoing coordination between
respective associated risk.                                                  the Management and the Financial
                                                                             Department. The assessment of the accept-
                                                                             able levels of risk in the different areas and
                                                                             alternative forms of protection against them
Risks of economic and financial nature                                       is a key decision-making area which has
                                                                             strong potential impact on the Group's results
Risk monitoring and control systems, and consequent impacts,                 and stability, and it is a permanent and very
arising	from	the	behaviour	of	the	financial	markets	and	of	the	              demanding challenge to ensure that the Group
economy.                                                                     is safeguarded against the diversity and dimen-
                                                                             sion of the economic shocks caused by market
                                                                             behaviour. In particular, 2010 witnessed histori-
                                                                             cally unique behaviour in the public debt markets,
Information technology risk                                                  with extremely strong impacts on the availability
                                                                             of funding to enterprises in Portugal and Europe in
A	process	which	identifies	the	weaknesses	of	and	threats	to	                 general, as well as growing instability in the com-
the information systems used by organisations to process their               modities markets, especially in the oil markets, where
business, and decides which measures to adopt to reduce                      prices	increased	gradually	over	the	year	and	signifi-
the associated risk, taking into consideration the respective                cantly	during	the	final	phase	of	2010.
cost/benefit	relationship.

                                                                             Market risk

Fire risk – prevention                                                       Over recent years there has been a sharp transformation
                                                                             in the physiognomy	of	the	global	economy,	with	signifi-
Risk Prevention Management System. Includes the evaluation                   cant alterations in the dynamics and relative economic
of	fire	and	explosion	risks,	the	internal	emergency	plans,	the	              weight between the developed countries and emerging
manuals for protection against explosive atmospheres (ATEX                   economies, with the latter having recently shown higher
Manuals), training of Company Employees and an internal                      average growth and a stronger level of resistance to the eco-
audit plan.                                                                  nomic crises than the economies of Europe, USA and Japan.
                                                                             Growth	of	10%	in	China	(9%	in	2009)	and	7.5%	in	India	
                                                                             and	Brazil	in	2010	(5%	and	0%	in	2009),	contrast	yet	again	
                                                                             with	the	rates	of	2.8%	in	the	USA	(-2.6%	in	2009)	and	1.8%	
Maintenance and Engineering risk                                             for	the	European	Union	as	a	whole	(-4.2%	in	2009).	In	general	
                                                                             terms, the economies of the former third World, in Asia, Latin
At TAP–Maintenance and Engineering, Risk Management is                       America and Africa, many of which are important producers of
inherent	and	integrated	in	the	responsibilities	defined	in	the	              commodities,	and	with	significant	demographic	growth	rates	and	
context	of	the	aeronautical	certifications	and	accreditations	               a	very	young	population	with	increasing	qualification	levels,	have	
held (1) which are compulsory to guarantee the continuity of                 assumed a preponderant weight in the global economic panorama
its activity.                                                                and growing importance in world trade.

(1)
   EASA Part 145 (Maintenance Organisations); EASA Part M (Continued         In	the	case	of	the	Group,	the	growing	diversification	and	increase	of	
Aeronavigability); NP EN ISO 9001:2008 (Quality Management Systems), among
                                                                             offer in the different air transport routes, whether in Brazil, Africa or
others.
                                                                             Eastern European destinations, has enabled meeting the increased
                                                                             demand arising from these more dynamic markets. This strategy con-
                                                                             stitutes an important factor in the mitigation of market risks, since these
Health and safety at work risk                                               risks could become excessive if the Group's geographical concentration
                                                                             were to be maintained at the same level or increased.
Risk management system linked to the professional activity.
Based	on	the	identification	and	assessment	of	the	occupa-
tional risks with impact on health and safety at work, respective




                                                                                                                                        Annual Report 2010   TAP Group   97
                 As an example, note should be made of the weight of the inter-         corresponds, in this activity segment (excluding Cargo, Mail and
                  nal market in terms of total ticket sales (effective revenue),        Maintenance), approximately USD 650 million, equivalent to
                  which	was	limited	in	2010	to	less	than	30%	of	the	total,	and	the	     EUR 500 million, depending on the exchange rate. It can be con-
                   combined sales of Europe (including the East and Scandinavia)        cluded, therefore, that, except in situations of extreme evolutions
                    for	the	different	destinations	represented	approximately	36%.	      of the fuel as occurred in 2008, there is a natural hedge in the
                     The weight of the Brazilian market in total sales in 2010 was      most important currency conversion relationship, that of the Euro
                      22%,	with	Africa	representing	approximately	7%.	Naturally,	       against the USD.
                      the size and coverage of the network which is offered
                       enables the creation of synergies and complementari-
                        ties, therefore the offer of routes on the Brazilian market
                         strengthens overall sales in European markets, and the         Fuel price risk
                          diversity	of	the	offer	in	Europe	stimulates	traffic	across	
                          the Atlantic and from Africa, both of which increasingly      After the oil shock of mid-2008, with Brent at 145 USD/barrel, the
                           use Lisbon hub, for example.                                 retraction in the 2nd half of that year led to minimum prices of 35
                                                                                        USD/barrel by the end of 2008. A year later, the market price stood
                                                                                        at almost double this value and remained there, stable, between 70
                                                                                        and 80 USD/barrel, until last Autumn, when the present price hike
                             Exchange rate risk                                         began. The same effect was experienced in aircraft fuel prices, with
                                                                                        significant	increases	at	the	end	of	2010.	Retrospectively,	jet	fuel	
                               In 2010 the American Dollar (USD) appreciated            presented average values per metric ton around 700 USD in 2007,
                                against the Euro once again. After an average           1000 USD in 2008, 560 USD in 2009 and 720 USD in 2010. By the
                                appreciation	of	5%	in	2009	compared	to	2008,	           end	of	2010,	the	price	of	jet	fuel	was	close	to	850	USD	per	ton.
                                 in	2010	the	USD	appreciated	once	again	by	5%	
                                  on average in comparison to 2009, from 1.39           The concern to guarantee the predictability of the fuel account led
                                   to 1.32. The Brazilian Real also maintained its      to	various	jet	fuel	hedging	operations.	Part	of	the	hedging	for	the	
                                    trend of appreciation against the Euro and,         first	semester	of	2010	had	been	carried	out	in	2009,	and	in	the	
                                     to a lesser extent, against the USD. Hence,        beginning of the 2nd quarter a further series of operations were
                                      having started at around 3 Reais per Euro in      conducted so as to guarantee a very high hedge ratio over the
                                      the beginning of 2009, following the post         entire	year,	of	around	75%	of	forecast	consumption	levels.	As	a	
                                       Lehman Brothers wake of turbulence, the          result	of	the	market	fluctuations	which	took	place,	the	final	result	
                                        Real appreciated to 2.5 at the end of 2009      achieved through the hedging operations proved to be slightly
                                        and reached levels of 2.2 to 2.3 by the end     negative, in terms of treasury, in spite of the fact that, for example,
                                         of 2010.                                       various	losses	were	compensated	for	over	the	year	by	more	signifi-
                                                                                        cant gains at the end of the year, for which the hedging level stood
                                         The Group's exposure to the USD resides,       at	close	to	100%
                                          fundamentally, in fuel costs, since its
                                           market continues to be based in USD.
                                           Since fuel consumption represents
                                            close to 860 thousand tons, and the         Interest rate risk
                                             average price per ton of Jet fuel (ref-
                                             erence CIF NWE) was 725 USD in             2010 was characterised by an attitude of extreme caution by the
                                              2010, exposure to the correspond-         monetary authorities in Europe and the United States, so as not
                                               ing USD stood at approximately           to compromise the hesitant recovery of the economies of the
                                                600 million USD, equivalent to          developed countries, through the effect of a premature increase
                                                460 million Euros.                      in their respective interest rates. In this way, the reference rates
                                                                                        were	maintained	at	1%	in	the	Euro	zone	and	close	to	zero	in	the	
                                                 Added to the fuel costs are other      USA. However, both short and long term market rates began on
                                                 portions of the cost structure,        an upward trend, respectively, in the 2nd and 3rd quarters of
                                                  albeit of far lesser value, such      2010.	The	6-month	Euribor,	for	example,	increased	from	1%	to	
                                                   as navigation and airport            1.25%	and	the	5	year	rate,	which	had	fallen	in	the	1st	semester	
                                                   taxes, maintenance materials         from	close	to	3%	down	to	2%,	rose	to	2.5%	during	the	second	half	
                                                    and aircraft operating leas-        of the year. It should be noted in particular that in various emerg-
                                                     ing. However, the weight           ing markets and some developed economies there were increases
                                                      of revenue in the group of        in	official	rates,	as	concerns	with	inflation	superseded	fears	of	
                                                       countries where the fares        economic deceleration or stagnation. These concerns related to
                                                        and sales are indexed to        increased	prices	intensified	by	the	end	of	the	year	with	the	increas-
                                                        the USD, such as Brazil,        ingly sharper growth in the prices of most commodities, especially
                                                         Angola and the USA, rep-       those of foodstuffs and energy.
                                                          resenting, in the case
                                                           of	 ticket	 sales,	 30%	     The Group's total debt stood at approximately the same level
                                                           of the total, merely         between the end of 2009 and end of 2010, respectively EUR




98   TAP Group   Annual Report 2010
1,285 million as at 31/12/2009 and EUR 1,270 million as             as	a	result	of	the	extreme	finan-
at 31/12/2010. Over the year, and in spite of the growing           cial restriction at a generalised
difficulties	of	the	national	economy	in	obtaining	financing,	       level. However, in the contracts
there was a renewal of the short term operations in force,          signed it was possible to include
the	refinancing	of	various	long	term	leasing	operations	which	      balanced clauses with operational
had come to an end, and the contracting of a Schuldschein           mechanisms enabling, namely,
type	financing	operation	for	working	capital,	at	5	years.	          early rescission solutions, in an eco-
The operations contracted over 2010 were both at variable           nomically feasible manner, in the
and	fixed	rates.	As	at	31/12/2010,	the	exposure	to	the	vari-        event	of	a	significant	improvement	in	
able	rate	represented	46%	of	the	total,	compared	with	54%	          the	financial	markets	in	the	future.
to	the	fixed	rate.	The	average	spread	of	the	total	debt,	even	
after the deterioration of the funding conditions which took        The carrying out of various operations
place in 2010, remained at moderate and sustainable levels,         regarding leasing, working capital
which was also the case of the average rate of the group of         and credit line renewal did not imply an
operations	at	fixed	rates	and	the	overall	average	interest	rate.	   increase in gross debt, because, on the
Regarding the composition by currency of the debt, the com-         one hand, they served, essentially, to com-
ponent	in	Euros	represents	approximately	97%	of	the	total.	         pensate the programmed settlement of
The time horizon of the debt remained at adequate levels at         long	 term	 operations	 in	 their	 final	 stage	
the	end	of	2010,	with	only	5.5%	of	the	total	represented	by	        of life, and on the other hand, this did not
short term and automatically renewable loan facilities and,         significantly	change	the	time	horizon	of	the	
even if the termination of these short term operations were         debt, since most of the operations were for
assumed in 2011, the average life of the total debt would           the medium and long term. Ultimately, the
stand at approximately 3.5 years, with a staggered but stable       current operations, as well as the re-funding
amortisation	profile	for	most	of	the	funding	over	the	next	         effort,	resulted	in	a	significant	increase	in	liquid-
7 years, and where the remaining values for subsequent              ity over the year. Therefore, the Group's net debt
years,	from	2018	to	2020,	is	less	significant.                      decreased in 2010 in relation to the previous year,
                                                                    in the order of EUR 100 million.

                                                                    In the general calculation of the Group's debt, there
Liquidity and credit risk                                           was	also	a	diversification	of	the	institutions	with	
                                                                    which the funding contracts are established, both
The main factor constraining the funding conditions of              national and foreign, pursuing a policy of broaden-
companies over the year was the eclosion of the sovereign           ing the spectrum of counterpart entities, in order to
debt	crisis	which	very	significantly	penalised	Europe	and,	in	      reduce the risk of the operations and foster opportu-
particular, the most indebted Member States of the periph-          nities of transactions under advantageous conditions.
ery of the Euro zone – Greece, Ireland and Portugal –, and          In the area of fund investments, the Group carries out
which was especially intense regarding private sector access        the centralised management of the investment of the
to	funds.	In	addition	to	the	brutal	increase,	from	4%	to	7%,	       funds,	 under	 conditions	 of	 maximum	 flexibility,	 with	
in yields of national public debt at 10 years, over the year,       guarantees of early mobilisation without penalties, and
the Credit Default Swaps (CDS) of the Portuguese Republic,          always with priority focus on the credit quality of the entity
which measure the risk of solvency of Portugal, also increased      or entities which receive these investments.
sharply	from	levels	below	1%	at	the	beginning	of	the	year	
to	5%	by	the	end	of	the	year.	Other	evident	measures	of	the	        Also regarding operations with derivatives, particular atten-
financial	stress	experienced	by	Portugal	were	the	dramatic	         tion is given to the quality of the counterparts, while seeking
aggravation of the CDS of the national banking system, the          to	establish	a	sufficient	level	of	diversification	so	as	achieve	
growing	difficulties	of	access	to	funds	of	the	national	banking	    satisfactory conditions of competitiveness in the hedging
system in monetary markets and the need for massive fund-           operations. It should be noted that the interest rate and fuel
ing from the ECB, as well as the decreases of the ratings of        swaps in force over the year were accompanied by ratings as at
banks, public sector companies and the Portuguese State. All        31/12/2010, equal to or greater than A- by Standard & Poors.
these negative evolutions had extremely strong repercussions
on the increases in spreads to the entire private sector, from
SMEs to large companies.

In	 a	 year	 when	 various	 long	 term	 financing	 operations	
matured, the restrictions in access to loans and their high cost
led the Group to dedicate additional efforts to the area of
liquidity management and carry out the necessary transac-
tions	in	the	financial	markets	in	order	to	maintain	adequate	
liquidity	levels.	This	effort	was	reflected	in	more	complex	and	
lengthy negotiations where the costs related to debt were
higher for most of the new operations that were contracted,




                                                                                                                            Annual Report 2010   TAP Group   99
      Economic and Financial Performance
      of TAP Group



            Changes to the Group’s structure


            As	at	31	December	2010,	the	following	subsidiaries	were	included	in	the	financial	statements:

            ρ     TAP–Transportes Aéreos Portugueses, SGPS, S.A.
                  ρ Transportes Aéreos Portugueses S.A. (TAP, S.A.)
                  ρ TAPGER–Sociedade de Gestão e Serviços, S.A. and subsidiaries:
                     ρ CATERINGPOR–Catering de Portugal, S.A.
                     ρ L.F.P.–Lojas	Franca	s	de	Portugal,	S.A.
                     ρ U.C.S.–Cuidados Integrados de Saúde, S.A.
                     ρ MEGASIS–Sociedade de Serviços e Engenharia Informática, S.A.
                  ρ PORTUGÁLIA–Companhia Portuguesa de Transportes Aéreos, S.A. (PORTUGÁLIA)
                  ρ AERO–LB, Participações, S.A. (AERO-LB) and subsidiary:
                     ρ TAP–Maintenance and Engineering Brazil, S.A. (ex-VEM)




      Subsidiaries are all the entities over which the Group has               The	following	entity	was	classified	as	an	associate:
      decision-making	power	in	relation	to	financial	and	operating	
      policies, generally represented by over half of voting rights.             ρ SPdH–Serviços Portugueses de Handling, S.A. (SPdH)
      The existence and effect of potential voting rights that are cur-
      rently exercisable or convertible are considered in the evaluation          Investments in associates are accounted for using the equity method. In accord-
      of whether the Group has control over another entity. The equity             ance with the equity method, shareholdings are recorded by their acquisition
      and net income of these subsidiary companies corresponding                   cost,	adjusted	by	the	value	corresponding	to	the	Group's	shareholding	in	the	vari-
      to third party shareholdings are presented under the minority                 ations of associates' equity (including net income) and dividends received. The
      interests headings, respectively, in the consolidated balance sheet            differences	between	the	acquisition	cost	and	the	fair	value	of	the	identifiable	
      under	a	separate	heading	of	equity	and	in	the	consolidated	profit	             assets, liabilities and contingent liabilities of the associate on the acquisition
      and loss statement.                                                             date are recognised, if positive, as Goodwill and maintained under the respec-
                                                                                       tive heading. If these differences are negative they are recorded as revenue for
      The purchase method is used to record the acquisition of subsidiary               the period under the heading Gains and Losses in associated companies. An
      companies. The cost of an acquisition is measured as the fair value of             assessment of the interests in associates is carried out when there are indica-
      the assets given, equity instruments issued and liabilities incurred or             tions that the asset may be impaired, with any impairment losses that also
      assumed at the date of acquisition, plus costs directly attributable to              exist also being recorded as a cost, under that heading. When impairment
      the	acquisition.	Identifiable	assets	acquired	and	liabilities	and	contin-             losses recognised in previous years cease to exist, they are reversed with
      gent liabilities assumed in a business combination are measured initially              the exception of Goodwill. When the Group’s share of losses in an associ-
      at their fair value at the acquisition date, independently of the existence             ate equals or exceeds its investment in these companies, the Group does
      of any non-controlled interests. The excess of the cost of acquisition over             not recognise further losses, unless it has incurred liabilities or made
      the	fair	value	of	the	Group's	share	of	the	identifiable	assets	and	liabili-              payments on behalf of the companies. Unrealised gains on transactions
      ties acquired is recorded as Goodwill. Subsidiaries are consolidated by the               with the associates are eliminated to the extent of the Group’s inter-
      method of full integration from the date on which control is transferred to                est in the associates. Unrealised losses are also eliminated, unless the
      the Group. If the acquisition cost is less than the fair value of the net assets           transaction reveals evidence of impairment of a transferred asset.
      of the acquired subsidiary (negative Goodwill), the difference is recognised
      directly	in	the	Profit	and	Loss	Statement	under	Other	Operating	Revenues.	                   The attached consolidated financial statements of the Group
      Internal transactions, balances, unrealised gains on transactions and divi-                   were prepared in conformity with the International Financial
      dends distributed among Group companies are eliminated. Unrealised losses                      Reporting Standards adopted by the European Union (IFRS – for-
      are also eliminated, unless the transaction reveals evidence of impairment of                   merly called the International Accounting Standards – IAS) issued
      a transferred asset.                                                                            by the International Accounting Standards Board (IASB) and
                                                                                                       Interpretations issued by the International Financial Reporting
      Associates	are	defined	as	all	entities	over	which	the	Group	has	significant	influ-                Interpretations Committee (IFRIC) or by the former Standing
      ence	but	not	control,	generally	with	investments	of	between	20%	to	50%	of	                         Interpretations Committee (SIC), in force on the date of the said
      voting rights.                                                                                      financial	statements.




100   TAP Group   Annual Report 2010
Economic Situation


Consolidated net income of TAP Group

For the Air Transport Industry, after the largest decrease of demand in the history           as well as in the continuous increase in productivity levels. On
of commercial aviation in 2009, the year of 2010 was characterised by the return              the other hand, incisive action has been continued on all costs
of	air	traffic	to	previous	profiles	of	behaviour,	with	the	reuptake	of	air	travel,	as	       possible, with the implementation of a suitable cost-cutting pro-
well as trade relations between the different regions of the world, albeit with             gramme	which	included	a	diversified	series	of	measures,	to	be	
significantly	differentiated	expression.	However,	particular	note	should	be	                enforced until 2012, with transversal effects on all the companies
made of Europe where, in addition to a slow economic recovery, various exter-              of TAP Group.
nal	impacts	interfered	with	the	normal	development	of	the	flight	operation,	
constituting factors which negatively affected the performance of commer-                 However, the consolidated performance at the aggregate level of all
cial aviation in the region. It should also be highlighted that, in response             the Group's companies was negative, with TAP SGPS having ended
to the strong global demand as well as due to the imbalances in supply,                  2010 with a consolidated net income, with minority interests, for the
relative to certain consumer goods, prices, in particular of oil, increased             year of the value of EUR -57.1 million, that is, EUR 53.6 million less than
considerably, to stand at the level of the historic maximums reached dur-              the EUR -3.5 million recorded in 2009.
ing	the	first	half	of	2008.
                                                                                     Contributing to this result was the net income calculated for the com-
Regarding the companies of the TAP holding, which follow TAP's                      panies Groundforce, with EUR -43.6 million and Aero LB – the company
strategic guidelines, efforts were made to promote the increased prof-              owning	98.64%	of	the	share	capital	of	TAP–Maintenance	and	Engineering	
itability of the activities of the respective sphere of intervention, with         Brazil, with EUR -71.8 million, while the company TAP, S.A. recorded a
this	objective	being	pursued	in	the	ongoing	improvement	of	the	qual-              positive result of the value of EUR 62.3 million. Pre-tax income came to EUR
ity associated to the different aspects of the services provided, in the         -44.4 million, representing a variation of EUR -51.7 million compared to the
differentiation of the products offered, in the adoption of best prac-          EUR 7.3 million recorded in 2009
tices	and	in	the	strengthening	of	the	simplification	of	processes,	




Consolidated net income of TAP Group
EUR million                                                                         2010             2009
Operating Revenues and Gains                                                       2,351.1         2,198.9
Pre-tax	Profit                                                                       (44.4)            7.3
Net Income of shareholders of the parent company                                     (57.1)           (3.5)
Net Income for the year of minority interests                                          4.2             3.5




                                                                                                                                     Annual Report 2010   TAP Group   101
                                            Operating Revenues and Gains                                                             Operating Costs and Losses
                                            2010                                                                                     2010

                                                                                                  Maintenance and
                                                                                                  Engineering Sales                     Fuel                          Staff costs
                                                                                                  and services rendered                                               25.3%
                                                                                                                                        23.6%
                                                                                                  7.6%

                                                                                                     Other sales and
                                                                                                     services rendered
                                                                                                     6.2%
                                                Air Transport
                                                Sales and
                                                services rendered                                        Others                                                                     Others
                                                84.7%                                                    1.3%                                                                       1.4%

                                                                                                                                                       Cost of goods sold and materials
                                                                                    Operating
                                                                                                                                                       consumed and External supplies
                                                                                    subsidies
                                                                                                                                                       and services, except fuel
                                                                                    0.2%                                                               49.6%




                                       Net Operating Income

                                        At the operating level (before interest and taxes), the Company                               EUR 140 million and EUR 150 million, repre-
                                        recorded EUR -0.4 million, around the break-even point, which                                 sented in 2010 a value in the order of EUR 522.9
                                         reflects	the	high	capacity	of	the	Company,	in	the	development	of	                            million	for	the	company	TAP,	S.A.,	45.8%	more	
                                          its	business,	to	respond	with	adjusted	flexibility,	in	the	offer	of	                        than in 2009, with this evolution being equiva-
                                           services and level of costs, to market alterations and, in this way,                       lent to EUR 164.3 million, of which EUR 141.6
                                            enable the absorption of the losses caused by the various exter-                          million is attributable to the price effect.
                                             nal impacts which occurred.
                                                                                                                                      Net operating costs and losses, not including
                                                                                                                                      depreciation, amortisation and leasing of air-
                                              Fuel Costs – TAP, S.A.                                                                  craft stood at EUR 2,212.5 million, EUR 206.7
                                              EUR million                                       2010              2009 var. (abs.)    million	or	10.3%	more	than	in	2009.	Excluding	
                                              Total                                             522.9             358.6     164.3
                                                                                                                                      Fuel	costs,	this	variation	stood	at	2.6%.
                                              Price Effect                                                                   141.6
                                                                                                                                      Total operating income and gains reached
                                              Quantity Effect                                                                 22.4
                                                                                                                                      EUR 2,351.1 million, which compares to the
                                                                                                                                      EUR 2,198.9 million of the previous year, cor-
                                                      This result which was EUR 52.6 million less than the EUR                        responding	to	an	increase	of	6.9%.	Total	sales	
                                                       52.2	million	recorded	in	2009,	also	reflects	the	behav-                        and services rendered increased by EUR 240.5
                                                       iour of the price of fuel, once again on an upward                             million,	11.6%	more	than	the	value	achieved	last	
                                                        trend. It should be noted that Fuel costs, which during                       year. This result was mainly due to the behaviour
                                                         the period between 2001 and 2003 varied between                              of the income generated by Air Transport and by


                                                                    Consolidated Net Operating Income of TAP Group
                                                                    EUR million                                                                              2010                               2009
                                                                    Operating Revenues and Gains                                                          2,351.1                             2,198.9
                                                                      Sales and services rendered                                                         2,315.5                             2,075.0
                                                                         Air Transport                                                                     1,990.7                             1,771.7
                                                                         Maintenance and Engineering                                                          177.9                              167.1
                                                                         Other sales and services rendered                                                    146.9                              136.2
                                                                      Operating subsidies                                                                          4.6                             3.6
                                                                      Gains and losses in associated companies                                                (44.1)                            (29.6)
                                                                      Other revenues and gains                                                                  75.1                             149.9
                                                                    Operating Costs and losses                                                          (2,212.5)                            (2,005.8)
                                                                      Cost of goods sold and materials consumed                                            (175.8)                              (180.2)
                                                                      External supplies and services, except fuel                                           (922.0)                            (853.4)
                                                                      Fuel                                                                                  (522.9)                            (358.6)
                                                                      Staff costs                                                                           (559.7)                            (504.5)
                                                                      Other                                                                                     13.0                            (73.3)
                                                                      Other costs and losses                                                                  (45.0)                            (35.7)
                                                                    Depreciation and amortisation costs/reversals                                          (138.6)                             (141.0)

                                                                    Impairment of assets subject to depreciation/amortisation
                                                                      (losses/reversals)                                                                       (0.4)                                 –
                                                                    Net operating income
                                                                    (earnings before interest and taxes)                                                       (0.4)                              52.2




102   TAP Group   Annual Report 2010
       Gross Fixed Capital Formation                                             2010
       EUR million

                                                                                 Buildings and Other         Transport   Administrative
                                                                                 Constructions               Equipment   Equipment
                                                                                 10.6%                       0.3%        6.4%
       350                             316.3
                               300.9
       300
                                                                                                                               Others
       250                                                                                                                     (Other+Intangible
                       203.9                                                                                                   Assets+Assets in
       200                                                                                                                     Progress+Tools and Dies)
       150                                                                                                                     19.3%

       100
                                                                                 Basic Equip.
        50                                     32.3   17.2                       (Aircraft + Spare Engines
                15.5                                                             + Misc. Machinery
         0                                                                       and Equipment)
               2005 2006 2007 2008 2009 2010                                     63.5%




                                                             Financial Situation

Maintenance and Engineering, which increased,                The Consolidated Total Assets of TAP, SGPS, S.A. reached EUR 2,086.8
respectively,	 by	 EUR	 219.0	 million	 (+12.4%)	            million, while the degree of use of the Assets, expressed through the
and	EUR	10.8	million	(+6.4%),	with	the	other	                ratio between the Company's Turnover and Total Assets reached 1.11.
services rendered, arising from activities com-
plementary to the Company's core business also               In 2010, for the TAP Group, total Gross Fixed Capital Formation
having presented a positive performance, with                reached	EUR	17.2	million.	This	value	essentially	reflects	the	invest-
an	increase	of	EUR	10.8	million	(+7.9%).                     ments made in the acquisition of spare parts and rotary engines,
                                                             as well as the acquisition of maintenance equipment, apron and
Total gains and losses in associates stood at                computer equipment, hardware and software. Also important
EUR	-44.1	million,	which	was	mainly	influenced	              in the value referred to above was the investment relative to the
by the loss recorded for the year of the com-                company TAP–Maintenance and Engineering Brazil, regarding
pany SPdH.                                                   alterations to hangars in Porto Alegre and Rio de Janeiro.

Regarding costs, the heading related to the                  The	analysis	of	the	economic	and	financial	indicators	shows	
acquisition of consumed materials and serv-                  the Net Worth of the Company stands at EUR -264.8 million,
ices, excluding fuel, increased by EUR 64.2                  reflecting	an	aggravation	of	EUR	60.2	million	relative	to	2009.	
million,	6.2%	more	than	in	2009.	Total	staff	                Reference should also be made to the existence of minority
costs reached EUR 559.7 million, that is, EUR                interests to the value of EUR 7.4 million, relative to the com-
55.3 million more than in the previous year,                 panies	LFP–Lojas	Francas	de	Portugal	and	Cateringpor.	The	
reflecting	the	variations	which	occurred	in	post-            Financial	Autonomy	ratio	reached	-12.7%,	representing	an	
employment	 benefits,	 indemnities	 and	 staff	              aggravation of 2.6 p.p. relative to 2009 and the Solvency
remunerations.                                               ratio	was	-11.3%,	which	decreased	by	2.1	percentage	
                                                             points in relation to the previous year.

                                                             The share capital of TAP, SGPS, S.A. is composed of
Financial Results                                            1,500,000 nominative shares, with the value of EUR
                                                             10 each, totally held by Parpública–Participações
Net	financial	income	stood	at	EUR	44.0,	reflect-             Públicas,	SGPS,	S.A.,	a	company	100%	owned	by	the	
ing an improvement in the order of EUR 0.9                   Portuguese State.
million in relation to the result for 2009. The
performance	of	the	financial	function	was	influ-             Total Liabilities of TAP, SGPS, S.A. stood at EUR
enced mainly by the increase of interest received            2,351.6 million, with EUR 1,301.7 million being
from investments.                                            relative to Non-current Liabilities and EUR 1,049.9
                                                             million relative to Current Liabilities, which cur-
                                                             rently	represents	44.6%	of	total	Liabilities,	2.3	
                                                             percentage points more than in 2009.
EBITDAR
                                                             Regarding debt structure, bank loans and
Net working capital to deal with financial                   financial	leasing,	by	the	end	of	2010	the	total	
and investment costs, measured by EBITDAR                    reached EUR 1,277.1 million. Liabilities rela-
(Earnings Before Interest, Taxes, Depreciation               tive to the current remunerated debt of EUR
and	Rent	derived	from	fleet	leasing)	reached	                249.0	 million	 represented	 19.5%	 of	 the	
EUR 192.4 million, corresponding to EUR 86.2                 total, corresponding to 0.9 p.p. more than
million less than in 2009.                                   in 2009.




                                                                                                                                                          Annual Report 2010   TAP Group   103
      Outlook for 2011




      After	growth	of	5%,	in	2010,	the	forecasts	for	                                                                  Therefore, with the emerging markets, such as
      the evolution of the economy, at a global level,                                                                 the	Asian	Pacific,	showing	a	positioning	aimed	at	
      stand	at	around	4.4%,	with	this	growth	being	                                                                    the pursuit of sustained growth, while in Europe,
      propelled by the particularly vigorous perfor-                                                                   with	a	weaker	economy,	difficult	challenges	will	
      mance of the emerging market and developing                                                                      be faced by the air carriers of the region, the
      economies, the expansion of which is expected           Regarding private consumption, it is expected            forecasts for the Industry, in this context, are
      to	achieve	values	in	the	order	of	6.5%.	Particular	     that in 2011 there will be a sharp reduction, in         of decreased net income, which is expected to
      note should be made of Sub-Saharan Africa,              the	order	of	2.7%,	significantly	marked	by	the	          stand at around USD 8.6 billion.
      where	 growth,	 forecast	 at	 5.5%,	 is	 expected	      budgetary consolidation considered, in particu-
      to exceed other regions, with the exception             lar due to the decrease in the nominal salaries          For	TAP,	after	a	year	characterised	by	significant	
      of Developing Asia, reflecting the sustained            of the public sector, as well as the new increase        rigour in short term management, the Company
      strengthening of internal demand in many                in direct taxation, implying a deterioration in          proposed,	in	2011,	with	the	first	signs	of	recov-
      economies of the region, as well as the effect          prospects of growth in disposable income, in             ery, to continue with prudent optimism, facing
      of increasing global demand, in the context of          a context of the maintenance of particularly             the challenges and not abdicating from a long
      commodities. In turn, for the group of advanced         adverse conditions in the labour market, and             term vision in the construction of its future.
      economies, the forecasts point to growth in the         especially the strong increase in unemployment.          Thus,	its	main	objective	has	been	defined	as	the	
      order	of	2.5%,	an	evolution	which	is	still	slow,	       Furthermore, note should be made of the preva-           achievement	 of	 profitability	 in	 its	 businesses,	
      in view of the intensity of the recession of 2009,      lence of more restrictive conditions of access to        so as to enable, in a sustainable way, the res-
      and	which	will	also	be	insufficient	to	visibly	influ-   credit, as well as the limitations imposed by the        toration	of	its	trajectory	of	positive	net	income	
      ence the high rates of current unemployment.            conditions of solvency arising from the restric-         and value creation consolidation. With higher
      In this context, following the launch, at the end       tions to family budgets. However, this pattern           levels of competition requiring flexible and
      of 2010, in the United States and Japan, of new         of evolution will contribute to the reduction of         adaptable structures, in a context of growing
      fiscal	packages	with	a	view	to	boost	economic	          external funding needs, measured by the aggre-           globalisation, 2011 will be yet another year of
      growth, evolutions are expected for these coun-         gate balance of the current and capital account          demanding challenges, relative to the continu-
      tries	of	3.0%	and	1.6%,	respectively.                   balances, as percentages of GDP, which should            ation of the structural changes which have been
                                                              still	remain	at	high	levels,	around	7%.	In	turn,	        implemented over the last few years. Thus, the
      In the Euro zone, although the growth of the            inflation	should	increase	to	approximately	2.7%,	        Company considers that it is necessary to pur-
      peripheral countries is forecast to be low, it is       compared	to	1.4%	in	2010,	largely	influenced	by	         sue incisive action covering all costs possible, in
      expected that the evolution of the economy,             the increased indirect taxation.                         order to continue the implementation of the cost
      as a whole of the region, should expand in the                                                                   cutting	and	enhanced	efficiency	programme,	in	
      order	 of	 1.5%,	 favourably	 influenced	 by	 the	      Regarding the Air Transport Sector, in spite of          force until 2012, focused on a Customer-driven
      strong internal demand observed in Germany.             the slowdown observed in demand at the end               approach and on internal organisation based on
      However, the main risks to be noted include the         of 2010, by the end of the year there was also           best practices. Particular attention will also be
      high level of unemployment and the resurgence           a	strengthening	of	business	confidence,	as	well	         paid to the growth consolidation strategy which
      of fears in relation to the public debt of the coun-    as other drivers of the transport of the business        has been undertaken in recent years, continuing
      tries of the periphery of the Euro zone, where it       segment, with the prospects for 2011 being con-          the effort to stimulate the load factor, with inten-
      is considered likely that the spreads as well as the    sistent	with	a	trend	of	growth	of	5-6%,	for	the	         sified	commercial	aggressiveness.	
      financing	costs	shall	remain	at	high	levels,	creat-     passenger and cargo air transport markets.
      ing	conditions	for	a	re-intensification	of	financial	                                                            Therefore, since the operation of new markets
      turbulence.                                             It should be noted that in the aviation industry,        is considered a fundamental tool for the con-
                                                              the	cycles	of	profitability	normally	last	between	       solidation of the Company at an international
      Regarding Portugal, following the accentuated           7 and 10 years, thus implying some 4 to 5 years          level,	it	is	important	to	mention,	as	main	objec-
      deceleration observed towards the end of 2010,          until the cycle achieves it maximum. However,            tives for 2011, the creation of new connections
      the forecasts point to a contraction of economic        it is expected that 2011 will present a slower           and the strengthening of existing connections,
      activity,	in	the	order	of	1.3%	in	2011,	based	on	       progression, constrained by the increase in the          in an attitude of exploitation of opportunities.
      the one hand, on an underlying strong retrac-           price of oil as a result of the growing instability in   Special note should be made, in this context, of
      tion of internal demand, conditioned by the             the Arab countries, by the stabilisation of yields       the beginning of the operation for new medium-
      budgetary consolidation measures and greater            and by the trend of recession forecast for some          haul destinations of high potential, diversifying
      restrictiveness	of	financing	conditions	and,	on	        European economies, following their respective           the European network and expanding the visibil-
      the other hand, the continued dynamism of               public debt crisis.                                      ity	of	TAP,	as	a	company	connecting	the	air	traffic	
      exports, albeit lower than that recorded in 2010,                                                                between Europe, Brazil and Africa. In this way,
      accompanying	 the	 evolution	 of	 the	 flows	 of	                                                                it is expected that in April operations will begin
      international trade.                                                                                             to Bordeaux and to Dusseldorf and, in June, to
                                                                                                                       Manchester, Vienna, Athens and Dubrovnik.
                                                                                                                       Likewise,	in	June,	in	an	effort	focused	on	specific	
                                                                                                                       market niches, regular operations will begin to
                                                                                                                       Miami, the second North American destination




104   TAP Group   Annual Report 2010
                                                             study is the assessment of how the Company's          fighting	against	all	costs	which	are	not	decisive	
                                                             culture and its processes might have an impact        for the quality of the production; iii) the begin-
                                                             on or contribute to increasing potential error,       ning of the market recovery, following the
                                                             reduce the effectiveness of the work and              recovery of the aviation sector in the region. In
                                                             increase risk in the aviation maintenance opera-      this context, the company has received the atten-
of the Company, and to Porto Alegre, the tenth               tions, in addition to permitting a comparison         tion of other MRO interested in increasing their
point	 of	 TAP	 in	 Brazil.	 In	 the	 first	 case,	 since	   with the best international practices in relation     capacity in the region, regarding which develop-
Miami represents the main focus of distribu-                 to Aviation Safety and Security. The implemen-        ments are expected during the year.
tion	of	the	passenger	traffic	between	Central	               tation of the following actions has also been
America and the Caribbean and Europe, while                  planned: publication of the initial version of        For the ground handling company SPdH, 2001
in the second situation, Porto Alegre, has the               the SMS Manual; start-up of the Safety Training       will be structurally determinant. Pursuant to
fourth highest GDP of Brazil, this also allows the           and Safety Promotion actions and constitution         the decision of the Competition Authority, the
Company to expand its offer to Buenos Aires and              of the organisational structures supporting this      Grupo TAP should carry out the disposal of the
Montevideo, in the context of code-sharing con-              system,	namely,	the	Safety	Office, Safety Action      control of the company and, consequently,
nections with partner companies. Likewise, note              Group and Safety Review Board. Furthermore,           transfer	management	control	to	the	new	major-
should be made of the start-up of regular opera-             the ERP (Emergency Response Plan) proce-              ity shareholder, which results from the sales
tions to Bamako (Mali), S. Vicente (Cape Verde),             dures will be updated, in coordination with           process. Operationally, in spite of an inevitable
and Accra (Ghana) so as to strengthen connec-                the respective plan of TAP. Regarding the             transition process, it is expected that there will be
tions with the African continent.                            Production areas, the efforts will be directed, in    a positive impact on the TAP operation, in view of
                                                             a generalised manner, not only towards increas-       the natural concern of the new operator to con-
Moreover, considering that the quality of the                ing the in-house production capacity, with the        tinue the effort of continuous improvement to
service provided to passengers is inseparable                respective productivity gains and cost reduc-         which SPdH has been dedicated over the last 2
from the future of the Company, the TAP main                 tion,	but	also	to	receiving	the	new	A350	fleet,	in	   years. The launch, by the regulator INAC, of the
objective	for	2011	is	to	continue	its	improve-               2015. For the Maintenance of Components, the          international public tender for the attribution of
ment supported by technological innovation,                  creation of capacities for the maintenance of         new handling licenses in the airports of Portugal,
promoting,	at	the	same	time,	the	efficient	and	              the	new	fleet	will	imply	the	technical/economic	      for a new period of 7 years, should be considered
effective use of existing resources. Along the               assessment of the installation of new test equip-     as an additional constraint. This will surely be a
same lines, the Company will remain commit-                  ment. In Aircraft Maintenance, various Strategic      demanding process, but one for which the com-
ted to continuing to pursue efforts to improve its           Projects	have	been	planned	for	the	three	year	        pany is prepared, and which requires, however,
positioning in the areas of punctuality and bag-             period	2011-2013,	where	the	main	objectives	          the prior carrying out of the disposal referred to
gage irregularities.                                         are the achievement of cost reductions and in         above, in order for the company to be admitted
                                                             Turn Around Time of the inspections, as well          to the tender.
In	the	context	of	the	constitution	of	the	fleets,	           as	increased	productivity.	Currently,	a	project	
following the advent of the adverse economic                 concerning the restructuring of Operational           Also within a strategic perspective, the role of
and social climate, no structural alterations are            Maintenance is underway, aimed at increasing          TAP, continuously chosen by the Company's
expected,	 either	 regarding	 the	 TAP	 fleets	 or	          the	reliability	of	the	TAP	fleet,	and	guarantee-      Management, is important as a stimulator of
for those of PGA, for 2011. Over this year, and              ing the Line Maintenance of the future A350           national Tourism, acting towards the promotion
applying a policy of continuity, initiatives will            fleet. Regarding Engine Maintenance, with             of the image of Portugal and consequent crea-
be developed in relation to the aircraft cabins,             a view to enabling the growth of the activity         tion of wealth. It is also important to emphasise
aimed at improving the service provided to the               relative to Third Party Customers and, follow-        that over two thirds of the revenue generated
Customer. As a result of the signing of the con-             ing the market surveys which have been carried        by	TAP	are	obtained	abroad,	a	fact	of	significant	
tract in 2007, between TAP and Airbus, for the               out, plans are being made for the introduc-           importance, with direct impact on employment
acquisition of the new Airbus A350XWB, the                   tion of at least two new engine models on the         creation and development for the country.
specification	of	these	new	long-haul	airplanes	              Capacity List of this workshop, for which an
is expected to begin in 2011.                                assessment is already being carried out on the        To	summarise,	the	objective	is	to	continue	the	
                                                             different options provided by the three main          transformation of TAP into a solid company
Regarding the Maintenance and Engineering                    manufacturers, Pratt & Whitney, Rolls Royce and       within the European space, equipped to make
business in Portugal, following the implemen-                General Electric.                                     the most of all the opportunities presented in
tation of the SMS–Safety Management System,                                                                        the market niche in which it operates, and to dis-
plans have been made for the preparation of the              For the Maintenance and Engineering business          tinguish	itself	due	to	its	operating	efficiency	and	
SMD ®–Safety Management Diagnostic study,                    in Brazil, 2011 should see the beginning of the       aggregate value of the services provided.
by	a	specialised	company.	The	objective	of	this	             inversion	of	the	difficult	economic	situation	of	
                                                             the company, as the result of the combination of
                                                             three factors: i) new commercial dynamics based
                                                             on	a	significant	restructuring	of	the	production	
                                                             operation over the last 2 years; ii) the determi-
                                                             nation of the management in questioning and




                                                                                                                                        Annual Report 2010    TAP Group    105
      History of TAP



      The creation of Transportes                            Transformation into a private                             The first European company to
      Aéreos Portugueses (TAP)                               company                                                   operate exclusively with jets


      1945, 14th March                                       1953, 1st June                                            1967

      Transportes Aéreos Portugueses is created as a         Transportes Aéreos Portugueses achieves the               The	first	B727	arrives	at	the	Company,	and	the	
      section of the Civil Aeronautics Secretariat.          status of a private company (S.A.R.L.) with               last Super-Constellation is decommissioned.
                                                             mixed	capital,	majority-owned	by	the	State.
      Recruitment of technical staff from the Military                                                                 TAP	thus	becomes	the	first	European	company	
      and Naval Aeronautical Schools begins, and a           1955                                                      to	operate	exclusively	with	jets.
      group of 11 pilots receives specialised training
      at BOAC (British Overseas Airways Corporation).        The Company’s route network now includes
                                                             a total of eight destinations and its first
      The	first	two	21-passenger	DC-3	Dakota	aircraft	       four-engine aircraft, a Lockheed L-1049G                  1968
      are purchased.                                         Super-Constellation enters into service, oper-
                                                             ating on the Africa route and substantially               Maintenance and Engineering infrastructures
      In	1946,	the	first	General	Pilots’	Course	is	given	    reducing	flight	time.                                     are expanded, with the opening of the Aircraft
      in	Portugal	and,	on	19th	September,	the	first	                                                                   Engine Revision and Testing Centre, endowed
      commercial route is launched: Lisbon-Madrid.           1960                                                      with the most modern technological equip-
                                                                                                                       ment of the time.
      On 31st December, the Lisbon-Luanda-                   The	inaugural	flight	of	the	Lisbon-Goa	route	
      Lourenço Marques route is launched, known as           which lasts close to 19 hours is performed                1971
      the Imperial Air Route. With 12 stopovers and          and the Friendship Flight is launched between
      taking 15 days (return), it is the longest route in    Lisbon and Rio de Janeiro.                                The Company’s services are transferred to new
      the world, operated using a DC-3.                                                                                premises at Lisbon airport, and new mainte-
                                                             1962                                                      nance facilities are opened, including Hangar 6.
      1948
                                                             In	July,	TAP	receives	the	first	of	its	three	Caravelle	   1972
      TAP becomes a definitive member of IATA.               VI-R	aircraft,	bringing	it	into	the	jet	era.
      The Paris and Seville routes are launched.                                                                       The	first	two	of	four	Boeing	747-200	become	
                                                                                                                       part	of	the	Company’s	fleet.
      A	 new	 image	 is	 adopted	 and	 the	 first	 ticket	
      office	is	opened.                                                                                                TAP	takes	a	50%	stake	in	the	Azorean	company	
                                                                                                                       SATA, holding the chairing position at its Board
      1950                                                                                                             of Directors.

      Maintenance and Engineering begins to provide                                                                    1974
      technical assistance, at the Lisbon and Porto air-
      ports, to foreign companies without the means                                                                    TAP’s network includes over 40 destinations
      to maintain their own aircraft.                                                                                  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.




106   TAP Group   Annual Report 2010
Nationalisation of TAP                         Strengthening of TAP’s fleet                            TAP enters into the Airbus era




1975, 16th April                               1983                                                    1992

TAP becomes a State-owned company through      The	 first	 Boeing	 B737-200	 aircraft	 arrives	 at	    The	 first	 A320	 are	 delivered,	 equipped	 with	
Decree-Law number 205-E/75.                    the Company for medium-haul routes and the              the most advanced technology: fly-by-wire
                                               Lockheed L1011-500 Tristar for long-haul.               controls.
1978
                                               Maintenance and Engineering is awarded,                 1994
Maintenance and Engineering is distinguished   for the first time, by the Federal Aviation
by the international magazine Air Transport    Administration of the USA (FAA), with the Repair        The	first	two	A340-300s	become	part	of	the	
World, with the Technical Management Award.    Station	certificate,	endowing	TAP	with	the	most	        fleet,	and	the	Strategic	Plan	for	Economic	and	
                                               extensive licence to repair aircraft and their          Financial Restructuring (PESEF) is launched.
1979                                           components. TAP wins the international tender
                                               for	major	inspections	of	35	B727-100	aircraft	          1996
The Company’s modernisation programme is       owned by the Federal Express Corporation (FEC).
implemented, which also changes the corpo-                                                             TAP launches its own website and the decision is
rate name to TAP–Air Portugal.                 1987                                                    taken	to	renew	the	medium-haul	fleet.

The computer cargo booking          system     Maintenance and Engineering goes ahead with             Airbus distinguishes TAP with the Award for
(CARGOMATIC) begins operating.                 an	extensive	programme	of	structural	modifica-          Operational Excellence, for the best operating
                                               tions in Douglas DC-10 aircraft of the FEC, which       performance	worldwide	for	the	A340	fleet.
                                               is	the	first	time	this	has	happened	anywhere	in	
                                               the world.                                              1997

                                               1988                                                    The	first	two	A319	become	part	of	the	TAP	fleet,	
                                                                                                       and the cutting edge technology of Electronic
                                               The	first	A310-300	begins	operating.                    Ticketing	(ET)	is	introduced	for	domestic	flights.

                                               1989                                                    A strategic alliance agreement is signed with
                                                                                                       SAirGroup.
                                               TAP	is	the	first	airline	to	establish	land-air	links	
                                               by	satellite	and	the	first	pilots’	course	entirely	     1998
                                               held in Portugal takes place.
                                                                                                       TAP becomes a founding-member of the
                                               1991, 17th August                                       Qualiflyer	Group.

                                               TAP becomes a public limited company (TAP               1999
                                               S.A.),	with	capital	majority-owned	by	the	State	
                                               through Decree-Law number 312/91.                       The	first	cooperation	agreement	is	established	
                                                                                                       with the company Oficinas Gerais de Material
                                                                                                       Aeronáutica (OGMA).




                                                                                                                           Annual Report 2010   TAP Group   107
      TAP’s recovery


      2000                                                   2001                                                 2004

      The QTC–Quick Transfer Centre is created, which        A hub strategy is adopted, with Lisbon airport as    The strategy adopted by TAP is considered as a
      is a system for fast links for transit passengers at   the centre for operations.                           case-study, in an academic context, by Harvard
      Lisbon airport.                                                                                             University.
                                                             Due to internal problems, the SAirGroup is
      Airbus distinguished TAP with the Award for            forced	to	abandon	its	intention	to	acquire	a	34%	    TAP– Maintenance and Engineering and
      Operational Excellence, for the best operating         stake in TAP.                                        Federal Express celebrate 20 years of technical
      performance	worldwide	for	the	A319	fleet.                                                                   cooperation.
                                                             Consortium Contract signed for cooperation in
      The Maintenance and Engineering Quality sys-           the area of extensive maintenance of Airbus air-     2005
      tem	is	awarded	its	first	certification	from	APCER	     craft in the A320 family, at OGMA’s facilities in
      in conformity with NP EN ISO 9002 Standard,            Alverca.                                             The Company’s new corporate image is pre-
      as a company for the Maintenance of Aircraft,                                                               sented (TAP Portugal).
      Engines and Components.                                2003, 26th April
                                                                                                                  TAP	joins	the	world’s	largest	airline	alliance,	as	a	
                                                             The TAP Group is created through the incorpora-      company-member of the STAR Alliance.
                                                             tion of a holding company, TAP, SGPS, following
                                                             a corporate restructuring process, which also        TAP–Maintenance	 and	 Engineering	 joins	 the	
                                                             involved the creation of the company SPdH–           Airbus MRO Network and wins the tender for
                                                             Serviços Portugueses de Handling, S.A., through      the total maintenance of two French Air Force
                                                             Decree-Law number 87/2003.                           Airbus A340.

                                                             Airbus distinguishes TAP with the Award for          Airbus distinguishes TAP with the Award for
                                                             Operational Excellence, for best operating per-      Operational Excellence, for the best operating
                                                             formance	worldwide	for	the	A310	fleet,	which	        performance	worldwide	for	the	A310	fleet.
                                                             also receives the Highest Daily Utilization Award.

                                                             APCER and IQNet certify the Maintenance and
                                                             Engineering Quality System in compliance with
                                                             ISO 9001:2000 Standard.




108   TAP Group   Annual Report 2010
2006                                                   2008                                                  2009

Renewal	of	the	long-haul	route	fleet,	composed	        The	 inaugural	 flight	 to	 Belo	 Horizonte	 takes	   The	first	of	six	new	Airbus	A320-214	airplanes	
of	A310	and	A340	aircraft,	with	the	first	Airbus	      place, leading to a total of eight destinations       is received.
330-200 arriving for the operation of the Brazil,      between Europe and Brazil.
USA and Africa routes.                                                                                       TAP's Engine Maintenance activity receives the
                                                       TAP's	fleet	is	reinforced,	with	the	new	medium        environmental license relative to the Integrated
TAP–Maintenance and Engineering and Air                -haul A319 airplane.                                  Prevention and Control of Pollution (PCIP
France Industries celebrate 10 years of technical                                                            Diploma).
cooperation and renew their contract.                  TAP	issue	tickets	100%	in	electronic	format	and	
                                                       implements	a	significant	change	in	its	commer-        TAP	is	the	first	airline	company	in	the	world	
The TAP Group and the OMNI Grup sign a con-            cial model, with the launch of the Freedom of         to launch the CO2 Emissions Compensation
tract to sell all the shares of White–Airways, S.A..   Choice Campaign. 1 Flight, 5 Ways to Travel.          Programme,	a	project	initiated	in	2008,	in	part-
                                                                                                             nership	with	IATA,	during	the	term	of	office	of	
2007                                                   TAP inaugurates the new Premium Customer              the Company's executive chairman, Fernando
                                                       Centre at Lisbon Airport and opens the new            Pinto.
TAP–Maintenance and Engineering obtains                lounge.
the DOA–Design Organisation Approval certi-                                                                  Expansion of the Network in Europe, with the
fication	from	EASA–European	Aviation	Safety	           The 9th A330-220 airplane is included in TAP's        operations to Moscow, Warsaw, Helsink and
Agency following a complex certification               fleet,	received	directly	from	Airbus.                 Valência.
process.
                                                       The operation between Lisbon and Casablanca           TAP continues its efforts to sell the stake that
After the Competition Authority had issued             is inaugurated.                                       it	was	forced	to	reacquire,	the	majority	of	the	
its decision of non-opposition to the opera-                                                                 share capital of SPdH, with the corresponding
tion, TAP acquired the entire share capital            The	 stake	 of	 Globália	 in	 SPdH	 (50.1%)	 is	      shares having been delivered to an independent
of Portugália– Companhia Portuguesa de                 acquired	by	three	financial	institutions,	Banco	      entity, Europartners, which holds an active role
Transportes Aéreos, S.A, with Gertiserv–               de	 Investimento	 Global	 BIG	 (19.94%),	 Banco	      in the realization of AdC decision-making.
Sociedade de Gestão e Serviços, S.A. having            de	Investimento,	S.A.	BANIF	(15.1%)	and	Banco	
been	the	intermediary,	and	specifically	incorpo-       Invest,	S.A.	(15.1%).
rated for this purpose.
                                                       The company GERTISERV, S.A. is extinguished,
IATA, International Air Transport Association,         through its merger with the company Portugália.
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.




                                                                                                                                Annual Report 2010   TAP Group   109
Accounting
    Report
    TAP, SGPS, S.A.
                  Consolidated
                  Financial Statements



                  114      CONSOLIDATED FINANCIAL POSITION AS AT 31 DECEMBER 2010 AND 2009
                  115      CONSOLIDATED PROFIT AND LOSS STATEMENT
                  116      CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                           CONSOLIDATED STATEMENT OF CHANGE IN EQUITY AS AT 31 DECEMBER 2010 AND 2009
                  117      CONSOLIDATED CASH FLOW STATEMENT

                  118      NOTES TO THE FINANCIAL STATEMENTS

                  118      1.Economic activity of TAP Group
                  119      2. Accounting policies and valuation criteria
                               2.1. Basis of preparation
                               2.2. Comparability
                               2.3. Basis of consolidation
                                     2.3.1. Subsidiaries
                  120                2.3.2. Associates
                               2.4. Reporting by segments
                  121          2.5. Currency conversion
                                     2.5.1. Functional and reporting currency
                                     2.5.2. Balances and transactions expressed in foreign currency
                                     2.5.3. Group companies
                               2.6. Intangible Assets
                  122          2.7. Goodwill
                               2.8.	Tangible	fixed	assets
                               2.9. Investment properties
                               2.10. Impairment of non-current assets
                  123          2.11. Financial investments
                               2.12.	Derivative	financial	instruments
                  124          2.13. Income tax
                               2.14. Inventories
                               2.15. Current receivables
                               2.16. Cash and equivalent
                               2.17. Share capital and own shares
                  125          2.18. Remunerated liabilities
                               2.19. Financial costs related to loans
                               2.20. Provisions
                               2.21.	Post-employment	benefits
                  126          2.22. Current payables
                               2.23. Subsidies
                               2.24. Leases
                               2.25. Distribution of dividends
                               2.26. Revenue and the accrual basis
                  127          2.27. Contingent assets and liabilities
                               2.28. Subsequent events
                               2.29. New standards, amendments and interpretations of existing standards
                  128          2.30.	Re-statements	and	reclassifications
                  129          2.31.Relevant	accounting	estimates	and	judgements
                           3. Financial risk management policies
                  133      4. Employees
                  134      5.	Tangible	fixed	assets
                  135      6. Investment properties
                           7. Goodwill
                  136      8. Intangible assets
                           10. Financial shareholdings – equity method




112   TAP Group   Annual Report 2010
137   11. Financial shareholdings – other methods
      13.	Other	financial	assets
      15. Deferred tax assets and liabilities
139   16. Advances to suppliers
      17. State and other public entities
140   18. Other accounts receivable
141   19. Deferrals
142   20. Inventories
      21. Customers
143   22. Cash and bank deposits
      24. Equity instruments
144   25. Minority interests – Balance Sheet
145   26. Provisions
147   27. Funding received
149   28.		Liabilities	related	to	post-employment	benefits
154   29. Advances from customers
      30. Suppliers
155   31. Other accounts payable
156   32. Sales and services rendered
      35. Vendas e serviços prestados
      36. Operating subsidies
157   37. Gains and losses in associated companies
      38. Variation in production
      39. Own work capitalised
      40. Cost of goods sold and materials consumed
158   41. External supplies and services
      42. Payroll expenses
159   43.	Adjustments	of	inventories	(losses/reversals)
      44. Impairment of debts receivable (losses/reversals)
      45. Provisions (increases/decreases)
      46. Impairment of assets
160   48. Other revenues and gains
      49. Other costs and losses
      50. Depreciation and amortisation costs/reversals
161   51. Interest and similar revenue received / costs paid
      52. Corporate income tax for the year
162   53. Minority interests – net income
      55. Reporting by segments
163   56. Related entities
164   57. Contingent assets and liabilities
166   58.	Breakdown	of	financial	assets	and	liabilities
167   60. Commitments




                                                               Annual Report 2010   TAP Group   113
             Consolidated Financial Position
             AS AT 31 DECEMBER 2010 AND 2009
             VALUES IN THOUSAND EUROS



                                                            Note   31-Dec-10     31-Dec-09

             ASSETS
             NON-CURRENT ASSETS
             Tangible	fixed	assets                            5     1,066,344     1,188,526
             Investment properties                            6         2,607         1,287
             Goodwill                                         7       211,015       204,432
             Other intangible assets                          8         1,447         2,115
             Other	financial	assets                          13         2,966         3,395
             Deferred tax assets                             15        24,459        24,221
             Other accounts receivable                       18        27,231        26,663
                                                                    1,336,069     1,450,639

             CURRENT ASSETS
             Inventories                                     20       148,590       126,671
             Customers                                       21       223,212       192,590
             Advances to suppliers                           16         3,465         2,182
             State and other public entities                 17        15,833        24,814
             Other accounts receivable                       18       124,669        88,595
             Deferrals                                       19        12,308         7,827
             Cash and bank deposits                          22       222,677       131,077
                                                                     750,754       573,756


             TOTAL ASSETS                                          2,086,823     2,024,395

             EQUITY AND LIABILITIES
             EQUITY
             Share capital                                              15,000        15,000
             Legal reserves                                              3,000         3,000
             Currency conversion reserves                              (5,024)       (7,423)
             Fair value reserves                                       (1,006)         4,348
             Adjustment	of	shareholdings                               (2,260)       (2,260)
             Retained earnings                                       (224,773)     (220,454)


             Net income for the year                                  (57,103)       (3,542)
             TOTAL EQUITY OF THE GROUP                       24     (272,166)     (211,331)
             Minority interests                              25         7,355         6,705
             TOTAL EQUITY                                           (264,811)     (204,626)

             NON-CURRENT LIABILITIES
             Provisions                                      26       159,575       134,039
             Loans received                                  27     1,028,060     1,037,208
             Post-employment	benefit	liabilities             28        88,393        87,784
             Deferred tax liabilities                        15        24,683        24,064
             Other accounts payable                          31         1,032         1,275
                                                                    1,301,743     1,284,370

             CURRENT LIABILITIES
             Suppliers                                       30        142,619       104,221
             Advances from customers                         29          3,574         3,661
             State and other public entities                 17        147,062       112,691
             Loans received                                  27        248,995       265,330
             Other accounts payable                          31        215,787       197,521
             Advances from customers – tickets to be used    32        239,237       206,984
             Deferrals                                       19         52,617        54,243

                                                                    1,049,891      944,651
             TOTAL LIABILITIES                                      2,351,634     2,229,021


             TOTAL EQUITY AND LIABILITIES                          2,086,823     2,024,395




114   TAP Group   Annual Report 2010
Consolidated Profit and Loss Statement
AS AT 31 DECEMBER 2010 AND 2009
VALUES IN THOUSAND EUROS



                                                                                     Note   31-Dec-10           31-Dec-09

Sales and services rendered                                                           35       2,315,52           2,075,010
Operating grants                                                                      36          4,565                3,559
Gains and losses in associated companies                                              37       (44,066)             (29,596)
Variation in production inventories                                                   38          (838)             (14,673)
Own work capitalised                                                                  39          2,406                1,650
Cost of goods sold and materials consumed                                             40      (175,829)           (180,238)
External supplies and services                                                        41    (1,444,939)         (1,212,059)
Payroll expenses                                                                      42      (559,721)           (504,450)
Inventory	adjustments	(losses/reversals)                                              43          3,966              (8,661)
Accounts	receivable	adjustments	(losses/reversals)                                    44          4,307             (15,183)
Provisions (increases / decreases)                                                    45          3,701              (3,832)
Impairment	of	assets	not	subject	to	depreciation	/	amortisation	(losses/reversals)    46          (500)             (32,600)
Other revenues and gains                                                              48         75,108             149,949
Other costs and losses                                                                49       (45,040)             (35,723)

   Earnings before interest, taxes, depreciation and amortisation                             138,641              193,153



Depreciation and amortisation costs/reversals                                         50      (138,622)           (140,980)
Impairment	of	assets	subject	to	depreciation	/	amortisation	(losses/reversals)        46          (440)                   –
   Net operating income (earnings before interest and tax)                                       (421)               52,173


Interest and similar revenue                                                          51          6,896                5,702
Interest and similar costs                                                            51       (50,893)             (50,587)
   Pre-tax profit                                                                             (44,418)                7,288

Corporate income tax                                                                  52        (8,497)              (7,287)
   Net income for the year                                                                    (52,915)                     1


   Net income of shareholders of the parent company                                           (57,103)              (3,542)
   Net income for the year of minority interests                                      53         4,188                3,543


Basic and diluted net income per share (euros)                                                     (38)                   (2)




                                                                                                     Annual Report 2010   TAP Group   115
                  Consolidated Statement
                  of Comprehensive Income
                  AS AT 31 DECEMBER 2010 AND 2009
                  VALUES IN THOUSAND EUROS


                                                                                                                                                      31-Dec-10                  31-Dec-09

                  Net income                                                                                                                            (52,915)                              1


                  OTHER FULL INCOME
                    Currency conversion gains and losses                                                                                                    2,400                     (17,479)
                    Gains	and	losses	in	cash	flow	hedging	instruments                                                                                     (5,355)                        6,816
                    Other gains and losses                                                                                                                  (777)                      (2,260)


                  INCOME RECORDED DIRECTLY IN EQUITY                                                                                                      (3,732)                     (12,923)


                  FULL INCOME                                                                                                                           (56,647)                      (12,922)


                  ATTRIBUTABLE TO:
                    TAP Shareholders                                                                                                                     (60,835)                     (16,465)
                    Minority interests                                                                                                                      4,188                        3,543


                  TOTAL INCOME AND COSTS RECOGNISED IN THE YEAR                                                                                         (56,647)                      (12,922)




                  Consolidated Statement
                  of Change in Equity
                  AS AT 31 DECEMBER 2010 AND 2009
                  VALUES IN THOUSAND EUROS


                                                                                                                                                                         Sub-total
                                                                                                Currency
                                                                          Share       Legal                 Fair value   Adjustment of     Retained   Net Income for       (before      Minority
                                                               TOTAL                          conversion
                                                                         capital   reserves                  reserves    shareholdings     earnings          the Year     Minority      interests
                                                                                                 reserves
                                                                                                                                                                          Interest)

                  FINANCIAL POSITION AS AT
                                                           (188,070)    15,000      3,000       10,056       (2,468)                –      67,940        (288,394)      (194,866)         6,796
                  01-JAN-2009

                  TRANSACTIONS WITH
                  SHAREHOLDERS                               (3,634)          –          –             –            –               –    (288,394)         288,394               –      (3,634)
                  IN 2009
                     Application of net income and
                                                                   –          –          –             –            –               –    (288,394)         288,394               –             –
                     distribution	of	profit	and	reserves
                     Other transactions                       (3,634)         –          –           –            –                 –            –                –             –       (3,634)
                  FULL INCOME                               (12,922)          –          –    (17,479)        6,816           (2,260)            –          (3,542)      (16,465)        3,543
                  IN 2009
                     Net income for the year                       1          –          –            –            –                –            –           (3,542)      (3,542)         3,543
                     Other full income                      (12,923)          –          –     (17,479)        6,816          (2,260)            –                 –     (12,923)             –

                  FINANCIAL POSITION AS AT
                                                           (204,626)    15,000      3,000       (7,423)       4,348           (2,260)    (220,454)          (3,542)     (211,331)        6,705
                  31-DEC-2009

                  TRANSACTIONS WITH
                  SHAREHOLDERS                               (3,538)          –          –             –            –               –      (3,542)            3,542              –      (3,538)
                  IN 2010
                     Application of net income and
                                                                   –          –          –             –            –               –      (3,542)            3,542              –             –
                     distribution	of	profit	and	reserves
                     Other transactions                      (3,538)          –          –             –            –               –            –                 –             –      (3,538)
                  FULL INCOME
                                                            (56,647)          –          –        2,399     (5,354)                 –        (777)        (57,103)       (60,835)        4,188
                  IN 2010
                     Net income for the year                (52,915)          –          –            –            –                –            –         (57,103)      (57,103)         4,188
                     Other full income                       (3,732)          –          –        2,399      (5,354)                –        (777)                –       (3,732)             –

                  FINANCIAL POSITION AS AT
                                                           (264,811)    15,000      3,000       (5,024)     (1,006)           (2,260)    (224,773)        (57,103)      (272,166)        7,355
                  31-DEC-2010




116   TAP Group    Annual Report 2010
Consolidated Cash Flow Statement
AS AT 31 DECEMBER 2010 AND 2009
VALUES IN THOUSAND EUROS




                                                           Note   31-Dec-10           31-Dec-09

OPERATING ACTIVITIES:
Receipts from customers                                             2,468,901          1,887,848
Payments to suppliers                                             (1,776,895)        (1,466,669)
Payments to staff                                                   (434,626)          (386,927)
Payment / receipt of corporate income tax                              (5,350)            (3,497)
Other receipts / payments relative to operating activity              (58,587)           148,132
Cash flows from operating activities                                193,443             178,887

INVESTMENT ACTIVITIES:
Receipts from:
  Other	tangible	fixed	assets                                            738              4,469
  Financial investments                                                  319                  –
  Interest and similar income                                          5,827              5,550
  Loans granted                                                       37,398                  –
  Dividends                                                               30                  –
                                                                      44,312             10,019
Payments relative to:
   Other	tangible	fixed	assets                                        (9,957)            (31,979)
   Loans granted                                                     (73,000)            (35,000)
                                                                    (82,957)            (66,979)
Cash flows from investment activities                               (38,645)            (56,960)

FINANCING ACTIVITIES:
Receipts from:
   Loans received                                                   179,697              10,000
                                                                    179,697              10,000

Payments relative to:
   Loans received                                                    (82,209)           (65,931)
   Financial leasing contracts                                      (124,900)           (90,338)
   Interest and similar costs                                        (44,885)           (49,751)
   Dividends                                                          (3,464)            (3,989)
   Other	financing	operations                                               –                  –
                                                                   (255,458)          (210,009)
Cash flows from financing activities                                (75,761)          (200,009)


Variations in cash and cash equivalents                              79,037             (78,081)
Effect of exchange rate differences                                  12,580               11,920
Cash and cash equivalents at the beginning of the period            116,137             182,298

Cash and cash equivalents at the end of the period          22      207,754             116,137




                                                                                 Annual Report 2010   TAP Group   117
            Notes to                   1. Economic activity of TAP Group


            the Financial
                                       TAP Group is formed by TAP – Transportes Aéreos Portugueses, SGPS, S.A.
                                        (TAP SGPS) and its subsidiaries (TAP Group or the Group) and has its head
                                         office	at	Lisbon	Airport.	TAP	SGPS	operates	in	the	passengers,	cargo	and	

            Statements                    mail transport industry, as well as carries out maintenance and engineer-
                                          ing works, handling in the airports, management of commercial areas in
                                           airports (duty free) and catering for aviation

                                           A TAP – Transportes Aéreos Portugueses, SGPS, S.A. 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”), through the deliv-
                                              ery of the shares representing the total share capital of the company
                                               Transportes Aéreos Portugueses, S.A. (TAP S.A).




                                                 Head Office                     Aeroporto de Lisboa, Edifício 25
                                                 Share Capital                   Euros 15,000,000
                                                  Taxpayer Number                506 623 602



                                                     The	consolidated	financial	statements	reported	herein	were	
                                                      approved in a meeting of the Board of Directors on 30 March
                                                      2011.

                                                        The members of the Board of Directors that have signed this
                                                         report declare that, to the best of their knowledge, the infor-
                                                          mation 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.




118   TAP Group   Annual Report 2010
2. Accounting policies and valuation criteria

The	main	accounting	policies	applied	in	the	preparation	of	these	consolidated	financial	statements	are	described	below.


2.1. Basis of preparation

The	present	consolidated	financial	statements	of	the	Group	were	prepared	in	conformity	with	the	International	Financial	Reporting	Standards	
adopted by the European Union (IFRS – previously called International Accounting Standards – IAS) issued by the International Accounting Standards
Board (IASB) and Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or by the former Standing
Interpretations	Committee	(SIC),	in	force	at	the	date	of	preparation	of	the	said	financial	statements.

The	attached	consolidated	financial	statements	were	prepared	assuming	the	continuity	of	operations,	using	the	accounting	ledgers	and	records	of	
the	companies	included	in	the	consolidation	(Note	2.3.1),	and	based	on	historical	cost,	with	the	exception	of	derivative	financial	instruments,	assets	
available for sale and customer loyalty programmes which are 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	poli-
cies.	The	main	statements	that	involve	a	more	significant	level	of	judgement	or	complexity,	or	more	significant	assumptions	and	estimates	for	the	
preparation	of	the	said	financial	statements,	are	disclosed	in	Note	2.31.

2.2. Comparability

The	values	presented	in	the	consolidated	financial	statements	for	the	period	ended	on	31	December	2009	are	comparable	in	all	significant	aspects	
with the values for 2010.


2.3. Basis of consolidation


2.3.1. 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 and the effect of potential voting rights that are currently able to be exercised or converted are considered in the
evaluation of whether the Group has control over another entity.

The equity and net income of these subsidiary companies related to third party shareholdings are presented under the minority interests items respec-
tively,	in	the	consolidated	balance	sheet	under	a	separate	item	of	equity	and	in	the	consolidated	profit	and	loss	statement.	The	companies	included	
in	the	consolidated	financial	statements	are	detailed	below.

                                             Head                                                                 % share capital held   % share capital held
Corporate Name                                        Main Activity                           Shareholders
                                             Office                                                                        31-Dec-10              31-Dec-09
TAP–Transportes Aéreos                                Management and administration           PARPÚBLICA, SGPS,
                                             Lisbon                                                                           100.00%                100.00%
Portugueses, SGPS, S.A.                               of shareholdings                        S.A.
Reaching Force, SGPS, S.A.                            Management and administration
                                             Lisbon                                           TAP, SGPS, S.A.                      n/a               100.00%
(“Reaching Force”)                                    of shareholdings
SEAP–Serviços, Administração                          Management and administration
                                             Macau                                            TAP, SGPS, S.A.                      n/a                75.00%
e Participações Lda. (“SEAP”)                         of shareholdings
Transportes Aéreos Portugueses, S.A.         Lisbon   Aeronautical activities                 TAP, SGPS, S.A.                 100.00%                100.00%
TAPGER–Sociedade de Gestão                            Management of
                                             Lisbon                                           TAP, SGPS, S.A.                 100.00%                100.00%
e Serviços, S.A.                                      complementary activities
PORTUGÁLIA–Companhia Portuguesa
                                             Lisbon   Aeronautical activities                  TAP, SGPS, S.A.                100.00%                100.00%
de Transportes Aéreos, S.A. (“Portugália”)
AIR PORTUGAL TOURS–Programações
                                             Lisbon   Tour operator                           TAP S.A.                             n/a               100.00%
Turísticas, S.A.
CATERINGPOR–Catering de Portugal, S.A.       Lisbon   Catering                                TAPGER, S.A.                     51.00%                 51.00%
L.F.P.–Lojas	Francas	de	Portugal,	S.A.       Lisbon   Duty free shop operation                TAPGER, S.A.                     51.00%                 51.00%
MEGASIS–Soc. de Serviços e Engenharia                 Engineering and provision
                                             Lisbon                                           TAPGER, S.A.                    100.00%                100.00%
Informática, S.A.                                     of IT services
U.C.S.–Cuidados Integrados de Saúde, S.A.    Lisbon   Healthcare services                     TAPGER, S.A.                    100.00%                100.00%

                                                      Management and administration of
                                             Brazil                                           TAP, SGPS, S.A.                  99.00%                 99.00%
AERO-LB, Participações, S.A. (“Aero-LB”)              shareholdings

                                                                                              PORTUGÁLIA                        1.00%                  1.00%
TAP–Manutenção e Engenharia
                                             Brazil   Maintenance and aeronautical engineering Aero-LB                         98.64%                 98.64%
Brasil, S.A. (ex-VEM)




In 2010 the Group decided to dispose of its stake in Air Macau Cª Lda., and so the subsidiary SEAP was extinguished. Moreover, Reaching Force and
AIR PORTUGAL TOURS–Programações Turísticas, S.A. were incorporated by merger into TAP, SGPS, S.A. and TAP S.A., respectively.




                                                                                                                                         Annual Report 2010     TAP Group   119
                  The purchase method is used to record the acquisition of subsidiary companies. The cost of an acquisition is measured at the fair value of the assets
                  delivered, equity instruments issued and liabilities incurred or assumed at the acquisition date, plus any costs directly assigned 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, independently of the existence of any non-controlled interests. Any excess of the acquisition cost over the fair value of the Group's
                  share	of	the	identifiable	net	assets	acquired	is	recorded	as	goodwill,	which	is	presented	in	detail	in	Note	7.

                  Subsidiaries are consolidated by the method of full integration from the date on which control is transferred to the Group.

                  If the acquisition cost 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	as	"Other	income	and	gains".

                  Internal transactions, balances, unrealised gains on transactions and dividends distributed among Group companies are eliminated. Unrealised
                  losses are also eliminated, unless the transaction shows an impairment of a transferred asset.

                  The accounting policies of subsidiaries were changed whenever necessary, to guarantee consistency with the policies adopted by the Group.


                  2.3.2. Associates

                  Associates	are	all	entities	over	which	the	Group	has	significant	influence	but	not	control,	usually	accompanying	a	shareholding	of	20%	to	50%	of	
                  voting rights. Investments in associates are recorded using the equity method.

                  In	accordance	with	the	equity	method,	shareholdings	are	recorded	at	their	acquisition	cost,	adjusted	by	the	value	corresponding	to	the	Group's	stake	
                  in the variations of associates’ equity (including net income) and dividends received.

                  The differences between the acquisition cost and the fair value of the assets, liabilities and contingent liabilities of the associate at the acquisition date
                  are recognised as goodwill when positive and maintained in the respective item. If those differences are negative they are recorded as revenue of the
                  period as "Gains and losses in associated companies".

                  An assessment of the interest in associates is carried out when there are indications that the asset might be impaired, with any existing impairment
                  loss being recorded as a cost in that item. 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 investment in these companies, the Group does not recognise further losses,
                  unless it has incurred obligations or made payments on behalf of those companies. Unrealized gains on transactions with the associates are elimi-
                  nated to the extent of the Group’s stake 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, to guarantee consistency with the policies adopted by the Group.

                  The following entities qualify as associates:

                                                                                                                                % share capital held     % share capital held
                  Corporate Name                                         Head Office   Main Activity             Shareholders
                                                                                                                                         31-Dec-10                31-Dec-09
                                                                                       Handling                  TAP SGPS                      43.90%                   43.90%
                  SPdH–Serviços Portugueses de Handling, S.A. (“SPdH”)   Lisboa                                  PORTUGÁLIA                     6.00%                    6.00%
                                                                                                                 TAP S.A.                      50.10%                        –
                  AIR MACAU, Cª Lda.                                     Macau         Aeronautical activities   SEAP                              n/a                  20.00%



                  SPdH	is	classified	as	an	associate	since	the	Competition	Authority	imposed	that,	until	its	sale,	the	management	of	the	Company	should	be	done	by	an	
                  agent manager acting on behalf of the Competition Authority, and managing SPdH independently from TAP Group.

                  In 2010 the Group decided to dispose of its stake in Air Macau Cª Lda., and so the Company no longer belongs to TAP Group as at 31 December 2010.

                  The investments in associates are detailed in Note 10.


                  2.4. Reporting by segments

                  The Group presents its operating segments based on the internal Management information.

                  Business	segment	is	a	set	of	Group	assets	and	operations	that	are	subject	to	different	risks	and	returns	from	other	business	segments.	

                  Five	business	segments	were	identified:	Air	Transport,	Maintenance	and	Engineering,	Duty	Free	Shop,	Catering	and	Others.		

                  Geographic	segment	is	an	individual	area	committed	to	offer	products	or	services	in	a	specific	economic	environment	that	is	subject	to	different	risks	
                  and	benefits	from	other	segments	operating	in	other	economic	environments.	The	geographic	segment	is	defined	based	on	the	destination	country	
                  of	the	goods	and	services	sold	by	the	Group,	which	in	the	case	of	air	transport	and	the	duty	free	shop	is	considered	as	the	flight	destination	country.

                  The accounting policies of the reporting by segments are those ones 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	detailed	in	Note	55.



120   TAP Group      Annual Report 2010
2.5. Currency conversion


2.5.1. Functional and reporting currency

The items included in the Financial Statements of each Group entity 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.


2.5.2. 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 end of the
reporting period.

Foreign exchange rate differences, favourable or unfavourable, arising from differences between the exchange rates in force on the date of the trans-
actions	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.


2.5.3. Group companies

The	results	and	financial	position	of	all	Group	entities	that	use	a	functional	currency	different	from	its	reporting	currency	are	converted	into	the	
reporting currency as follows:

ρ   (i) The assets and liabilities of each Balance Sheet are converted at the exchange rate in force on the date of the Consolidated Financial
    Statements;

    The resulting exchange rate differences are recognised as a separate item in Equity – "Currency conversion reserves".

ρ   (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.

The exchange rates used in the conversion of balances expressed in a currency other than the euro or to update balances expressed in a foreign cur-
rency were as follows:

                             Currency                                        31-Dec-10                          31-Dec-09
                             BRL                                                  2.2177                             2.5113
                             MOP                                                 10.6972                            11.5060


                             Currency                      Average exchange rate 2010        Average exchange rate 2009
                             BRL                                                      a)                                 a)
                             MOP                                                 10.8697                            11.1291



a) For the Brazilian subsidiary, the monthly balances were converted at the rate of the last day of each month, as follows:

                            Month                                                            2010                     2009
                            January                                                         2.6006                   2.9640
                            February                                                        2.4719                   3.0093
                            March                                                           2.4043                   3.0767
                            April                                                           2.2959                   2.8850
                            May                                                             2.2343                   2.8320
                            June                                                            2.2082                   2.7469
                            July                                                            2.2924                   2.6482
                            August                                                          2.2347                   2.7089
                            September                                                       2.3201                   2.6050
                            October                                                         2.3638                   2.5574
                            November                                                        2.2373                   2.6251
                            December                                                        2.2177                   2.5113



2.6. Intangible Assets

Intangible assets are recorded at acquisition cost minus depreciation and impairment losses, using the straight line method over a period ranging
between 5 and 10 years.




                                                                                                                                  Annual Report 2010     TAP Group   121
                  2.7. Goodwill

                  Goodwill	represents	the	excess	of	acquisition	cost	over	the	fair	value	of	the	assets,	liabilities	and	identifiable	contingent	liabilities	of	the	subsidiaries	
                  on the acquisition date.

                  Goodwill	is	not	amortised	and	is	subject	to	impairment	tests,	at	least	once	a	year.	Impairment	losses	relative	to	goodwill	cannot	be	reversed.	Gains	or	
                  losses arising from the sale of the control of an entity include the value of the corresponding goodwill.


                  2.8. Tangible fixed assets

                  Tangible	fixed	assets	acquired	until	1	January	2004	(IFRS	transition	date)	are	recorded	at	acquisition	cost,	or	acquisition	cost	revaluated	in	accordance	
                  with the accounting principles usually accepted in Portugal until that date, minus depreciation and accumulated impairment losses.

                  Furthermore, on the transition date 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 buildings of the abovementioned subsidiary were revalued to the corresponding fair value on that date. The
                  fair	value	of	these	tangible	fixed	asset	items	was	stated	by	an	assets	evaluation	study	conducted	by	an	independent	specialised	entity	(Colliers	P&I),	
                  which also stated the remaining useful life of these assets, on the transition date.

                  Tangible	fixed	assets	acquired	after	the	transition	date	are	presented	at	acquisition	cost	minus	depreciation	and	impairment	losses.	The	acquisition	
                  cost includes all expenditure directly associated with the acquisition of the assets.

                  Subsequent costs are included in the acquisition cost of the asset or recognised as separate assets, 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	related	to	repairs	and	maintenance	is	rec-
                  ognised as a cost for 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	the	asset's	estimated	
                  useful life, as follows:

                                                                                                         Years of useful life    Final salvage value
                                           Buildings and other constructions                                              50                        –
                                           Machinery and equipment
                                              Flight equipment
                                                 Aircraft                                                                 16                     10%
                                                 Aircraft	under	financial	leasing                                         16                     10%
                                                 Spare engines and other spares                                           16                     10%
                                                 Spare	engines	under	financial	leasing                                    16                     10%
                                              Other machinery and equipment                                            7 – 16                 0	–	10%
                                           Transport equipment                                                         4 – 10                       –
                                           Tools and dies                                                              8 – 16                 0	–	10%
                                           Admnistrative equipment                                                     5 – 16                       –
                                           Other	tangible	fixed	assets                                                    10                        –




                  The	residual	values	of	the	assets	and	respective	useful	lives	are	reviewed	and	adjusted,	if	necessary,	at	the	end	of	the	reporting	period.	If	the	book	value	
                  is	higher	than	the	recoverable	value	of	the	asset,	it	is	adjusted	to	its	estimated	recoverable	value	with	an	impairment	loss	being	recorded	(Note	2.10).

                  Gains or losses arising from a write-off or disposal are calculated by the difference between the disposals receipts minus transaction costs and the
                  book	value	of	the	assets,	and	are	recognised	in	the	profit	and	loss	statement,	as	operating	income	or	losses.


                  2.9. Investment properties

                  Investment properties are valued at acquisition cost minus depreciation and impairment losses. For those acquired 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 usually accepted in Portugal until that date.


                  2.10. 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	amor-
                  tisation/depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the book value may not be recoverable.

                  An impairment loss is recognised as the amount by which the asset's book value exceeds its recoverable value. The recoverable amount is the highest
                  between an asset's fair value minus its selling costs, and its use value.

                  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.



122   TAP Group      Annual Report 2010
Impairment losses recognised in previous periods are reversed when it is concluded that recognised impairment losses no longer exist or have dimin-
ished (with the exception of goodwill impairment losses – see Note 2.7).

The	reversal	of	impairment	losses	is	recognised	in	the	profit	and	loss	statement	as	“Impairment	of	assets”	subject	to	depreciation	and	not	subject	to	
depreciation, unless the asset has been revalued, in which case the reversal will correspond to a revaluation increase. However, an impairment loss
is reversed only 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.


2.11. Financial investments

The	Group	classifies	its	investments	into	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	investment	
was	acquired.	The	classification	of	the	investments	is	determined	at	the	initial	recognition,	being	revaluated	at	the	end	of	the	reporting	period.

All acquisitions and disposals of these investments are recognised on the date of the signing of the respective purchase and sale contracts, regardless
of	the	financial	settlement	date.

Investments are initially recorded at their acquisition value, with the fair value being equivalent to the price paid, including transaction costs.
Thereafter,	measurement	depends	on	the	category	into	which	the	investment	is	classified,	as	follows:	

Loans granted and accounts receivable
Loans	granted	and	accounts	receivable	are	non-derivative	financial	assets	with	fixed	or	determinable	payments	and	are	not	quoted	on	an	active	mar-
ket. 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	above	12	months	after	the	end	of	the	reporting	period,	in	which	case	they	are	classified	as	
non-current assets.

Loans granted and accounts receivable are measured initially at fair value and subsequently at amortised cost.

Loans granted and accounts receivable are included in the balance sheet as Current receivables.

Financial assets at fair value through profit and loss
A	financial	asset	is	classified	in	this	category	if	acquired	principally	for	the	purpose	of	its	sale	in	the	short	term	or	if	classified	as	such	by	the	manage-
ment.	Assets	in	this	category	are	classified	as	current	if	they	are	either	held	for	trading	or	are	expected	to	be	sold	within	12	months	of	the	end	of	the	
reporting	period.	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	intends	
and is able to hold to maturity. Investments in this category are recorded at amortised cost using the effective interest rate method.

Available for sale financial assets
Available	for	sale	financial	assets	are	non-derivative	financial	assets	that	are	either	classified	into	this	category	or	are	not	classified	into	any	other	cat-
egory. They are included in non-current assets, unless the management intends to dispose of the investment within 12 months after the end of the
reporting period. These investments are recorded at fair value in Equity.

If	there	is	no	active	financial	market,	the	Group	establishes	the	asset's	fair	value	through	valuation	techniques,	which	include	the	use	of	recent	com-
mercial	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	arising	in	this	way	are	recorded	directly	in	the	fair	value	reserve,	unless	there	is	impairments,	until	the	financial	investment	
is sold, received, or disposed of in any way, at which time the accumulated gain or loss, formerly recognised in the fair value reserve, is included in
net income for the period.

If there is no market value or if it is not possible to determine one, the said investments are maintained at acquisition cost. Impairment losses are rec-
ognised	for	a	prolonged	or	significant	reduction	of	value.	

At	the	end	of	the	reporting	period	the	Group	assesses	whether	there	is	objective	evidence	that	a	financial	asset	or	group	of	financial	assets	are	
impaired.	If	there	has	been	a	continued	decrease	in	the	fair	value	of	the	financial	assets	available	for	sale,	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	through	profit	or	
loss	–	is	reversed	from	equity	and	recognised	through	the	profit	or	loss	for	the	period.

A	recognised	impairment	loss	on	financial	assets	available	for	sale	is	reversed	if	the	loss	has	been	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, the reversal does not affect the
profit	and	loss	statement,	and	the	subsequent	positive	fluctuation	of	the	asset	is	recorded	under	the	fair	value	reserve.


2.12. Derivative financial instruments

The	Group	uses	derivatives	in	order	to	manage	the	financial	and	operating	risks	to	which	it	is	exposed.	Whenever	expectations	of	changes	in	interest	
rates	or	jet	fuel	prices	justify	this,	the	Group,	through	derivative	instruments,	sign	contracts	such	as	interest	rate	swaps	(IRS),	swaps	and	options	to	be	
protected against adverse movements.




                                                                                                                                         Annual Report 2010       TAP Group   123
                  In	the	selection	of	the	derivative	financial	instruments,	it	is	their	economic	aspects	that	are	the	main	focus	of	assessment.	Derivative	financial	instru-
                  ments are recorded in the balance sheet at fair value.

                  As they are considered effective hedges, changes in fair value are initially recorded in equity and subsequently recorded in the net operating income
                  for	jet	fuel	instruments	and	net	financial	results	for	interest	rate	instruments,	on	their	settlement	date.	

                  Accordingly,	in	net	terms,	the	costs	associated	to	hedged	financing	are	accrued	at	the	inherent	hedging	transaction	rate	contracted.	Gains	or	losses	
                  arising	from	the	early	rescission	of	this	type	of	instrument	are	recorded	in	the	profit	and	loss	statement	when	they	arise.

                  Whenever possible, the fair value of derivatives is estimated based on 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,	essentially,	as	Current	receivables	and	Current	payables.	


                  2.13. Income tax

                  Income	tax	includes	current	and	deferred	taxes.	Current	income	tax	is	calculated	on	net	income,	adjusted	in	accordance	with	tax	law	prevailing	on	
                  the reporting date.

                  Deferred tax is calculated based on the balance sheet liabilities, on temporary differences between the book value of assets and liabilities and the
                  respective tax base. To calculate the deferred tax, the tax rate used is the one expected to apply when 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 item.


                  2.14. Inventories

                  Inventories are valued according to the following criteria:

                  i) Goods and raw materials
                  Goods and raw materials, supplies and consumables are valued at the lower of acquisition cost and net realisable value. Acquisition cost includes
                  expenses incurred in bringing the inventories to the warehouse, using the weighted average cost for the measurement of inventories.

                  Material	recovered	internally	is	measured	at	cost.	In	the	current	financial	year	the	subsidiary	TAP	Manutenção	e	Engenharia	Brasil,	S.A.	also	adopted	
                  this	criterion.	It	was	not	possible	to	carry	out	the	respective	quantification	for	the	previous	financial	year.

                  ii) Products and work in progress
                  Products and work in progress are measured at the lower of production cost (which includes the cost of raw materials, labour and general manufac-
                  turing costs, based on the normal production level) and the net realisable value.

                  The	net	realisable	value	corresponds	to	the	estimated	selling	price	minus	the	estimated	finishing	and	marketing	costs.	Differences	between	cost	and	
                  net	realisable	value,	if	the	latter	is	lower,	are	recorded	in	Adjustments	of	inventories.


                  2.15. Current receivables

                  The balances of customers and other current receivables are recorded initially at fair value and recognised subsequently at amortised cost, minus any
                  impairment losses required to place them at their expected net realisable value (Note 18).

                  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.


                  2.16. Cash and cash equivalents

                  The cash and cash equivalents item includes cash, bank deposits and other short-term investments with original maturities up to 3 months, which
                  can	be	readily	convertible	to	a	known	amount	of	cash	without	any	significant	risk	of	fluctuations	in	value.	On	the	cash	flow	statement,	this	item	also	
                  includes bank overdrafts, which are presented in the Balance Sheet, in current liabilities, as "Remunerated liabilities".


                  2.17. Share capital and own shares

                  Ordinary	shares	are	classified	as	equity	(Note	24).

                  Costs directly attributed to the new shares issuance or other equity instruments are presented as a deduction, net of tax, from the value received as
                  a result of the issuance.




124   TAP Group     Annual Report 2010
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 purchase value.

Own shares are recorded at their acquisition value, as a reduction in equity, as "Own shares". Any gains or losses resulting from their sale are recorded
as "Other reserves". In accordance with applicable commercial legislation, while the own shares are held by the company, a reserve for an amount
equal to their acquisition cost is made unavailable.


2.18. Remunerated liabilities

Remunerated liabilities are recognised initially at fair value, net of transaction costs incurred, and are subsequently stated at amortised cost. Any dif-
ference	between	the	receipts	(net	of	transaction	costs)	and	the	repayment	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 end of the reporting period (Note 27).


2.19. Financial costs related to loans

Financial	costs	associated	to	loans	are	usually	recognised	as	financial	costs	in	accordance	with	the	accrual	principle.

Financial costs on loans directly associated to the acquisition, construction (if the period of construction or development exceeds one year) or produc-
tion	of	fixed	assets	are	included	in	the	asset's	cost.	

Capitalisation of these charges begins once preparations for the construction or development of the asset are started and is suspended after its utilisa-
tion	begins	or	when	the	respective	project	is	suspended	or	substantially	concluded.	

Any	revenue	directly	associated	to	a	specific	investment	is	subtracted	from	the	cost	of	the	asset.


2.20. Provisions

Provisions are recognised whenever the Group has a present legal or constructive obligation, as a result of past events, the settlement is expected to
result	in	an	outflow	of	resources	(payment)	and	the	amount	has	been	estimated	reliably.	

Provisions	for	future	operating	losses	are	not	recognised.	Provisions	are	reviewed	at	the	end	of	the	reporting	period	and	are	adjusted	to	reflect	the	
best estimate on that date (Note 26).

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 minimising energy consumption, atmospheric emissions, the produc-
tion of waste 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	owned	by	the	Group.


2.21. Post-employment benefits

Some Group subsidiaries have undertaken to make payments to their employees for retirement pension supplements, healthcare and seniority bonuses.

As	mentioned	in	Note	28,	The	Group	has	set	up	autonomous	Pension	Funds	as	to	finance	part	of	its	liabilities	with	those	payments.	In	accordance	
with	IAS	19,	companies	which	attribute	post-employment	benefits	recognise	their	costs	as	and	when	the	services	are	provided	by	the	employed	ben-
eficiaries.	In	this	way,	the	total	liability	of	the	Group	is	estimated	separately	for	each	plan	on	an	annual	basis,	by	a	specialised	and	independent	entity	
in accordance with the forecast unit credit method.

Costs	related	to	past	liabilities	resulting	from	the	implementation	of	a	new	plan,	or	increases	in	the	benefits	attributed	are	recognised	immediately	in	
the	Group's	profit	or	loss.	

Liabilities calculated in this way are presented in the balance sheet item non-current liabilities, minus the market value of the funds set up, under
"Liabilities	associated	to	post-employment	benefits".

Actuarial variances arising from the differences between the assumptions used to calculate 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 recognised 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	through	the	profit	or	loss	for	the	year	
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	and	consequently	the	benefits	are	materially	reduced.




                                                                                                                                         Annual Report 2010    TAP Group   125
                  2.22. Current payables

                  The balances of suppliers and current payables are stated initially at fair value and subsequently measured at amortised cost (Note 30 and 31).


                  2.23. Grants

                  Government grants are recognised only after it becomes certain that the Group will comply with the respective conditions and that the grant will
                  be received.

                  Operating	grants,	received	to	compensate	the	Group	for	costs	incurred,	are	recorded	systematically	in	the	profit	and	loss	statement	during	the	peri-
                  ods in which the costs that those grants are intended to cover are recognised.

                  Investment	grants	received	by	the	Group	to	compensate	fixed	asset	investments	are	presented	as	"Current	payables"	and	recognised	through	profit	
                  or loss during the estimated useful life of the respective granted asset, through deduction of the depreciation.


                  2.24. Leases

                  Fixed	assets	acquired	under	financial	leasing	contracts	as	well	as	the	respective	liabilities	are	recorded	through	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	item,	
                  the	interest	component	of	lease	payments	and	depreciation	of	the	asset,	calculated	as	described	in	Note	2.8,	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,	with	the	Group	being	the	lessee,	are	classified	
                  as	operating	leases.	Payments	made	under	operating	leases,	net	of	any	incentives	received	from	the	lessor,	are	recorded	in	the	profit	and	loss	state-
                  ment over the period of the lease.


                  2.25. 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	divi-
                  dends are approved by the Company shareholders, up to the date of their payment.


                  2.26. Revenue and the accrual basis

                  Income	from	sales	is	recognised	in	the	consolidated	profit	and	loss	statement	when	the	risks	and	benefits	associated	to	the	ownership	of	the	respec-
                  tive assets are transferred to the purchaser and the income can be measured with reliability.

                  Revenues arising from the sale of passenger and cargo transport are recorded as a liability when the sale is made, as “Advances from customers – tick-
                  ets to be used”. When the ticket is used or cancelled, its value is transferred to income for the year or to an account payable, depending on whether
                  the	transport	has	been:	i)	carried	out	by	the	Group	or	the	ticket	has	been	cancelled	and	is	not	subject	to	reimbursement	ii)	made	by	another	airline	or	
                  the	ticket	has	been	cancelled	but	is	subject	to	reimbursement,	respectively,	by	a	value	which	is	usually	different	from	that	recorded	at	time	of	its	sale.	
                  From	time	to	time,	the	balance	of	the	"Advances	from	customers	–	tickets	to	be	used"	item	is	analysed	to	adjust	the	balance	of	tickets	sold	to	check	
                  those	that	have	already	been	used	or	that	are	no	longer	valid	and	so	not	suitable	for	flight	or	reimbursement.	

                  Commissions attributed by the Group on ticket sales are deferred and recorded as costs for the year, according to the distribution through the periods
                  of the respective transport revenues.

                  For	the	"TAP	Victoria"	frequent	flyer	programme,	the	Group,	in	certain	defined	situations	and	based	on	the	flights	carried	out,	grants	free	air	miles	to	
                  customers	who	join	the	said	loyalty	scheme,	which	may	subsequently	be	used	in	flights	with	favourable	conditions,	such	as	reduced	fares.	Based	on	
                  the number of miles attributed and not used or expired at the end of each year 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 associated 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 for 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 as at 31 December 2010 is recorded as deferrals.

                  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, in accordance with the amount owed and the effective interest rate during the
                  period to maturity.




126   TAP Group      Annual Report 2010
Group companies record their costs and income in accordance with the accrual principle. Costs and income are recognised as they are generated,
regardless of when they are paid or received.

The differences between amounts received and paid and the respective income and cost are stated as deferrals, current receivables and current paya-
bles (Notes 18, 19 and 31, respectively).


2.27. Contingent assets and liabilities

Contingent	liabilities	are	not	recognised	in	the	consolidated	financial	statements	if	it	is	improbable	that	an	outflow	of	funds	will	affect	future	eco-
nomic	benefits;	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 for liabilities that meet the conditions established in Note 2.20 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.


2.28. Subsequent events

Events subsequent to the end of reporting period that provide additional information of conditions existing at the end of reporting period are
reflected	in	the	consolidated	financial	statements.	

Events subsequent to the end of reporting period that provide information on conditions that arose after the end of reporting period are disclosed in
the	notes	to	the	consolidated	financial	statement,	if	material.


2.29. New standards, amendments and interpretations of existing standards

a) New standards and interpretations that are mandatory as at 31 December 2010:
The	interpretations	and	amendments	of	existing	standards	of	the	IASB	identified	below	are	mandatory	for	financial	years	starting	on	1	January	2010:

      New standards in force                                                                                              Date of application *
      IFRS 3 (review) – Business combinations                                                                                    1-Jan-10
      IAS	27	(review)	–	Consolidated	and	separate	financial	statements                                                           1-Jan-10
      IFRS 5 (Improved 2008) – Non-current assets held for sale and discontinued operations                                      1-Jan-10
      IFRS 1 (amendment) – First-time adoption of IFRS                                                                           1-Jan-10
      IFRS	2	(amendment)	–	Share-based	payments	–	transactions	paid	financially	by	the	Group                                     1-Jan-10
      IAS 39 (amendement) – Financial instruments – Items eligible for coverage                                                  1-Jan-10
      IFRIC 12 – Service concession arrangements                                                                                 1-Jan-10
      IFRIC 15 – Agreements for construction of real estate                                                                      1-Jan-10
      IFRIC 16 – Hedges of a net investment in a foreign operation                                                               1-Jan-10
      IFRIC 17 – Distributions of non-cash assets to owners                                                                      1-Jan-10
      IFRIC 18 – Transfer of assets from customers                                                                               1-Jan-10

      * Financial years commencing on or after the indicated date.



      Annual improvement of standards in 2009 (applicable for years commencing on or after 01 January 2010)               Date of application *
      IAS 17 – Leasing                                                                                                           1-Jan-10
      IAS 36 – Impairment of Assets                                                                                              1-Jan-10
      IAS 38 – Intangible Assets                                                                                                 1-Jan-10

      * Financial years commencing on or after the indicated date.


Furthermore, as part of the process to review the consistency of the practical application of the IAS/IFRS, the IASB decided to improve the standards
to	clarify	some	of	identified	inconsistencies.	The	most	significant	improvements	refer	to	the	amendments	made	to	IAS	17,	IAS	36	and	IAS	38.

The introduction of these interpretations and amendments of the standards referred to above did not have any relevant impact on the Group's
statements.




                                                                                                                                    Annual Report 2010      TAP Group   127
                  b) New standards and interpretations that are not mandatory as at 31 December 2010:
                  There are new standards, amendments and interpretations of existing standards, which in spite of having been published, are only mandatory for the
                  periods starting after 1 January 2010, for which the Group decided against their early adoption:

                        New standards approved by the European Commission                                                                                         Date of application *
                        IAS	32	(amendment)	–	Financial	instruments:	Presentation	–	classification	of	issued	rights                                                      1-Feb-10
                        IFRS 1 (amendment) – First-time adoption of IFRS                                                                                                 1-Jul-10
                        IAS 24 (amendment) – Related Parties Disclosures                                                                                                 1-Jan-11
                        IFRIC 19 (amendment) – Extinguished Financial Liabilities with Equity Instruments                                                                1-Jul-11
                        IFRIC	14	(amendment)	–	The	Limit	on	a	Defined	Benefit	Asset,	Minimum	Funding	Requirements	and	their	interaction                                  1-Jan-11

                        * Financial years commencing on or after the indicated date


                        New standards not approved by the European Commission                                                                                     Date of application *
                        IFRS	9	(new)	–	Financial	instruments	–	classification	and	measurement                                                                            1-Jan-13
                        * Financial years commencing on or after the indicated date


                        Project of annual improvement of standards in 2010                                                                                        Date of application *
                        IFRS 1 – First-time adoption of IFRS                                                                                                             1-Jan-11
                        IFRS 3 – Business combinations                                                                                                                   1-Jan-11
                        IFRS 7 – Financial instruments – Disclosures                                                                                                     1-Jan-11
                        IAS 1 – Presentation of the Financial Statements                                                                                                 1-Jan-11
                        IAS	27	–	Consolidated	and	separate	financial	statements                                                                                          1-Jan-11
                        IAS	34	–	Interim	financial	reporting                                                                                                             1-Jan-11
                        IFRIC 13 – Customer loyalty programmes                                                                                                           1-Jan-11

                        * Financial years commencing on or after the indicated date



                  The Group has not yet concluded the calculation of all the impacts resulting from the application of the abovementioned standards, and therefore
                  chose	against	their	early	adoption.	However,	the	Group	does	not	expect	they	will	have	a	materially	relevant	impact	on	its	financial	situation	and	results.

                  2.30. Re-statements and reclassifications

                  Comparative	values	were	reclassified	to	ensure	the	easier	interpretation	of	the	said	consolidated	financial	statements.	The	main	changes	are	as	follows:

                              Headings                                                                               Reclassified accounts    Reclassification       Published accounts
                              BALANCE SHEET
                              Assets                                                                                             2,024,395                   –                      2,024,395

                                  Current assets                                                                                   573,756                   –                        573,756
                                     Customers                                                                                     192,590             192,590                              –
                                     Advances to suppliers                                                                           2,182               2,182                              –
                                     Other accounts receivable                                                                      88,595            (202,599)                       291,194
                                     Deferrals                                                                                       7,827               7,827                              –


                              Equity                                                                                             (204,626)                   –                      (204,626)


                              Liabilities                                                                                        2,229,021                   –                      2,229,021

                                  Current liabilities                                                                              944,651                   –                        944,651
                                     Suppliers                                                                                     104,221             104,221                              –
                                     Advances from customers                                                                         3,661               3,661                              –
                                     Other accounts payable                                                                        197,521            (162,125)                       359,646
                                     Deferrals                                                                                      54,243              54,243                              –

                              PROFIT AND LOSS STATEMENT
                              Operating grants                                                                                       3,559               3,559                              –
                              Own work capitalised                                                                                   1,650               1,650                              –
                              Payroll expenses                                                                                    (504,450)             (1,843)                     (502,607)
                              Post-employment	benefit	costs                                                                               –              1,843                         (1,843)
                              Inventory	adjustments	(losses/reversals)                                                              (8,661)             (8,661)                             –
                              Accounts	receivable	adjustments	(losses/reversals)                                                   (15,183)            (15,183)                             –
                              Inventory	and	accounts	receivable	adjustments	(losses/reversals)                                            –             26,105                        (26,105)
                              Assets	not	subject	to	depreciation	/	amortisation	impairement	(losses/reversals)                     (32,600)            (32,600)                             –
                              Other revenues and gains                                                                             149,949              15,757                        134,192
                              Other costs and losses                                                                               (35,723)            (18,738)                       (16,985)
                              Depreciation and amortisation costs/reversals                                                       (140,980)             32,600                      (173,580)
                              Net operating income                                                                                  52,173               4,489                        47,684

                              Interest and similar revenue                                                                           5,702             (42,139)                        47,841
                              Interest and similar costs                                                                           (50,587)             37,650                        (88,237)
                              Net	financial	results                                                                                       –             40,396                        (40,396)
                              Net income of shareholders of the parent company                                                     (3,542)                   –                        (3,542)




128   TAP Group     Annual Report 2010
The	amount	of	202,599	thousand	Euros	of	the	“Other	accounts	receivable”	was	reclassified	to	customers,	advances	to	suppliers	and	deferrals.	
The	amount	of	162,125	thousand	Euros	of	“Other	accounts	payable”	was	reclassified	to	suppliers,	advances	from	customers	and	deferrals.	

In	the	Profit	and	loss	statement	the	changes	in	foreign	exchange	rates	were	reclassified	from	financial	results	to	operating	results	when	their	nature	
is operational.


2.31. 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 end of reporting period.

These	estimates	are	determined	by	the	judgements	of	the	Group's	management,	based:	(i)	on	the	best	information	and	knowledge	of	present	events,	
and in some cases, 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	leading	to	a	material	adjustment	in	the	book	value	of	the	assets	and	liabilities	in	the	
following year are presented below:

Goodwill impairment
Every year, the Group conducts a goodwill impairment test, which is recorded in its balance sheet, in accordance with the accounting policy indicated
in Note 2.10. The recoverable values of the cash generating units are determined based on the calculation of the use values. This calculation requires
the use of estimates.

Income tax
The	Group	recognises	liabilities	for	additional	tax	payment	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.

Actuarial assumptions
The	liabilities	related	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.

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.




3. Financial risk management policies

The	management	financial	risk	continues	to	be	conducted	and	supervised	by	the	Group,	covering	its	multiple	and	complex	aspects,	and	is	subject	to	
ongoing coordination between the Management and the Financial Department. The assessment of the acceptable levels of risk in the different areas
and alternative forms of their protection is a key decision-making area which has strong potential impact on the Group's results and stability, whereby
it is a permanent and very demanding challenge to ensure that the Group is safeguarded against the diversity and dimension of the economic shocks
caused by market behaviour. In particular, 2010 witnessed historically unique behaviour in the public debt markets, with extremely strong impacts
on the availability of funding to enterprises in Portugal and Europe in general, as well as growing instability in the commodities markets, especially in
the	oil	markets,	where	prices	increased	gradually	over	the	year	and	significantly	during	the	final	phase	of	2010.


Price risk

Over	recent	years	there	has	been	a	sharp	transformation	in	the	"physionomy"	of	the	global	economy,	with	significant	alterations	in	the	dynamics	and	
relative economic weight among developed countries and emerging economies, with the last ones recently having shown higher average growth and
a	stronger	level	of	resistance	to	the	economic	crises	than	the	economies	of	Europe,	USA	and	Japan.	Growth	of	10%	in	China	(9%	in	2009)	and	7.5%	
in	India	and	Brazil	in	2010	(5%	and	0%	in	2009),	contrast	yet	again	with	the	rates	of	2.8%	in	the	USA	(-2.6%	in	2009)	and	1.8%	for	the	European	
Union	as	a	whole	(-4.2%	in	2009).	In	general	terms,	the	economies	of	the	"former	Third	World",	in	Asia,	Latin	America	and	Africa,	many	of	which	are	
important	producers	of	commodities	and	with	significant	demographic	growth	rates,	a	very	young	population	with	increasing	qualification	levels,	
have assumed a preponderant weight in the global economic panorama and growing importance in world trade.

In	the	Group’s	case	the	growing	diversification	and	increase	of	offer	in	the	different	air	transport	routes,	in	Brazil,	Africa	or	Eastern	European	destinations,	
has enabled meeting the increased demand arising from the most dynamic markets. This strategy constitutes an important factor in the mitigation of
market risks, since these risks could become excessive if the Group's geographical concentration were to be maintained at the same level or increased.

As an example, note should be made of the weight of the internal market in terms of total ticket sales (effective revenue), which was limited in
2010	to	less	than	30%,	and	the	combined	sales	of	Europe	(including	the	East	and	Scandinavia)	for	the	different	destinations	represented	approxi-
mately	36%.	The	weight	of	the	Brazilian	market	in	total	ticket	sales	in	2010	was	22%,	with	Africa	representing	approximately	7%.	Indeed	the	extent	
and coverage of the network offered, enables synergies and complementarities, with the offer of routes on the Brazilian market contributing to



                                                                                                                                          Annual Report 2010    TAP Group   129
                  strengthen	overall	sales	in	European	markets,	as	well	as	the	diversity	of	the	offer	in	Europe	stimulates	traffic	across	the	Atlantic	and	from	Africa,	
                  both of which increasingly use Lisbon hub.

                  The price policy, and its impact on revenues, is naturally conditioned at the costs level by the behaviour of fuel, for which the mechanism of surcharges
                  is activated in case of sharply rising prices, which took place in 2010 due to the increase in the price of fuel.

                  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	flight	frequencies,	the	brand	image,	the	greater	or	lesser	demand	for	the	available	destinations,	the	development	
                  of tourist, ethnic and business demand, and the opening up of new destinations.


                  Exchange rate risk

                  The exchange rate exposure of the group is the result, at the revenue level, of the geographic distribution of the sales (of air tickets and cargo, as well
                  as of maintenance services), namely in European markets outside the Euro zone and markets outside Europe such as Brazil, with sales outside of the
                  national	market	representing	a	significant	proportion	of	total	ticket	sales.	At	the	costs	level,	various	sources	contribute	towards	significant	exposure	
                  to the dollar, either directly through Operations, as is the case of fuel, or indirectly through investments such as the acquisition of aircraft, with con-
                  tractual prices denominated in USD.

                  In	2010	the	USD	appreciated	against	the	Euro	once	again.	After	an	average	appreciation	of	5%	in	2009	compared	to	2008,	in	2010	the	USD	appre-
                  ciated	once	again	by	5%	on	average	in	comparison	to	2009,	from	1.39	to	1.32.	The	Brazilian	Real	maintained	its	trend	of	appreciation	against	the	
                  Euro and, to a lesser extent, against the USD. Hence, having started at around 3 Reais per Euro in the beginning of 2009, following the post Lehman
                  Brothers wake of turbulence, the Real appreciated to 2.5 at the end of 2009 and reached levels of 2.2 to 2.3 by the end of 2010.

                  The Group's exposure to the USD is centred, mainly in fuel costs, since its market continues to be based in USD. Since fuel consumption represents
                  close	to	860	thousand	tons,	and	the	average	price	per	ton	of	jet	fuel	(reference	CIF	NWE)	was	725	USD	in	2010,	exposure	to	the	USD	stood	at	approxi-
                  mately 624 million USD, equivalent to 472 million Euros.

                  Added to the fuel costs are other cost structure items, albeit of far lesser value, such as navigation and airport taxes, maintenance materials and aircraft
                  operating leasing. However, the weight of revenue in the group of countries where the fares and sales are indexed to the USD, such as Brazil, Angola and
                  the	USA,	representing,	in	the	case	of	ticket	sales,	30%	of	the	total,	merely	corresponds,	in	this	activity	segment	(excluding	Cargo,	Mail	and	Maintenance),	
                  approximately 650 million USD, equivalent to 500 million Euros. It can be concluded, therefore, that, except in situations of extreme evolutions of the
                  fuel price as occurred in 2008, there is a natural hedge in the most important currency conversion relationship, that of the Euro against the USD.

                  It should also be noted that, in 2010, no foreign exchange hedging operations were carried out relative to the exchange rate exposure of the debt,
                  which	continued	to	be	almost	totally	denominated	in	Euros	(approximately	97%	of	the	total	at	the	closing	of	the	financial	year)

                  The	exposure	of	the	Group	to	exchange	rate	risk	as	at	31	December	2010,	based	on	the	balance	sheet	values	of	the	Group's	financial	assets	and	liabili-
                  ties converted into Euros at the exchange rates in force at the end of the reporting period is detailed below:

                                     Assets and liabilities in foreign currency
                                                                                               USD                BRL            OTHER             TOTAL
                                     31-Dec-10
                                     ASSETS
                                          Cash and cash equivalents                           18,449            12,610            20,973            52,032
                                          Accounts receivable – customers                     29,912            97,523            24,969           152,404
                                          Accounts receivable – other                         22,042            17,892             4,135            44,069
                                                                                             70,403           128,025            50,077           248,505


                                     LIABILITIES
                                          Remunerated liabilities                             38,792                 –                 –           38,792
                                          Accounts payable – suppliers                        15,865            13,967             3,994            33,826
                                          Accounts payable – other                              159              4,697              268              5,124
                                                                                             54,816            18,664              4,262           77,742


                                     Assets and liabilities in foreign currency
                                                                                               USD                BRL            OTHER             TOTAL
                                     31-Dec-09
                                     ASSETS
                                          Cash and cash equivalents                           18,899             6,064            33,556            58,519
                                          Accounts receivable – customers                     39,052            76,114            15,479           130,645
                                          Accounts receivable – other                         26,160            19,076             2,890            48,126
                                                                                             84,111           101,254            51,925           237,290


                                     LIABILITIES
                                          Remunerated liabilities                             41,688                 –                 –           41,688
                                          Accounts payable – suppliers                        19,740            12,527             3,489            35,756
                                          Accounts payable – other                              349              5,442              376              6,167
                                                                                             61,777            17,969              3,865           83,611




130   TAP Group      Annual Report 2010
Interest rate risk

2010 was characterised by an attitude of extreme caution by the monetary authorities in Europe and the United States, so as not to compromise the
hesitant recovery of the economies of the developed countries, through the effect of a premature increase in their respective interest rates. In this way,
the	reference	rates	were	maintained	at	1%	in	the	Euro	zone	and	close	to	zero	in	the	USA.	However,	both	short	and	long	term	market	rates	began	on	
an	upward	trend,	respectively,	in	the	2nd	and	3rd	quarters	of	2010.	The	6-month	Euribor,	for	example,	increased	from	1%	to	1.25%	and	the	5	year	
rate,	which	had	fallen	in	the	1st	semester	from	close	to	3%	down	to	2%,	rose	to	2.5%	during	the	second	half	of	the	year.	It	should	be	noted	in	particu-
lar	that	in	various	emerging	markets	and	some	developed	economies	there	were	increases	in	official	rates,	as	concerns	with	inflation	superseded	fears	
of	economic	deceleration	or	stagnation.	These	concerns	related	to	increased	prices	intensified	by	the	end	of	the	year	with	the	increasingly	sharper	
increases in the prices of most commodities, especially those of foodstuffs and energy.

The Group's remunerated debt decreased by approximately 26 million Euros, between 31 December 2009 and 31 December 2010. Over the year, and
in	spite	of	the	growing	difficulties	of	the	national	economy	in	obtaining	financing,	there	was	a	renewal	of	the	short	term	operations	in	force,	the	refi-
nancing	of	various	long	term	leasing	operations	and	the	contracting	of	a	financing	operation	for	working	capital	of	the	Schuldschein type, for 5 years.
The	operations	contracted	over	2010	were	both	at	variable	and	fixed	rates.	As	at	31	December	2010,	the	exposure	to	the	variable	rate	represented	
46%	of	the	total,	compared	with	54%	to	the	fixed	rate.	It	should	be	noted	that,	at	the	variable	rate,	the	most	significant	part	of	the	components	were	
indexed	to	the	3-month	Euribor	(40%)	while	the	1	and	6-month	rates	merely	represented	3%	each.	The	average	spread	of	the	total	debt,	even	after	
the deterioration of the funding conditions which took place in 2010, remained at moderate and sustainable levels, which was also the case of the
average	rate	of	the	group	of	operations	at	fixed	rates.	The	debt	maturity	remained	at	adequate	levels	at	the	end	of	2010,	with	only	5.5%	of	the	total	
represented by short term and automatically renewable loan facilities and, even if the termination of these short term operations were assumed in
2011,	the	average	life	of	the	total	debt	would	stand	at	approximately	3.5	years,	with	a	staggered	but	stable	amortisation	profile	for	most	of	the	fund-
ing	over	the	next	7	years,	and	where	the	remaining	values	for	subsequent	years,	from	2018	to	2020,	is	less	significant.

The table of Remunerated Liabilities presented below, which includes principal and interest, is based on the following assumptions relative to mar-
ket	interest	rates	and	the	Euro/USD	exchange	rate:	3%	for	the	Euribor,	1.75%	for	the	Dollar	Libor,	and	1.3362	for	the	Euro	Dollar.	The	liability	values	
express	the	values	payable	within	the	respective	periods	of	life	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:

     31-Dec-10                                    < 1 year        1 - 2 years       3 - 5 years     6 - 10 years       > 10 years            TOTAL
     Loans                                          160,565           85,607           310,878           135,671                 –           692,721
     Financial leasing                              131,747          119,340           321,236           190,979                 –           763,302
     TOTAL                                         292,312           204,947           632,114          326,650                  –         1,456,023


     Loans	–	fixed	rate                              51,747           51,748           205,703            98,134                             407,332
     Financial	leasing	–	fixed	rate                  72,906           49,609           158,039           106,791                             387,345
     TOTAL FIXED RATE                              124,653           101,357           363,742          204,925                  –           794,677



     31-Dec-09                                    < 1 year        1 - 2 years       3 - 5 years     6 - 10 years       > 10 years            TOTAL
     Loans                                          156,509           84,609           250,879           220,505                 –           712,502
     Financial leasing                              143,418          112,310           274,676           245,097             6,399           781,900
     TOTAL                                         299,927           196,919           525,555          465,602             6,399          1,494,402


     Loans	–	fixed	rate                              59,472           49,243           147,551           147,262                 –           403,528
     Financial	leasing	–	fixed	rate                  93,785           78,471           167,173           162,372             6,399           508,200
     TOTAL FIXED RATE                              153,257           127,714           314,724          309,634             6,399            911,728



Note	27	details	the	breakdown	of	the	remunerated	bank	debt,	indicating	the	financing	entity	and	respective	reference	rate.


Fuel price risk

After the oil shock of mid-2008, with Brent at 145 USD/barrel, the retraction in the 2nd half of that year led to minimum prices of 35 USD/barrel by
the end of 2008. A year later, the market price stood at almost double this value and remained there, stable, between 70 and 80 USD/barrel until last
autumn,	when	the	present	price	hike	began.	The	same	effect	was	experienced	in	aircraft	fuel	prices,	with	significant	increased	at	the	end	of	2010.	
Retrospectively,	jet	fuel	presented	average	values	per	metric	ton	around	700	USD	in	2007,	1,000	USD	in	2008,	560	USD	in	2009	and	725	USD	in	
2010.	By	the	end	of	2010,	the	price	of	jet	fuel	was	close	to	850	USD	per	ton.

The	concern	to	guarantee	the	predictability	of	fuel	costs	led	to	various	jet	fuel	hedging	operations.	Part	of	the	hedging	for	the	first	semester	of	2010	
had been carried out in 2009, and in the beginning of the 2nd quarter a further series of operations were conducted so as to guarantee a very high
hedge	ratio	over	the	entire	year,	of	around	75%	of	forecast	consumption	levels.	As	a	result	of	the	market	fluctuations	which	took	place,	the	final	result	
achieved through the hedging operations proved to be slightly negative, in terms of treasury, in spite of the fact that, for example, various losses were
compensated	for	over	the	year	by	more	significant	gains	at	the	end	of	the	year,	for	which	the	hedging	level	stood	at	close	to	100%.




                                                                                                                                     Annual Report 2010   TAP Group   131
                  The exposure to fuel prices is one of the most important factors of the Group's net exchange rate exposure (especially when fuel prices are high)
                  because	the	jet	fuel	market	is	denominated	in	dollars	and	fuel	is	the	main	variable	cost	item.	A	considerable	fall	in	fuel	prices	significantly	reduces	the	
                  Group's net exposure to the USD.

                  The sensitivity analysis related to the cost of fuel for the company was based on the assumptions below:


                  Standard consumption: 860 thousand tons
                  Variation: 100 USD/ton
                  EUR/USD exchange rate: 1.30
                  Annual impact on Operations: 86 million USD, approximately 66 million Euros




                  Credit and liquidity risk

                  The cash balance is a critical and determinant variable of the Group's stability. This variable requires special attention due to the susceptibility of liquid-
                  ity	to	the	general	economic	fluctuations	and	to	the	oscillations	in	priority	markets	such	as	the	oil	market.

                  The main factor constraining the funding conditions of companies over the year was the emergence of the sovereign debt crisis which very sig-
                  nificantly	penalised	Europe	and,	in	particular,	the	most	indebted	Member	States	of	the	periphery	of	the	Euro	zone	–	Greece,	Ireland	and	Portugal	
                  –,	which	was	communicated	intensively	to	the	private	sector’s	access	to	funds.	In	addition	to	the	enormous	increase,	from	4%	to	7%,	in	yields	of	
                  national public debt at 10 years, over the year, the Credit Default Swaps (CDS) of the Portuguese Republic, which measure the risk of solvency of
                  Portugal,	also	increased	sharply	from	levels	below	1%	at	the	beginning	of	the	year	to	5%	by	the	end	of	the	year.	Other	evident	measures	of	the	finan-
                  cial	stress	experienced	by	Portugal	were	the	dramatic	increasing	of	the	CDS	of	the	national	banking	system,	the	growing	difficulties	of	access	to	funds	
                  of the national banking system in monetary markets and the massive funding from the European Central Bank, as well as the decreases of the ratings
                  of banks, public sector companies and the Portuguese State. All these negative evolutions had extremely strong repercussions on the increases in
                  spreads to the entire private sector, from SMEs to large companies.

                  In a year when various long term operations matured, the restrictions in access to loans and their high cost led the Group to dedicate additional
                  efforts	to	the	liquidity	management	area	and	carry	out	the	necessary	transactions	in	the	financial	markets	in	order	to	maintain	adequate	liquidity	
                  levels.	This	effort	was	reflected	in	more	complex	and	lengthy	negotiations	where	the	costs	related	to	debt	were	higher	for	most	of	the	new	contracted	
                  operations,	as	a	result	of	the	context	of	extreme	financial	restriction	at	a	generalised	level.	However,	in	the	contracts	signed	it	was	possible	to	include	
                  balanced clauses and with operational mechanisms enabling, namely, early rescission solutions, in an economically feasible manner, in the event of
                  a	significant	improvement	in	the	financial	markets	in	the	future.

                  The carrying out of various leasing operations, working capital and credit line renewal did not result in an increase in gross debt, because, on the one
                  hand,	they	were	used	namely	to	compensate	the	programmed	settlement	of	long	term	operations	in	their	final	stage	of	life,	and	on	the	other	hand,	
                  this	did	not	significantly	change	the	debt	maturity,	since	most	of	them	were	medium	and	long	term	operations.	Ultimately,	the	current	operations	
                  and	re-funding	effort	resulted	in	a	significant	liquidity	increase	over	the	year.	Therefore,	the	Group's	net	debt	decreased	by	117	million	Euros	in	2010	
                  compared to the previous year.

                  At the end of 2010, and after the changes in debt which took place over the year, the short term components of the Remunerated Liabilities reached
                  the amounts presented in the table below:

                                                                                                          1st Semester               2nd Semester
                                              AMORTISATION
                                                 Loans                                                            33,834                     103,461
                                                 Leasings                                                         61,997                      45,027
                                                 TOTAL                                                            95,831                    148,488


                                              INTEREST
                                                 Loans                                                            11,958                      11,312
                                                 Leasings                                                         13,068                      11,655
                                                 TOTAL                                                            25,026                     22,967


                  Overall,	in	the	Group's	debt	there	was	also	a	diversification	of	the	institutions	with	which	the	funding	contracts	are	established,	both	national	and	
                  foreign, pursuing a policy of broadening the spectrum of counterpart entities, in order to reduce the risk of the operations and foster opportunities
                  of transactions under advantageous conditions. In the area of fund investments, the Group carries out centralised investment management, under
                  conditions	of	maximum	flexibility,	with	guarantees	of	early	mobilisation	without	penalties,	and	always	with	priority	focus	on	the	credit	quality	of	the	
                  entity or entities which receive these investments and their safety.




132   TAP Group      Annual Report 2010
Concerning	operations	with	derivatives,	particular	attention	is	given	to	the	quality	of	the	counterparts,	always	seeking	to	establish	a	sufficient	level	of	
diversification	to	achieve	satisfactory	conditions	of	competitiveness	in	the	hedging	operations.	It	should	be	noted	that	the	interest	rate	and	fuel	swaps	
in force over the year were accompanied by ratings as at 31 December 2010, equal to or greater than A- by Standard & Poors.

The Group's credit risk also lies in the possibility of failure to meet the contractual obligations by certain customers, related for example to main-
tenance 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.	Standard	air	transport	activity	leads	to	significantly	mitigated	risk	incorporated	in	the	
values	to	be	received	from	customers.	In	fact,	there	is	a	recurrently	high	balance	of	customer	advances,	amounts	paid	before	the	flight	takes	place.	
It	is	important	to	note	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 against 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 following table presents information relative to the Group's liquidity position as at 31 December 2010 and 2009, as well as balances of accounts
receivable,	which	reflect	the	credit	risk	on	those	same	dates:

                                                                                                31-Dec-10                  31-Dec-09
                    NON-CURRENT ASSETS
                       Judicial deposits – Brazil                                                    16,283                     14,749
                       Associates and other non-current assets                                       13,914                     15,309


                    CURRENT ASSETS
                       Cash and cash equivalents                                                    222,677                    131,077
                       Accounts receivable – customers                                              223,212                    192,590
                       Associates and other current assets                                          128,134                     90,777
                                                                                                   604,220                    444,502


                    EXPOSURE TO OFF-BALANCE SHEET CREDIT RISK
                    Guarantees provided (Note 60)                                                    40,853                     37,666
                    Other commitments (Note 60)                                                     241,871                    259,777
                                                                                                   282,724                    297,443



It	is	noteworthy	that	over	50%	of	the	total	of	"Accounts	receivable	–	customers"	corresponded	in	2010	to	credit	which	was	not	yet	overdue.	
Concerning overdue credit, the portion which is less than 12 months overdue represented one third of total in 2010. The credit which is more than
1 year overdue refers essentially to receivables from several public entities and to values owed by customers to TAP Manutenção e Engenharia Brasil
as at 31 December 2010.




4. Employees

During 2010 and 2009, the average number of employees working for the company and all its subsidiaries was 10,886 and 11,020, respectively.

2010                                Air Transport            Maintenance    Duty Free shop            Catering                 Other                  TOTAL
Portugal                                        4,513               1,942              366                    499                 830                   8,150
Brazil                                              119             2,187                –                      –                   –                   2,306
Other                                               420               10                 –                      –                   –                    430
                                                5,052              4,139               366                    499                 830                 10,886


2009                                Air Transport            Maintenance        Free Shop             Catering                 Other                  TOTAL
Portugal                                        4,506               1,938              329                    478                 843                   8,094
Brazil                                              112             2,393                –                      –                   –                   2,505
Other                                               411               10                 –                      –                   –                    421
                                                5,029              4,341               329                    478                 843                 11,020




                                                                                                                                        Annual Report 2010      TAP Group   133
                  5. Tangible fixed assets

                  During	the	year	ended	on	31	December	2010,	the	changes	in	tangible	fixed	assets	amounts	and	their	respective	accumulated	depreciation	were	
                  as follows:

                  Tangible fixed assets                     Land and                                                                                                     Fixed assets       Down-payments
                                                                                            Basic      Transport      Tools and    Administrative   Other tangible
                                                              natural      Buildings                                                                                           under               on fixed           TOTAL
                  2010                                                                 equipment      equipment         utensils     equipment              assets
                                                            resources                                                                                                   construction         tangible assets

                  GROSS ASSETS
                    Opening balance                              46,699    348,782     2,163,017             5,282      20,345           69,529           11,774               2,122                   6,321      2,673,871
                    Additions                                         –      1,827       11,294                45        2,125             1,095           1,181               4,332                       –        21,899
                    Recognised impairment losses                  (500)       (440)            –                 –            –                –                –                  –                       –          (940)
                    Disposals                                       (28)      (489)        (933)              (43)            –             (54)             (10)                  –                       –        (1,557)
                    Other transfers / reductions                  (288)     (1,336)     (29,954)              (64)       8,452           (1,275)           7,147              (2,440)                    481       (19,277)
                    Currency conversion differences                 159        255         2,727               12        1,147             2,193                –                238                       –         6,731
                  CLOSING BALANCE                            46,042        348,599 2,146,151             5,232         32,069            71,488           20,092               4,252                   6,802      2,680,727

                  ACCUMULATED DEPRECIATION
                    Re-expressed opening balance                      –    219,348     1,173,627             4,615      13,700           63,582           10,473                   –                       –      1,485,345
                    Additions                                         –      5,947      127,780               332          984             2,250             661                   –                       –       137,954
                    Disposals                                         –        (80)        (873)              (43)            –             (49)               (9)                 –                       –        (1,054)
                    Other transfers / reductions                      –       (315)     (19,660)              (40)       2,892           (1,131)           6,167                   –                       –       (12,087)
                    Currency conversion differences                   –          71        2,034               10          274             1,836                –                  –                       –         4,225
                  CLOSING BALANCE                                     –    224,971 1,282,908             4,874         17,850            66,488           17,292                   –                       –      1,614,383
                  NET VALUE                                  46,042        123,628      863,243               358      14,219             5,000            2,800               4,252                   6,802      1,066,344



                  Tangible fixed assets                     Land and                                                                                                     Fixed assets       Down-payments
                                                                                            Basic      Transport      Tools and     Equipamento     Other tangible
                                                              natural      Buildings                                                                                           under               on fixed           TOTAL
                  2009                                                                 equipment      equipment         utensils   Administrativo           assets
                                                            resources                                                                                                   construction         tangible assets

                  GROSS ASSETS
                    Opening balance                              47,430    349,946     2,134,395             6,097      22,650           83,127           11,698               8,106                   9,387      2,672,836
                    Additions                                         –           –      25,949                72          969             1,223             242               3,312                       –        31,767
                    Recognised impairment losses                 (1,000)          –            –                 –            –                –                –                  –                       –        (1,000)
                    Disposals                                        (2)       (40)     (18,308)             (168)           (6)           (497)             (15)                  –                       –       (19,036)
                    Other transfers / reductions                      –     (1,471)        1,370             (734)      (4,242)         (20,198)            (151)          (10,626)                   (3,066)      (39,118)
                    Currency conversion differences                 271        347       19,611                15          974             5,874                –              1,330                       –        28,422
                  CLOSING BALANCE                            46,699        348,782 2,163,017             5,282         20,345            69,529           11,774               2,122                   6,321      2,673,871

                  ACCUMULATED DEPRECIATION
                    Re-expressed opening balance                      –    215,502     1,050,151             7,877      14,387           70,673           10,653                   –                       –      1,369,243
                    Additions                                         –      5,866      125,948               361        1,059             5,534             232                   –                       –       139,000
                    Disposals                                         –        (12)     (16,492)             (156)           (3)           (472)             (15)                  –                       –       (17,150)
                    Other transfers / reductions                      –     (2,112)        8,382        (3,479)         (2,110)         (17,902)            (397)                  –                       –       (17,618)
                    Currency conversion differences                   –        104         5,638               12          367             5,749                –                  –                       –        11,870
                  CLOSING BALANCE                                     –    219,348 1,173,627             4,615         13,700            63,582           10,473                   –                       –      1,485,345
                  NET VALUE                                  46,699        129,434      989,390               667        6,645            5,947            1,301               2,122                   6,321      1,188,526



                  The increase of 11,294 thousand Euros recorded under "Basic equipment" refers to the acquisition of three used B737/300 engines of 3,558 thousand
                  Euros, spare parts of approximately 3,215 thousand Euros and miscellaneous equipment of approximately 4,521 thousand Euros.

                  The disposal of basic equipment refers essentially to the sale of spare parts of 933 thousand Euros.

                  The transfers of basic equipment refer to assets transferred to inventories, since they are available for sale immediately.

                  As at 31 December 2010, the "Basic equipment" is detailed as follows:

                                                                                                                      2010                                                        2009
                                                                                                    Gross      Accumulated                    Net                    Gross       Accumulated                       Net
                                                                                                    value       depreciation               value                     value        depreciation                   value
                      BASIC EQUIPMENT
                      Flight equipment
                         Aircraft                                                               601,433                (436,373)          165,060                607,859                  (381,943)             225,916
                         Spare engines                                                              49,425              (23,927)           25,498                    46,026                (21,127)              24,899
                         Spare parts                                                            148,137                (110,835)           37,302                147,803                  (108,809)              38,994
                                                                                                798,995               (571,135)          227,860                 801,688                 (511,879)              289,809


                      Flight	equipment	under	financial	leasing
                      Aircraft                                                                 1,209,524               (609,030)          600,494              1,202,316                  (550,422)             651,894
                      Spare engines                                                                  6,867               (1,738)            5,129                     6,867                 (1,352)               5,515
                                                                                              1,216,391               (610,768)          605,623               1,209,183                 (551,774)              657,409
                      Machines and misc. equipment                                              130,765               (101,005)            29,760                152,146                 (109,974)               42,172
                                                                                              2,146,151              (1,282,908)         863,243               2,163,017                (1,173,627)             989,390



134   TAP Group     Annual Report 2010
As	at	31	December	2010	and	2007,	the	Group's	aircraft	fleet	is	detailed	as	follows:	

                                                              2010                                                             2009
                                  Owned by              Financial       Operating          TOTAL         Owned by         Financial      Operating               TOTAL
                                  TAP Group              Leasing          Leasing                        TAP Group         Leasing         Leasing
    Airbus A340                               4                 –                  –              4               4               –                –                 4
    Airbus A310                               –                 –                  1              1               –               –                1                 1
    Airbus A330                               3                8                   1             12               3              8                 1                12
    Airbus A319                               3               12                   4             19               4             11                 4                19
    Airbus A320                               –                5                  12             17               –              5                13                18
    Airbus A321                               –                2                   1              3               –              2                 1                 3
    Fokker 100                                –                6                   –              6               –              6                 –                 6
    Embraer 145                               –                8                   –              8               –              8                 –                 8
                                             10               41                  19             70              11             40                20                71


It should be noted that at as at 31 December 2010 the Airbus A310 aircraft was not in operation.

The	"Down-payments	on	tangible	fixed	assets"	refer	namely	to	down-payments	for	the	future	acquisition	of	aircraft.




6. Investment properties

As at 31 December 2010, "Investment properties" refers to the value assigned to two buildings in Maputo (Mozambique), one of which is leased to
third parties, and two apartments in Sacavém.

                                                                                                         31-Dez-10            31-Dez-09
                                OPENING BALANCE                                                               1,287                   1,287
                                  Other variations                                                            1,320                       –
                                CLOSING BALANCE                                                               2,607                   1,287




According to the evaluations obtained, the fair value of the abovementioned assets exceeds their book value by 195 thousand Euros.




7. Goodwill

During 2010 and 2009, the changes in Goodwill were as follows:

                                                  Opening                                         Impairment losses         Exchange rate                    Closing
  31-Dec-10                                                         Increases
                                                  balance                                               for the year            variation                    balance
  Air Transport                                     63,099                    –                                    –                          –                   63,099
  Maintenance and Engineering Brazil               141,333                    –                                    –                    6,583                    147,916
                                                   204,432                    –                                    –                    6,583                    211,015


                                                  Opening                                         Impairment losses         Exchange rate                    Closing
  31-Dec-09                                                         Increases
                                                  balance                                               for the year            variation                    balance
  Air Transport                                     63,099                    –                                    –                          –                   63,099
  Maintenance and Engineering Brazil               130,106                    –                                    –                   11,227                    141,333
                                                   193,205                    –                                    –                   11,227                    204,432



The 6,583 thousand Euros refers to the goodwill foreign exchange rate variation of the Aero-LB which is denominated in Reais (124,880,960 BRL).

Pursuant	to	IAS	36,	goodwill	is	subject	to	impairment	tests	on	an	annual	basis	in	accordance	with	the	accounting	policy	described	in	Note	2.10.

Goodwill	is	attributed	to	the	Group's	cash	generating	units	(CGUs),	identified	according	to	the	business	segment	and	country	of	operation,	as	follows:

                                                          31-Dec-10                                                        31-Dec-09
                                       Air Transport      Maintenance                    Total         Air Transport      Maintenance                    Total
    Portugal                                  63,099                      –             63,099                 63,099                    –              63,099
    Brazil                                          –               147,916            147,916                        –          141,333               141,333
                                              63,099                147,916            211,015                 63,099            141,333               204,432



For	the	purpose	of	impairment	tests,	the	recoverable	value	of	the	CGUs	is	calculated	based	on	the	value	in	use,	following	the	discounted	cash	flow	
method. The calculations are based on historical performance and expectations of business development with the current productive structure, using
the	budget	for	the	following	year	and	estimated	cash	flows	for	the	next	4	years.

For the business unit of TAP Manutenção e Engenharia Brasil, S.A. a budget for the following year was used in addition to an estimate for the subse-
quent	period	of	9	years	which	included,	namely,	the	recovery	of	the	existing	tax	losses	in	the	cash	flow	estimate.



                                                                                                                                                  Annual Report 2010       TAP Group   135
                  As	a	result	of	the	impairment	tests	carried	out	for	different	CGUs,	no	impairment	losses	in	goodwill	were	identified.

                  The main assumptions used for impairment tests were the following:

                                                      31-Dec-10                                                               Portugal                Brazil
                                                      Discount rate*                                                              8.90%              14.50%
                                                      CAGR of the revenue**                                                       0.00%              13.20%
                                                      Perpetuity Growth                                                           0.00%               4.00%
                                                      Tax Rate                                                                   26.50%              34.00%


                                                      31-Dec-09                                                               Portugal                Brazil
                                                      Discount rate*                                                              8.08%              12.00%
                                                      Perpetuity Growth                                                           0.00%               4.00%
                                                      Tax Rate                                                                   26.50%              34.00%

                                                      * Discount rate net of taxes
                                                      ** Compound Annual Growth Rate of the revenue: year-on-year growth rate of an investment during a given
                                                         period of time




                  The impairment tests carried out in 2010 sustain the recoverability of the book value of the abovementioned cash generating units. As at 31
                  December 2010, the book value of the air transport unit reaches 110,257 thousand Euros, and the book value of the business unit Manutenção do
                  Brasil is negative by 118,707 thousand Euros.




                  8. Intangible assets
                  During 2010 and 2009, the changes in the "Other intangible assets" were as follows:

                                                                                                       Research and             Industrial property
                                                                                                                                                                TOTAL
                                                                                                  development costs                and other rights
                             ACQUISITION COST
                               Balance as at 01 January 2009                                                      20,053                        11,952           32,005

                               Acquisitions                                                                             –                             –               –
                               Disposals                                                                                –                             –               –
                               Regularisations, transfers and reductions                                                –                             –               –
                               Balance as at 31 December 2009                                                     20,053                        11,952           32,005

                               Acquisitions                                                                             –                             –               –
                               Disposals                                                                                –                             –               –
                               Regularisations, transfers and reductions                                                –                             –               –
                               Balance as at 31 December 2010                                                     20,053                        11,952           32,005


                             ACCUMULATE DEPRECIATION AND IMPAIRMENT LOSSES
                               Balance as at 01 January 2009                                                    (20,053)                       (7,857)          (27,910)

                               Depreciation and impairment losses                                                       –                       (1,980)          (1,980)
                               Disposals                                                                                –                             –               –
                               Balance as at 31 December 2009                                                     20,053                       (9,837)          (29,890)

                               Depreciation and impairment losses                                                       –                         (668)            (668)
                               Disposals                                                                                –                             –               –
                               Balance as at 31 December 2010                                                   (20,053)                      (10,505)          (30,558)


                               Net value as at 01 January 2009                                                          –                        4,095            4,095
                               Net value as at 31 December 2009                                                         –                        2,115            2,115
                               Net value as at 31 December 2010                                                         –                        1,447            1,447




                  The 1,447 thousand Euros refers to the maintenance license, of the amount of 5,000 thousand USD, valid for 10 years and granted by CFM
                  International, S.A. (CFMI), which allows the Group to provide, to third parties, information and technical support related to engines that TAP S.A.
                  does not currently operate. This license is amortised by the straight line method over that period, and its net value reaches 1,447 thousand Euros.




                  10. Financial shareholdings – equity method

                  As	at	31	December	2010	and	2009,	TAP	Group	did	not	have	any	assets	under	the	category	of	financial	shareholdings	recorded	through	the	equity	
                  method	(see	"Provisions	for	financial	investments"	in	Note	26).




136   TAP Group     Annual Report 2010
11. Financial shareholdings – other methods

As	at	31	December	2010	and	2009,	TAP	Group	did	not	have	any	assets	under	the	category	of	financial	shareholdings	recorded	through	other	methods.




13. Other financial assets

As	at	31	December	2010	and	2009,	the	other	financial	assets	were	detailed	as	follows:

                                                                                             31-Dec-10                              31-Dec-09
                                                                              Current       Non-current           Current          Non-current
              Financial	investments	at	fair	value	through	profit	or	loss
                 Other                                                               –                 –                 –                   –
              Available for sale
                 Other                                                               –                 –                 –                   –
              Loans granted and accounts receivable                                  –             2,966                 –               3,395
                                                                                                   2,966                                 3,395



As	at	31	December	2010	and	2009,	the	other	financial	assets	were	detailed	as	follows:	
                                                                                             31-Dec-10             31-Dec-09
                                   SITA Group Foundation                                             474                     474
                                   Bank deposits in Mozambique                                       524                     443
                                   Loan – Salvor Hotéis Moçambique                                 1,578                 2,261
                                   Other                                                             390                     217
                                                                                                   2,966                 3,395


The	SITA	Group	Foundation	amount	refers	to	437,070	certificates	(non-listed	securities)	of	this	company,	which	was	founded	by	Société	International	
de Télécommunications Aéronautiques.

The loan to SALVORHOTÉIS Moçambique came out from funds owned by TAP S.A in 1997 which could be used only 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.	In	the	beginning	
of	2010,	the	company	received	3,250	thousand	USD,	representing	2,261	thousand	Euros,	with	the	adjustment	of	the	same	amount	having	been	
reversed	in	2009.	In	2010	an	agreement	was	signed	for	the	repayment	of	the	remaining	balance,	hence	the	remaining	adjustment	of	1,788	thousand	
Euros was reversed (see Note 44).

The changes in this item in 2010 and 2009 were as follows:

                                                                                             31-Dec-10             31-Dec-09
                                   Fair value at the beginning of the year                         3,395                 1,134
                                   Acquisitions                                                        –                       –
                                   Reductions                                                     (2,298)                      –
                                   Exchange rate variation                                            81                       –
                                   Other movements (Note 44)                                       1,788                 2,261
                                   Fair value at the end of the year                               2,966                 3,395



The decrease in 2010 refers essentially to the repayment of 2,261 thousand Euros of the loan granted to SALVORHOTÉIS Moçambique.



15. Deferred tax assets and liabilities

TAP	Group	recorded	in	its	financial	statements	the	tax	effect	of	the	temporary	differences	between	assets	and	liabilities	for	accounting	and	tax	pur-
poses,	which	was	calculated	based	on	the	following	aggregate	tax	rates:	25%	for	deferred	tax	assets	related	to	reportable	tax	losses,	and	29%	(26.5%	
in 2009) for other deferred tax assets and liabilities.

However,	in	TAP	S.A.,	although	the	temporary	asset	differences	are	significantly	higher	than	those	for	liabilities,	TAP	S.A.	recognises	only	the	tempo-
rary	asset	differences	up	to	the	concurrence	of	the	temporary	liability	differences,	since	there	is	no	real	expectation	of	sufficient	future	tax	profits	to	
use them beyond those amounts. Thus, at the end of each reporting period 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.




                                                                                                                                        Annual Report 2010   TAP Group   137
                  The main temporary differences between accounting and taxable amounts as at 31 December 2010 and 2009, the corresponding deferred tax assets
                  and liabilities and the respective effect on net income for 2010 and 2009 are as follows:

                                                                                                    Variations with effects         Variations with effect
                  31-Dec-10                                                    Opening balance                                                                  Closing balance
                                                                                                            on Net Income                       on Equity
                  Deferred Tax Assets
                  Reportable tax losses                                                  3,499                         (709)                               –              2,790
                  Retirement	benefit	liabilities                                        12,474                         3,854                          716                17,044
                  Inventory impairment losses                                            8,248                        (3,623)                              –              4,625
                                                                                        24,221                         (478)                          716                24,459

                  Deferred Tax Liabilitie
                  Revaluations carried out                                              24,064                         (874)                         1,493               24,683
                                                                                        24,064                         (874)                         1,493               24,683

                                                                                                                         396                         (777)



                                                                                                    Variations with effects         Variations with effect
                  31-Dez-09                                                    Opening balance                                                                  Closing balance
                                                                                                            on Net Income                       on Equity
                  Deferred Tax Assets
                  Reportable tax losses                                                  1,062                         2,437                               –              3,499
                  Retirement	benefit	liabilities                                        15,651                        (3,177)                              –             12,474
                  Inventory impairment losses                                            8,176                            72                               –              8,248
                                                                                        24,889                         (668)                               –             24,221

                  Deferred Tax Liabilitie
                  Revaluations carried out                                              24,712                         (648)                               –             24,064
                                                                                        24,712                         (648)                               –             24,064

                                                                                                                        (20)                               –




                  Reportable tax losses without deferred tax assets

                  The	Tax	losses	which	the	Group	considers,	as	at	31	December	2010,	that	it	is	not	possible	to	deduct	from	future	taxable	profits,	and	therefore	without	
                  deferred tax assets, are broken down as follows:

                  01 January 2010                                                      2004       2005       2006          2007        2008        2009         2010     TOTAL
                  TAP–Transportes Aéreos Portugueses, SGPS, S.A.                       1,853      1,040       4,085         2,331      1,765       1,526          n/a    12,600
                  Transportes Aéreos Portugueses, S.A.                                     –          –           –             –    197,294           –          n/a   197,294
                  Portugália – Companhia Portuguesa Transportes Aéreos, S.A.          14,400     34,070      39,340       27,979         156           –          n/a   115,945
                  TAP Manutenção e Engenharia Brasil, S.A.                             4,839     22,111      47,041       59,371      31,105     119,684          n/a   284,151
                                                                                      21,092     57,221     90,466        89,681    230,320     121,210           n/a   609,990


                  Use of Reportable Tax Losses
                  in 2010                                                              2004       2005       2006          2007        2008        2009         2010     TOTAL
                  TAP – Transportes Aéreos Portugueses, SGPS, S.A.                         –          –           –             –          –           –          n/a          –
                  Transportes Aéreos Portugueses, S.A.                                     –          –           –             –    (44,682)          –          n/a   (44,682)
                  Portugália – Companhia Portuguesa Transportes Aéreos, S.A.               –          –           –             –          –           –          n/a         –
                  TAP Manutenção e Engenharia Brasil, S.A.                                 –          –           –             –          –           –          n/a         –
                                                                                           –          –           –             –   (44,682)           –          n/a   (44,682)


                  31 December 2010                                                                                                                              2010
                                                                                       2004       2005       2006          2007        2008        2009 (Provisional)    TOTAL
                  TAP – Transportes Aéreos Portugueses, SGPS, S.A.                       n/a      1,040       4,085         2,331      1,765       1,526        2,925    13,672
                  Transportes Aéreos Portugueses, S.A.                                   n/a          –           –             –    152,612           –            –   152,612
                  Portugália – Companhia Portuguesa Transportes Aéreos, S.A.             n/a     34,070      39,340       27,979         156           –        3,102   104,647
                  TAP Manutenção e Engenharia Brasil, S.A.                               n/a     22,111      47,041       59,371      31,105     119,684       54,261   333,573
                                                                                         n/a     57,221     90,466        89,681    185,638     121,210        60,288   604,504



                   DEDUCTION DEADLINE YEAR                                               n/a      2011        2012          2013       2014        2015         2016



                  In 2006, the subsidiary Transportes Aéreos Portugueses, S.A. carried out, under Decree-Law No. 453/99, of 5 November, a securitisation opera-
                  tion of future loans, in which Deutsche Bank acted as the lead manager and where the future receivables were acquired by Tagus – Sociedade de
                  Titularização de Créditos, S.A.

                  As a result of this operation, and pursuant to number 1 of article 2 of Decree-Law No. 219/2001, of 4 August, the amount of 230,000,000 Euros was
                  added	for	the	determination	of	the	taxable	profit	for	the	year	2006.	It	should	be	noted	that	the	tax	losses	reported	for	2000	and	2001	were	deducted	
                  from the calculated taxable income.




138   TAP Group      Annual Report 2010
The liabilities recorded by TAP S.A., corresponding to the amount received from the sale of the future receivables, of 230,000,000 Euros, net of the
operation expenses of 779 thousand Euros, will be repaid between March 2009 and December 2016, as the receivables are handed over to the credit
securitisation	company.	The	financial	cost	associated	to	the	liability	generated	by	the	sale	of	these	receivables	is	in	line	with	market	rates.	

The report prepared by the Tax Authorities in 2008, presents a divergent understanding to the one issued by the Group, based essentially on the
non-applicability	of	Decree-Law	No.	219/2001,	of	4	August.	The	Tax	Authorities	consider	that	the	said	operation	constitutes	a	financial	liability,	and	
thus does not result, on its own, in a calculation of any corporate taxable income (IRC), concluding that a correction to the taxable income of 2006,
of 230,000,000 Euros 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.

It	should	be	noted	in	particular	that	the	said	correction	has	been	adjusted	in	the	reportable	tax	losses	presented	above.




16. Advances to suppliers
                                     Current                                                     31-Dec-10    31-Dec-09
                                     ADVANCES TO SUPPLIERS:
                                         Current account                                             3,465        2,182
                                                                                                     3,465        2,182



The amount recorded as at 31 December 2010 and 2009 refers to the following entities:

                                                                                                 31-Dec-10    31-Dec-09
                                     Império Bonança – Comp, Seguros                                   737            –
                                     SITA                                                              501          471
                                     SPdH                                                              434            –
                                     Chapman Freedom Airchatering                                      252          136
                                     Boeing Commercial Airplane Comp,                                  226          200
                                     Airbus                                                            138            –
                                     Unibanco, S,A,                                                      –          316
                                     FRB Serviços de Alimentação Ltda                                   75          250
                                     Other                                                           1,102          809
                                                                                                     3,465        2,182




17. State and other public entities

The balances with the State and other public entities are detailed as follows:

                                     Current                                                     31-Dec-10    31-Dec-09
                                     ASSETS
                                         State and other public entities
                                              Income tax payable                                       601          504
                                              Other                                                 15,232       24,310
                                                                                                    15,833       24,814


                                     LIABILITIES
                                         State and other public entities
                                              Income tax payable                                     6,713        2,745
                                              Other                                                140,349      109,946
                                                                                                   147,062      112,691

The amounts relative to 2010 and 2009 can be detailed as follows:

                                                                                     31-Dec-10                                31-Dec-09
                                                                           Debtor                 Creditor       Debtor                    Creditor
          STATE – GRANTS RECEIVABLE
            Compensatory indemnities                                         6,318                        –        14,566                          –
          STATE AND OTHER PUBLIC ENTITIES:
            IRC (corporate income tax)                                        601                     4,556          504                       2,745
            IRS                                                                  –                   10,980               –                    7,843
            VAT (value added tax)                                            3,917                     902          4,043                        203
            Social Security                                                      –                   13,627               –                   12,788
            State – Brazil                                                   4,519                  116,837         5,352                     88,602
             Other                                                            478                      160           349                         510
                                                                           15,833                  147,062        24,814                     112,691




                                                                                                                                          Annual Report 2010   TAP Group   139
                  As at 31 December 2010, the amount recorded as "Compensation" includes the portion of the fare granted by the Government for the routes of the
                  Autonomous Region of Azores of part of the year of 2009 and the full year of 2010, of 4,189 thousand Euros. These amounts correspond to tickets
                  sold	by	TAP	S.A.	which	may	be	used	on	TAP	S.A.	or	other	airline	flights.	

                  This	item	also	includes	the	amount	receivable	from	the	Government	of	2,129	thousand	Euros	relative	to	flights	between	the	islands	of	the	
                  Autonomous Region of Azores.

                  The	figures	for	2009	and	2010	have	not	yet	been	calculated	and	audited	by	the	Tax	Authorities	or	approved	by	the	Government;	however,	no	signifi-
                  cant corrections to the amounts recorded by TAP S.A. are expected.

                  The decrease in this item compared with the previous year is mainly due to the fact that the credit relative to Government compensation on the
                  Madeira route have been claimed from the Government directly by residents and/or students since the second quarter of 2008.

                  The VAT debtor balance refers to the reimbursement request made in October, November and December 2010, to be received in 2011.

                  As at 31 December 2010 and 2009 the "State – Brazil" was detailed as follows:

                                                                                                   31-Dec-10                                      31-Dec-09
                                                                                         Debtor                Creditor               Debtor                    Creditor
                            REFIS                                                              –                103,684                      –                     52,279
                            Other                                                          4,519                 13,153                  5,352                     36,323
                                                                                           4,519                116,837                  5,352                    88,602



                  In	2009	the	subsidiary	TAP	Manutenção	e	Engenharia	Brasil,	S.A.	joined	the	tax	refinancing	programme,	called	REFIS,	in	this	way	having	compen-
                  sated	part	of	the	interest	and	contingency	fines	related	to	rent	tax	and	deferred	social	security	contributions,	of	the	total	tax	losses	and	negative	social	
                  security contribution base, therefore having reduced its debt by 49,448 thousand Euros.

                  The	adherence	to	the	above	tax	refinancing	programme	had	a	favourable	impact	of	55,734	thousand	Euros	on	net	income	for	2009,	which	is	
                  recorded as "Other income and gains" (Note 48).

                  In	2010	the	liability	assumed	by	the	subsidiary	was	reclassified	from	"Provisions"	to	"State	and	other	public	entities",	which	justifies	the	increased	credi-
                  tor balance associated to REFIS.

                  In 2010, as a result of the application of temporary measures derived from the Growth and Stability Plan (PEC) instituted by Law 12-A/2010, the
                  Group	began	to	reflect	its	estimate	for	tax	based	on	the	rate	of	29%	instead	of	26.5%	which	had	been	applicable	up	to	this	date.

                  Decree-Law	No.	258/98	of	17	August	repealed	the	tax	exemptions	which	TAP	S.A.	had	benefited	from	until	then	and	had	been	established	in	base	
                  XII attached to Decree-Law No. 39.188 of 25 April 1953 and in Decree-Laws No. 39.673, of 22 May 1954, No. 41.000 of 12 February 1957 and No.
                  44.373 of 29 May 1962, which implied that TAP S.A. is no longer exempt from payments of tax and other contributions to the State.

                  In	accordance	with	current	legislation,	the	tax	returns	of	companies	included	in	the	consolidation	are	subject	to	review	and	correction	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, in which cases, depending on the circumstances, these periods may be extended or suspended.
                  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	2010.

                  Under	the	terms	of	article	88	of	the	Corporate	Income	Tax	Code,	the	companies	of	the	Group	are	subject	to	autonomous	taxation	on	several	expenses,	
                  at the tax rates listed therein.




                  18. Other accounts receivable
                  As at 31 December 2010 and 2009, the "Other accounts receivable" are detailed as follows:

                                                                                                       31-Dec-10                           31-Dec-09
                                                                                                   Current     Non-current           Current         Non-current
                                    Participated entities                                           73,862            3,700             35,155                 3,700
                                    Staff                                                            9,248                –              9,608                     –
                                    Accrued gains                                                    8,480                –             11,324                     –
                                    Other                                                           37,707           25,452             37,924                24,884
                                    Adjustments	due	to	impairment	of	other	debtors                  (4,628)          (1,921)            (5,416)               (1,921)
                                                                                                   124,669           27,231            88,595                 26,663


                  "Participated entities – non-current" of 3,700 thousand Euros, refers to the additional paid-in capital granted to SPdH.

                  As at 31 December 2010, the amount of the "Participated entities – current" refers essentially to a loan contract concluded with SPdH, of 73,000 thou-
                  sand Euros (2009: 35,000 thousand Euros), with a repayment period of less than 1 year and remunerated at normal market rates.




140   TAP Group      Annual Report 2010
As at 31 December 2010 and 2009, the amount recorded as "Other – non-current" corresponds essentially to:

                                                                                      31-Dec-10            31-Dec-09
                                Bonds and Guarantees (Note 27)                              3,250                3,805
                                Retained deposits                                           3,307                3,533
                                Judicial deposits – Brazil (Note 26)                       16,283               14,749
                                SITA – Société Internatio Telecommunications
                                                                                              361                  434
                                Aeronautiques
                                Other non-current                                           2,251                2,363
                                                                                           25,452               24,884



The security deposits are constituted by TAP S.A. as established in the operating leasing contracts for aircraft and engines which will be returned,
without interest, when the airplanes are handed back to their lessors.

These retained deposits refer to the guarantee for the future maintenance services for the French Air Force aircraft.

As at 31 December 2010 and 2009, the amount recorded as "Other – non-current" corresponds essentially to:

                                                                                      31-Dec-10            31-Dec-09
                                Interline and other invoicing                               8,400                7,524
                                Airbus                                                      7,269                6,529
                                Debtors – Brazil                                            3,356                2,171
                                Other receivables from suppliers                            2,296                5,972
                                VAT – Representations                                       1,411                1,346
                                SPdH                                                        1,209                1,134
                                White loans to Abreu and other                                907                  907
                                Bonds and Guarantees                                          655                  636
                                Other                                                      12,204               11,705
                                                                                           37,707               37,924




As at 31 December 2010 and 2009, the amount recorded as "Accrued gains" is detailed as follows:

                                                                                      31-Dec-10            31-Dec-09
                                Fuel hedging                                                2,997                8,927
                                Sale of miles to partners                                   1,521                  748
                                Interest receivable                                         1,066                   75
                                Other                                                       2,896                1,574
                                                                                            8,480               11,324



The amount of 2,997 thousand Euros (2009: 8,927 thousand Euros), recorded as fuel hedging is detailed as follows:

                                                                                      31-Dec-10            31-Dec-09
                                Fair	value	of	jet	fuel	swaps		(Note	24)                         –                6,285
                                Accrual-based accounting                                    2,997                2,642
                                                                                            2,997                8,927



19. Deferrals
As at 31 December 2010 and 2009, the "Deferrals" is detailed as follows:

                                                                                       31-Dec-10            31-Dec-09
                                Asset deferrals                                            12,308                7,827
                                                                                           12,308                7,827

                                Liability deferrals                                        52,617               54,243
                                                                                           52,617               54,243




The amount recorded as "Deferred assets", as at 31 December 2010 and 2009, corresponds mainly to:

                                                                                       31-Dec-10            31-Dec-09
                                Commissions                                                 5,323                3,523
                                Insurance                                                   1,983                  132
                                Leasing of aircraft                                         1,948                1,816
                                Rents and leases                                            1,428                  333
                                Other deferred costs                                        1,626                2,023
                                                                                           12,308                7,827




                                                                                                                               Annual Report 2010      TAP Group   141
                  The commissions refer to the amounts paid to agents for tickets sold but which have not yet been used or expired by 31 December 2010 and 2009.

                  The amounts recorded as "Deferred liabilities", as at 31 December 2010 and 2009, refer essentially to:

                                                                                                           31-Dec-10            31-Dec-09
                                                   Customer loyalty programmes                                 29,976               28,863
                                                   Work for aviation companies                                 18,989               20,928
                                                   Fuel supplies                                                1,750                2,625
                                                   Overhaul reserves                                              123                  267
                                                   Other                                                        1,779                1,560
                                                                                                               52,617               54,243



                  The amount of 18,989 thousand Euros (2009: 20,928 thousand Euros), recorded as "Maintenance work for airline companies", refers to provisional
                  invoicing of maintenance work for third parties that was still underway as at 31 December 2010.

                  "Fuel supplies" totalising 1,750 thousand Euros (2009: 2,625 thousand Euros) refer to the deferral of discounts received in 2008 relative to the pur-
                  chase of fuel for the period 2010 to 2012.




                  20. Inventories

                  The breakdown of the inventories as at 31 December 2010 and 2009 is as follows:

                                                                                                           31-Dec-10            31-Dec-09
                                                   Goods                                                       11,455               10,851
                                                   Products and work in progress                               15,219                8,131
                                                   Raw materials, subsidiary materials and consumables        121,916              107,689
                                                                                                             148,590               126,671



                  "Products and work in progress" correspond to the amount of materials and hours spent on aircraft maintenance works for third parties which are
                  in progress.

                  Raw materials, subsidiary materials and consumables refer to technical material used in the repair of own aircraft and in work carried out to other
                  airline companies.

                  The year-on-year increase in the inventories is essentially due to the fact that the subsidiary TAP Manutenção e Engenharia Brasil, S.A. used part of
                  its available labour in the recovery of spare parts that may be used in services rendered or sold during its operating activity. In 2010 this recovery had
                  an impact of 16,630 thousand Euros (2009: 19,061 thousand Euros) which had been recorded as "Other income and gains – recovered warehouse
                  material" (Note 48).

                  The amounts presented are net of impairment losses totalising 59,176 thousand Euros (2009: 59,889 thousand Euros).

                  The changes which occurred in the inventory impairments item in 2009 and 2010 were as follows:

                                                   Opening balance as at 01 January 2009                                           48,708
                                                   Reinforcement (Note 43)                                                           9,618
                                                   Reversals (Note 43)                                                                (957)
                                                   Utilisations                                                                        (61)
                                                   Currency	conversion	adjustment                                                    2,581

                                                   Closing balance as at 31 December 2009                                          59,889
                                                   Reinforcement (Note 43)                                                          11,058
                                                   Reversals (Note 43)                                                             (15,024)
                                                   Utilisations                                                                        (52)
                                                   Currency	conversion	adjustment                                                    3,305

                                                   Closing balance as at 31 December 2010                                          59,176




                  21. Customers

                  As at 31 December 2010 and 2009, the "Customers" is broken down as follows:

                                                                                                           31-Dec-10            31-Dec-09
                                                   Customers – current accounts receivable                    259,036              225,762
                                                   Customers – doubtful debts                                  35,069               38,033
                                                   Accumulated impairment losses                              (70,893)             (71,205)
                                                                                                             223,212               192,590




142   TAP Group      Annual Report 2010
The breakdown of this item by type of customer is as follows:

                                                                                          31-Dec-10             31-Dec-09
                                 Travel agencies                                              77.962                75.938
                                 Private entities                                             68.432                56.007
                                 Airline companies                                            24.353                35.526
                                 SPdH                                                          6.977                 7.042
                                 Grupo ANA – Aeroportos de Portugal                                3                 5.958
                                 Other                                                        45.485                12.119
                                                                                             223.212              192.590



The balances receivable from travel agencies and airline companies are settled, essentially, through the IATA Clearing House system, as described in Note 3.

The changes which occurred in the customer impairments item in 2009 and 2010 were as follows:

                                 Balance as at 01 January 2009                                                     52,907
                                 Reinforcement (Note 44)                                                            17,820
                                 Reversals (Note 44)                                                                 (376)
                                 Utilisations                                                                        (499)
                                 Currency	conversion	adjustment                                                      1,353
                                 Closing balance as at 31 December 2009                                            71,205
                                 Reinforcement (Note 44)                                                             6,922
                                 Reversals (Note 44)                                                                (9,441)
                                 Utilisations                                                                          (26)
                                 Currency	conversion	adjustment                                                      2,233
                                 Closing balance as at 31 December 2010                                            70,893



22. Cash and cash equivalents

As at 31 December 2010 and 2009, the breakdown of cash and cash equivalents present the following amounts:

                                                                                          31-Dec-10             31-Dec-09
                                 Term deposits                                               162,982                74,383
                                 Overnight bank cash deposits                                 59,517                56,494
                                 Cash                                                            178                   200
                                                                                             222,677              131,077



                                 BANK OVERDRAFTS (Note 27)                                    14,923                14,940



                                 CASH AND CASH EQUIVALENTS                                   207,754              116,137



The amount of cash on hand presented by TAP Group results, essentially, from the cash on hand of TAP S.A. of 205,671 thousand Euros.

This	surplus	liquidity	is	normally	invested	in	short	term	financial	investments,	earning	interest	at	the	normal	market	rates.




24. Equity instruments
The	nominal	share	capital	of	TAP	Group,	of	15,000	thousand	Euros	is	represented	by	1,500,000	nominal	shares	of	10	Euros	each,	100%	owned	by	
Parpública – Participações Públicas, SGPS, S.A..

"Non-distributable reserves" includes essentially the legal reserve constituted in accordance with article 295 of the Commercial Companies Code,
which	establishes	that	a	minimum	of	5%	of	the	net	income	of	the	year	must	be	allocated	to	this	reserve	until	the	amount	of	the	reserve	correspond-
ents	to	a	fifth	of	the	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.

This	item	also	includes	the	adjustments	to	the	fair	value	of	the	financial	instruments	used	to	hedge	against	cash	flows,	as	well	as	foreign	exchange	
rate differences arising from the conversion of operating units in foreign currency (Other reserves).

The	"Retained	earnings"	includes	the	net	income	from	previous	years,	as	deliberated	at	the	General	Meetings.	Any	alterations	arising	from	the	first-
time application of the International Financial Reporting Standards are also recorded under this item.




                                                                                                                                      Annual Report 2010       TAP Group   143
                  Fair value of financial instruments

                  The	amount	of	1,006	thousand	Euros	presented	in	"Fair	value	of	financial	instruments"	corresponds	to	the	fair	value	of	financial	instruments	classified	
                  as hedging instruments of the subsidiary TAP, S.A. recorded in accordance with the policy described in Note 2.12.

                  As	at	31	December	2010	and	2009,	the	fair	value	of	the	Derivative	financial	instruments	is	broken	down	as	follows:

                                                                                                                                          2010                  2009
                                                                                                Beginning       Maturity
                                                                                                                                           Net                   Net
                             COVERAGE
                             Interest rate swaps
                                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                 (108)                  (431)
                                TNG                                                              18-06-1999     17-02-2011                  (35)                  (183)
                                TNI                                                              22-05-2000     22-05-2011                 (116)                  (558)
                                TOL                                                              26-11-2009     26-11-2019                 (747)                  (103)
                             Jet fuel Swaps                                                                                                    –                 6,285
                                                                                                                                         (1,006)                 4,348




                  Currency conversion reserve

                             Entity                                                      Opening balance        Increases            Reductions        Closing balance
                             SEAP:
                                Financial statements conversion                                       (2,385)        2,385                    –                      –
                             TAP ME Brasil and Aero-LB:
                                Financial statements conversion                                      (12,536)            –              (18,437)               (30,973)
                                Extension of the net investment in Aero-LB                             7,498        18,451                    –                 25,949
                                                                                                     (7,423 )      20,836               (18,437)               (5,024)



                  The	increase	of	20,836	thousand	Euros	refers	essentially	to	the	favourable	exchange	rate	differences	from	the	medium	and	long	term	financing	
                  granted to Aero-LB Participações, S.A., whose repayment is unlikely to occur in the predictable future, and so, in substance, an extension of the
                  Group's net investment in this foreign entity.

                  During	2010,	the	Group	disposed	of	Air	Macau	and	consequently	extinguished	SEAP;	consequently	the	currency	conversion	reserve	in	the	financial	
                  statements	of	the	subsidiary	was	derecognised	through	profit	or	loss,	leading	to	a	capital	loss	of	829	thousand	Euros	(Note	37).

                  The decrease of 18,437 thousand Euros refers to the appropriation by the Group of the exchange rate differences resulting from the foreign exchange
                  of	the	financial	statements	of	companies	that	operate	outside	of	the	Euro	zone,	essentially	in	Brazil.


                  Net income per share

                  There	are	no	convertible	financial	instruments	relative	to	the	shares	of	TAP,	SGPS,	S.A.;	therefore,	there	is	no	diluted	net	income	per	share.

                                                                                                                    2010                  2009
                                                       Net income attributable to TAP Shareholders                (57,103)               (3,542)
                                                       Weighted average number of shares                         1,500,000             1,500,000
                                                       Basic net income per share                                     (38)                   (2)
                                                       Diluted net income per share                                   (38)                   (2)




                  25. Minority interests – Balance Sheet

                  The minority interests stated in the Balance Sheet are broken down as follows:

                                                                                                                     31-Dec-10             31-Dec-09
                                               MINORITY INTERESTS OF EQUITY
                                                   TAP Group
                                                     SEAP                                                                        –                   20
                                                     Cateringpor                                                             2,614                 2,551
                                                     LFP                                                                     4,741                 4,134
                                                                                                                             7,355                 6,705




144   TAP Group     Annual Report 2010
26. Provisions

During 2010 and 2009, the changes in provisions are as follows:

                                                                                                                    Reversed      Exchange
                                                             Opening                        Reductions                                               Other         Closing
31-Dec-10                                                                     Increases                              unused             rate
                                                              balance                        due to use                                          movements         balance
                                                                                                                    amounts        variation
PROVISIONS
  Provision for current lawsuits                                    36,358        12,839          (206)              (16,055)          3,301          2,378         38,615
  Guaranties to associated companies                                  387               –             –                 (387)                –            –                –
  Provisions	for	financial	investments	(Note	37)                    72,105        43,556              –                    –                 –            –        115,661
  Other provisions                                                  25,189             61         (661)                 (159)          3,170        (22,301)         5,299
                                                               134,039            56,456          (867)              (16,601)         6,471         (19,923)       159,575



                                                                                                                    Reversed      Exchange
                                                             Opening                        Reductions                                               Other         Closing
31-Dec-09                                                                     Increases                              unused             rate
                                                              balance                        due to use                                          movements         balance
                                                                                                                    amounts        variation
PROVISÕES
  Provision for current lawsuits                                    24,228         9,080          (234)               (4,020)          4,853          2,451         36,358
  Securities to associated companies                                  482               –             –                  (95)                –            –            387
  Provisions	for	financial	investments	(Note	37)                    20,084        29,596              –                    –                 –       22,425         72,105
  Other provisions                                                  49,186           918         (1,423)              (2,051)          8,054        (29,495)        25,189
                                                                93,980            39,594        (1,657)               (6,166)        12,907          (4,619)       134,039



The net result from these changes in provisions was recorded as “Provisions”, with the exception of the provision for negative equity which is
recorded	as	"Gains	and	losses	in	associated	companies",	totalising	a	reversal	of	3,701	thousand	Euros	and	an	adjustment	of	3,832	thousand	Euros,	
respectively (Note 45).


Current legal actions

Provisions for current legal actions are calculated according the risk assessments carried out by the Group and its legal advisors, based on historical
success rates by type of legal action and the probability of unfavourable outcomes for the Group. As at 31 December 2010 the amount of 38,615
thousand Euros recorded as “Provisions for current legal actions” was destined to face the cost of various court cases against the Group, in Portugal
and abroad.

The breakdown of the provision for current lawsuits is as follows:

                                                                                                     31-Dec-10                  31-Dec-09
                                         TAP Group (without the subsidiary TAP ME Brasil)                  13,246                   10,237
                                         Subsidiary TAP ME Brasil                                          25,369                   26,121
                                                                                                           38,615                  36,358



As at 31 December 2010, the subsidiary TAP Manutenção e Engenharia Brasil, S.A. had close to 2,062 labour claims against it (1,842 claims as at
31	December	2009).	The	subsidiary	is	a	joint	debtor	of	the	labour	liabilities	related	to	the	migration	of	employees	from	VARIG	to	TAP	Manutenção	e	
Engenharia Brasil in 2001 and 2002. There are labour claims from former employees of VARIG against the subsidiary and against TAP S.A. 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.


Provisions for financial investments

"Provisions	for	financial	investments"	of	115,661	thousand	Euros	refers	to	the	appropriation	of	the	total	negative	equity	of	SPdH	(see	Note	2.3.2	
– Associates), plus 3,700 thousand Euros relative to additional paid-in capital granted to SPdH, which is recorded as "Other accounts receivable –
non-current" (Note 18).

The increase of 43,556 thousand Euros in this item refers to the appropriation of the full loss of this associate (Note 2.3.2) and is recorded as "Gains
and losses in associates" (Note 37).

In	March	2009,	a	consortium	of	three	banks	(BIG,	Banif	and	Banco	Invest)	transferred	the	stake	in	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,	as	majority	shareholder	of	SPdH,	to	an	independent	entity	of	TAP	Group.	

On 19 November 2009, following an in-depth investigation, the Competition Authority decided to adopt a prohibition decision relative to the con-
centration	operation	which	consisted	of	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.




                                                                                                                                                      Annual Report 2010       TAP Group   145
              The	Competition	Authority	thus	imposed	the	obligation	of	separation	of	SPdH	via	the	sale,	by	TAP	Group,	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 manager, acting on behalf of the Competition Authority
              and managing SPdH independently from TAP Group.

              Thus,	the	present	financial	statements	include	provisions	to	cover	the	appropriation	of	the	total	losses	and	net	worth	of	SPdH.

              As	at	31	December	2010	and	2009,	the	financial	information	related	to	the	associate	SPdH–Serviços	Portugueses	de	Handling,	S.A.	is	as	follows:

                                                                                                                          Net income
                      31-Dec-10                                                            Total assets        Equity                           Total income
                                                                                                                          for the year
                      SPdH–Serviços Portugueses de Handling, S.A.                                  37,169     (111,961)        (43,556)               135,429



                                                                                                                          Net income
                      31-Dec-09                                                            Total assets        Equity                           Total income
                                                                                                                          for the year
                      SPdH–Serviços Portugueses de Handling, S.A.                                  27,371      (68,405)        (28,223)               117,614




              Other provisions

              This item is broken down as follows:

                                                                                                            31-Dec-10     31-Dec-09
                                                    Subsidiary TAP ME Brasil

                                                       Provision for tax contingencies                           3,823        23,398

                                                    Remaining subsidiaries

                                                       Other provisions                                          1,476         1,791
                                                                                                                 5,299        25,189



              Provision for tax contingencies
              The	subsidiary	TAP	Manutenção	e	Engenharia	Brasil,	S.A.	is	currently	involved	in	tax	actions,	both	in	the	administrative	and	judicial	areas	and	which,	
              when	applicable,	are	guaranteed	by	judicial	deposits	and/or	the	pledge	of	assets.

              In	2009,	the	subsidiary	TAP	Manutenção	e	Engenharia	Brasil,	S.A.	joined	the	REFIS	tax	refinancing	programme,	dividing	up	the	total	federal	contin-
              gencies,	for	which	the	probability	of	success	was	classified	as	remote.

              The breakdown of the provision for lawsuit contingencies is as follows:

                                                                                                            31-Dec-10     31-Dec-09
                                                    REFIS Tax contingencies (Note 17)                                –        21,523
                                                    Subsidiary TAP ME Brasil                                     3,823         1,875
                                                                                                                 3,823        23,398



              The changes which have occurred in this provision were as follows:

                                                    Balance as at 01 January 2009                                            26,202
                                                    Reinforcement of provisions                                                  780
                                                    Reduction for payments made                                                 (174)
                                                    Reversal due to estimate review                                           (2,035)
                                                    Exchange rate variation                                                    7,955
                                                    Other movements                                                           (9,330)

                                                    Balance as at 31 December 2009                                           23,398
                                                    Reinforcement of provisions                                                    –
                                                    Reduction for payments made                                                 (444)
                                                    Reversal due to estimate review                                                –
                                                    Exchange rate variation                                                    3,170
                                                    Other movements                                                            2,071
                                                    Transfer to the State – accounts payable (Note 17)                       (24,372)
                                                    Balance as at 31 December 2010                                             3,823




146   TAP Group   Annual Report 2010
27. Funding received

The loans refer, essentially, to funding received from national and foreign credit institutions.

                                                                                     31-Dec-10                                             31-Dec-09
                                                                       Current Liabilities   Non-current Liabilities       Current Liabilities Non-current Liabilities
    Bank loans                                                                    125,705                       470,294                 120,708                       485,974
    Financial leasing liabilities                                                 108,367                       557,766                 129,682                       551,234
    Bank overdrafts                                                                14,923                              –                 14,940                             –
                                                                                  248,995                  1,028,060                    265,330                     1,037,208



As at 31 December 2010 and 2009, the remunerated net debt is broken down as follows:

                                                                                                      31-Dec-10                31-Dec-09
                                          REMUNERATED THIRD PARTY DEBT
                                              Non-current                                               1,028,060                1,037,208
                                              Current                                                     248,995                 265,330
                                                                                                        1,277,055               1,302,538


                                          CASH AND CASH EQUIVALENTS
                                              Cash                                                               178                    200
                                              Overnight bank cash deposits                                 59,517                  56,494
                                              Other cash investments                                      162,982                  74,383
                                                                                                          222,677                 131,077
                                          REMUNERATED NET DEBT                                          1,054,378               1,171,461




Remunerated bank debt

As at 31 December 2010 and 2009, the current and non-current remunerated bank debt are broken down as follows:

                                                                                                  31-Dec-10                31-Dec-09          Reference Rate
                 NON-CURRENT
                    TAP SGPS
                        BCP bank loan                                                                   4,318                   4,867         Euribor 3m
                        Deutsche Bank bank loan                                                        50,142                       –         Fixed rate
                    TAP S.A.
                        Tagus – Sociedade de Titularização de Créditos, S.A.                          155,676                 181,646         Euribor 3m
                        Deutsche Bank bank loan                                                       260,158                 297,453         Fixed rate
                        Misc.	–	Aircraft	financing                                                          –                   2,008         Various
                                                                                                     470,294                  485,974

                 CURRENT
                    TAP SGPS
                        BCP bank loan                                                                    560                      142         Euribor 3m
                        Deutsche Bank bank loan                                                         1,433                       –         Fixed rate
                    TAP S.A.
                        Bank overdraft                                                                 14,923                  14,940         Various
                        Tagus – Sociedade de Titularização de Créditos, S.A.                           26,069                  24,592         Euribor 3m
                        BCP credit line                                                                40,192                  40,161         Euribor 30 d
                        Banco Popular credit line                                                      16,146                       –         Euribor 3m
                        Deutsche Bank bank loan                                                        39,290                  37,966         Fixed rate
                        Banco Popular commercial paper                                                      –                  10,000         Fixed rate
                        Misc.	–	Aircraft	financing                                                      2,015                   7,847         Various
                                                                                                     140,628                  135,648
                 REMUNERATED BANK DEBT AT THE END OF THE YEAR                                        610,922                  621,622




                                                                                                                                                             Annual Report 2010   TAP Group   147
                  The debt analysis by maturity and by type of interest rate, as at 31 December 2010 and 2009, is broken down as follows:

                                                                                                               31-Dec-10              31-Dec-09
                                                    BY MATURITY
                                                       Up to 1 year                                                140,628               135,648
                                                       From 1 to 2 years                                            66,468                65,822
                                                       From 2 to 3 years                                            69,842                67,058
                                                       From 3 to 4 years                                            73,445                70,423
                                                       From 4 to 5 years                                           129,684                74,016
                                                       Over 5 years                                                130,855               208,655
                                                                                                                   610,922               621,622

                                                    BY TYPE OF INTEREST RATE
                                                       Variable Rate
                                                          Expires in 1 year                                         99,904                87,682
                                                          Expires in 1 to 2 years                                   28,116                28,527
                                                          Expires in 2 to 3 years                                   29,857                28,115
                                                          Over 3 years                                             102,021               131,878
                                                                                                                   259,898               276,202

                                                       Fixed Rate
                                                          Expires in 1 year                                         40,724                47,966
                                                          Expires in 1 to 2 years                                   38,352                37,295
                                                          Expires in 2 to 3 years                                   39,985                38,943
                                                          Over 3 years                                             231,963               221,216
                                                                                                                   351,024               345,420
                                                                                                                   610,922               621,622



                  The loans received by functional currency are broken down as follows:

                                                                                          31-Dec-10                                     31-Dec-09
                                                                                      Values in                                     Values in
                                                                                                      Values in Euros                               Values in Euros
                                                                               foreign currency                              foreign currency
                                Euros (EUR)                                                   –               610,922                       –               617,804
                                US Dollars (USD)                                              –                     –                   5,491                 3,818
                                                                                              –               610,922                   5,491               621,622



                  "Funding received – non-current" includes, as at 31 December 2010, 155,676 thousand Euros corresponding to a liability generated as part of
                  a securitisation operation of future loans, carried out by TAP S.A. in December 2006, under the terms of Decree-Law No. 453/99, of 5 November, in
                  which Deutsche bank acted as the lead manager and the future receivables were acquired by Tagus – Sociedade de Titularização de Créditos, S.A..

                  Financial Leasing

                  The	Group	records	the	assets	acquired	under	financial	leasing	in	its	tangible	fixed	assets.	As	at	31	December	2010,	TAP	S.A.	had	ongoing	financial	
                  leasing liabilities as described in Note 5, for which the corresponding principal is included in the balance sheet as "Funding received", as follows:

                                                                                                               31-Dec-10              31-Dec-09
                                                    DEBTS RELATIVE TO FINANCIAL LEASING
                                                       Basic equipment                                             666,133               678,299
                                                       Other tangible assets                                             –                 2,617
                                                                                                                   666,133               680,916


                                                    FUTURE PAYMENTS OF PRINCIPAL
                                                       Up to 1 year                                                108,367               129,682
                                                       From 1 to 5 years                                           378,752               316,612
                                                       Over 5 years                                                179,014               234,622
                                                                                                                   666,133               680,916




                  The	financial	leasing,	by	functional	currency,	is	broken	down	as	follows:

                                                                                                               31-Dec-10              31-Dec-09
                                                    Financial leasing in EUR                                       627,341               643,046
                                                    Financial leasing in USD                                        38,792                37,870
                                                                                                                   666,133               680,916



                  The total amount of liabilities plus future interest is presented in the Interest rate risk section (Note 3).

                  As at 31 December 2010 and 2009, bank loans granted and not drawn totalise 750 thousand Euros.



148   TAP Group      Annual Report 2010
Operating Leasing

As referred to in Note 2.24, these liabilities are not recorded in the Balance Sheet of the Group. These contracts have different periods of duration
which may reach up to 10 years, and may be extended through the explicit consent of the contracting parties.

As at 31 December 2010, 19 airplanes were under operating leasing contracts, as presented in detail in Note 5. It should be noted that the Airbus
A310 aircraft was not in operation at that time.

As	at	31	December	2010	and	2009,	the	financial	commitments	assumed	by	TAP	Group	related	to	operating	leasing	contracts	for	aircraft	totalise	
241,871 thousand Euros (314,432 thousand USD) and 259,777 thousand Euros (383,171 thousand USD), respectively.

The lease rent plans are broken down as follows:

                                                                                                31-Dec-10                 31-Dec-09
                                       Up to 1 year                                                      50,209                  50,826
                                       From 1 to 2 years                                                 43,213                  44,007
                                       From 2 to 3 years                                                 30,591                  34,462
                                       From 3 to 4 years                                                 22,811                  25,550
                                       Over 4 years                                                      95,047                 104,932
                                                                                                    241,871                     259,777



There were security deposits associated to these contracts totalising 3,250 thousand Euros as at 31 December 2010 (Note 18) and 3,805 thousand
Euros as at 31 December 2009, which will be returned to the Group when each aircraft is handed back to its lessor.


Financial Covenants

The	Financial	Covenants	enclosed	in	the	leasing	and	financing	contracts	are	the	usual	ones	in	this	kind	of	operation,	including	compulsory	provisions	
such	as	maintaining	the	airline	operator	activity,	periodically	providing	the	available	financial	information	and,	in	the	specific	case	of	financial	leasing,	
obligations	of	an	operating	character	relative	to	registrations	at	official	entities,	information	relative	to	the	leased	aircraft,	strict	compliance	with	all	
the	regulations	and	procedures	defined	by	the	authorities,	amongst	others.




28. Liabilities related to post-employment benefits
                                                                                                                  31-Dec-10               31-Dec-09
                    LIABILITIES FOR PAST SERVICES AT THE BEGINNING OF THE PERIOD                                     87,784                  97,168
                       Cost of interest                                                                               11,677                  11,217
                       Cost of current service                                                                         3,281                   3,173
                       Pensions Fund contributions                                                                   (15,931)                (11,022)
                       Actuarial gains and losses                                                                      3,291                 (14,551)
                       Exchange rate changes in the plans measured in a different currency                             3,586                   6,007
                       Fund asset income                                                                              (5,295)                 (4,208)
                       Benefits	paid                                                                                       –                       –
                    LIABILITIES FOR PAST SERVICES AT THE END OF THE PERIOD                                           88,393                  87,784




The main assumptions used in the preparation of the studies are as follows:

                                                                          Portugal             Brazil               Portugal                  Brazil
                                                                               2010            2010                     2009                  2009
                    Mortality table                                         TV 88/90            AT 83                TV 88/90                  AT 83
                    Incapacity table                                        EVK 1980         IAPB – 57               EVK 1980               IAPB – 57
                    Discount rate                                              4.75%          10.35%                   5.50%                 11.18%
                    Fund yield rate                                            4.75%          10.90%                   5.50%                 10.19%
                    Growth rate
                       Salaries                                                1.50%           6.49%                   2.50%                  6.28%
                       Pensions                                                1.00%           4.40%                   1.50%                  4.20%
                    Trend of healthcarel costs                                 1.50%                –                  2.50%                       –




                                                                                                                                                    Annual Report 2010   TAP Group   149
                  The liabilities of the different companies of TAP Group were calculated by actuarial studies reported as at 31 December 2010 and 2009, prepared by
                  independent	entities,	individually	for	each	company,	using	the	Projected	Unit	Credit	method.	The	liabilities	for	the	financial	years	of	2005	to	2010	
                  are broken down as follows:

                                                              Viva       Before                                  Seniority          England
                  31-Dec-10                                                             Active   Healthcare                                         Brazil       Total
                                                          Pensions        1997                                     Bonus      representation
                  Liabilities from past services
                     Active                                  4,854             –             –             –        37,398             8,956            –       51,208
                     Pre-retirement                              –             –           820          197              –                 –       83,569       84,586
                     Retired                                 6,562        45,000             –         2,942             –             3,424            –       57,928
                  Market value of the funds                (15,467)            –             –             –      (25,543)           (10,370)     (53,949)    (105,329)
                  DEFICIT / (SURPLUS)                       (4,051)       45,000          820          3,139       11,855              2,010       29,620       88,393


                                                              Viva       Before                                  Seniority          England
                  31-Dec-09                                                             Active   Healthcare                                         Brazil       Total
                                                          Pensions        1997                                     Bonus      representation
                  Liabilities from past services
                     Active                                  3,389             –             –             –        37,214            14,418            –       55,021
                     Pre-retirement                              –             –         1,247          115              –                 –       60,419       61,781
                     Retired                                 6,723        44,606             –         3,356             –             1,220            –       55,905
                  Market value of the funds                (15,149)            –             –             –      (22,988)           (13,130)     (33,656)     (84,923)
                  DEFICIT / (SURPLUS)                       (5,037)       44,606         1,247         3,471       14,226              2,508       26,763       87,784


                                                              Viva       Before                                  Seniority          England
                  31-Dec-08                                                             Active   Healthcare                                         Brazil       Total
                                                          Pensions        1997                                     Bonus      representation
                  Liabilities from past services
                     Active                                  7,219             –         2,843             –        32,641            15,638            –       58,341
                     Pre-retirement                              –             –         1,064          136              –                 –       40,436       41,636
                     Retired                                10,568        44,139             –         3,362             –                 –            –       58,069
                  Market value of the funds                 (8,819)            –             –             –      (18,154)           (13,130)     (20,775)     (60,878)
                  DEFICIT / (SURPLUS)                        8,968        44,139         3,907         3,498       14,487              2,508       19,661       97,168


                                                              Viva       Before                                  Seniority          England
                  31-Dec-07                                                             Active   Healthcare                                         Brazil       Total
                                                          Pensions        1997                                     Bonus      representation
                  Liabilities from past services
                     Active                                  3,737             –         6,968             –        18,682            15,638            –       45,025
                     Pre-retirement                              –             –         2,170          218              –                 –            –        2,388
                     Retired                                10,512        44,457             –         4,663             –                 –            –       59,632
                  Market value of the funds                 (9,900)            –             –             –      (13,631)           (13,130)           –      (36,661)
                  DEFICIT / (SURPLUS)                        4,349        44,457         9,138         4,881        5,051              2,508            –       70,384


                                                              Viva       Before                                  Seniority          England
                  31-Dec-06                                                             Active   Healthcare                                         Brazil       Total
                                                          Pensions        1997                                     Bonus      representation
                  Liabilities from past services
                     Active                                  9,644             –             –             –        20,888            14,729            –       45,261
                     Pre-retirement                              –             –         1,827          242              –                 –            –        2,069
                     Retired                                10,538        45,563             –         5,097             –                 –            –       61,198
                  Market value of the funds                 (6,444)            –             –             –      (12,019)           (10,738)           –      (29,201)
                  DEFICIT / (SURPLUS)                       13,738        45,563         1,827         5,339        8,869              3,991            –       79,327



                                                              Viva       Before                                  Seniority          England
                  31-Dec-05                                                             Active   Healthcare                                         Brazil       Total
                                                          Pensions        1997                                     Bonus      representation
                  Liabilities from past services
                     Active                                  8,967             –             –             –        20,040            14,729            –       43,736
                      Pre-retirement                             –             –           241          130              –                 –            –          371
                     Retired                                10,622        48,304             –         4,427             –                 –            –       63,353
                  Market value of the funds                 (1,973)            –             –             –      (10,181)           (10,738)           –      (22,892)
                  DEFICIT / (SURPLUS)                       17,616        48,304          241          4,557        9,859              3,991            –       84,568




                  The	surplus	financing	recorded	as	at	31	December	2010,	of	4,051	thousand	Euros,	arising	exclusively	from	the	correction	of	the	volume	of	the	total	
                  staff covered by the pensions plan, is reimbursable under the terms of the law and/or allows for exemption from future contributions.




150   TAP Group       Annual Report 2010
Evolution of the liabilities related 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	2010	and	2009,	is	as	follows:

31-Dec-10                                                                Viva           Before                                           Seniority               England
                                                                                                            Active Healthcare                                                  Brazil      TOTAL
Values reflected in the Balance Sheet                                Pensions            1997                                              Bonus           representation
Liabilities at the beginning of the year                               10,112           44,606               1,247        3,471                37,215              15,638      60,418     172,707
Exchange rate variation                                                       –              –                   –               –                     –           (2,342)      8,690       6,348
Values recorded in net income for the year:
   Current services                                                        193               –                   –               –              2,870                    –        218       3,281
   Cost of interest                                                        592           2,119                  59             165              1,655                    –      7,087      11,677
   Actuarial deviations                                                    519          (1,725)              (486)            (497)            (1,766)               (916)     11,393       6,522
   Benefits	paid                                                              –              –                   –               –             (2,576)                   –     (4,237)     (6,813)
LIABILITIES AT THE END OF THE YEAR                                     11,416           45,000                 820        3,139               37,398               12,380     83,569      193,722


31-Dec-09                                                                Viva           Before                                           Seniority               England
                                                                                                            Active Healthcare                                                  Brazil      TOTAL
Values reflected in the Balance Sheet                                Pensions            1997                                              Bonus           representation
Liabilities at the beginning of the year                               17,787           44,139               3,907        3,498                32,642              15,638      40,436     158,047
Exchange rate variation                                                       –              –                   –               –                     –                 –     12,541      12,541
Values recorded in net income for the year:
   Current services                                                        391               –                   –               –              2,571                    –        211       3,173
   Cost of interest                                                        774           2,428                 215             192              1,921                    –      5,687      11,217
   Actuarial deviations                                                (8,840)          (1,961)             (2,875)           (219)                   81                 –      4,687      (9,136)
   Benefits	paid                                                              –              –                   –               –                     –                 –     (3,135)     (3,135)
LIABILITIES AT THE END OF THE YEAR                                     10,112           44,606               1,247        3,471               37,215               15,638     60,418      172,707


If the rate of the trend of medical costs increase or decrease by one percentage point, the respective impact on the Group's liabilities as at 31
December 2010 and 2009 is as follows:

                                                                                                                                      Rate                 31-Dec-10
                                      Annual growth rate of heathcare costs                                                           1.50%                      3,139
                                      Increase	of	1%	in	the	growth	rate	of	healthcare	cost                                            2.50%                      3,405
                                      Decrease	of	1%	in	the	growth	rate	of	healthcare	cost                                            0.50%                      2,905



                                                                                                                                      Rate                 31-Dec-09
                                      Annual growth rate of heathcare costs                                                           2.50%                      3,471
                                      Increase	of	1%	in	the	growth	rate	of	healthcare	cost                                            3.50%                      3,796
                                      Decrease	of	1%	in	the	growth	rate	of	healthcare	cost                                            1.50%                      3,187




Expenses related to pensions and other post-employment benefits

The	expenses	related	to	pensions	and	other	post-employment	benefits	are	broken	down	as	follows:

31-Dec-10
                                                           Viva             Before                                                    Seniority     England
Values reflected                                                                                  Active       Healthcare                                                    Brazil        TOTAL
                                                       Pensions              1997                                                       Bonus representation
in the Profit and Loss Statement
Current services                                              193                   –                  –                  –               2,870                      –          218         3,281
Cost of interest                                              592              2,119                  59               165                1,655                      –        7,087        11,677
Reversal of plan assets                                      (318)                  –                  –                 –                    (704)              (633)       (3,640)       (5,295)
Actuarial losses/(gains)                                    6,766             (1,725)              (486)              (497)              (1,766)                  135         5,099         7,526
                                                            7,233                 394              (427)              (332)               2,055                  (498)        8,764        17,189



31-Dec-09
                                                           Viva             Before                                                    Seniority     England
Values reflected                                                                                  Active       Healthcare                                                    Brazil        TOTAL
                                                       Pensions              1997                                                       Bonus representation
in the Profit and Loss Statement
Current services                                              391                   –                  –                  –               2,571                      –          211         3,173
Cost of interest                                              774              2,428                 215               192                1,921                      –        5,687        11,217
Reversal of plan assets                                    (1,150)                  –                  –                 –                    (620)                  –       (2,438)       (4,208)
Actuarial losses/(gains)                                   (2,628)            (1,961)             (2,875)             (219)                     81                  –         (737)        (8,339)
                                                          (2,613)                 467         (2,660)                  (27)               3,953                     –         2,723         1,843


The	costs	related	to	pensions	and	other	post-employment	benefits	are	recorded	as	"Payroll	expenses"	(Note	42).




                                                                                                                                                                             Annual Report 2010      TAP Group   151
                  Evolution of funds allocated to benefit schemes with pensions

                  During 2010 and 2009, the evolution of the fund's assets was as follows:

                  31-Dec-10                                             Viva                   Seniority                England
                                                                                                                                             Brazil              TOTAL
                  Evolution of the fund's net worth                 Pensions                     Bonus            representation
                  Opening balance                                      15,149                     22,988                  13,130             33,656               84,923
                  Exchange rate variation                                      –                       –                  (1,967)             4,727                2,760
                  Allocation made in the year                                  –                   4,425                   1,637              9,869               15,931
                  Income from the funds in the year                         318                      704                     633              3,640                5,295
                  Actuarial deviations                                         –                       –                  (3,063)             6,294                3,231
                  Benefits	paid                                               –                   (2,574)                      –             (4,237)              (6,811)
                  CLOSING BALANCE                                      15,467                    25,543                   10,370             53,949             105,329



                  31-Dec-09                                             Viva                   Seniority                England
                                                                                                                                             Brazil              TOTAL
                  Evolution of the fund's net worth                 Pensions                     Bonus            representation
                  Opening balance                                          8,819                  18,154                  13,130             20,775               60,878
                  Exchange rate variation                                      –                       –                       –              6,534                6,534
                  Allocation made in the year                              5,180                   4,214                       –              1,628               11,022
                  Income from the funds in the year                        1,150                     620                       –              2,438                4,208
                  Actuarial deviations                                         –                       –                       –              5,415                5,415
                  Benefits	paid                                               –                        –                       –             (3,134)              (3,134)
                  CLOSING BALANCE                                      15,149                    22,988                   13,130             33,656               84,923



                  The breakdown of the funds and respective category of the amounts included in the fair value of the assets, as at 31 December 2010 and 2009, are
                  as follows:

                                                              Fair Value               Viva                 Seniority          England
                  31-Dec-10                                                                                                                      Brazil           TOTAL
                                                                   Level           Pensions                   Bonus      representation
                  Shares                                               1              3,940                      823                 6,568        7,267           18,598
                  Derivative products                                  2                 18                         –                    –               –            18
                  Bonds                                                1              3,469                    22,644                2,815       45,306           74,234
                  Public Debt                                          1              5,811                         –                    –               –         5,811
                  Real Estate                                          1              1,001                      109                     –        1,360            2,470
                  Liquidity                                            1              1,220                     1,590                    –              16         2,826
                  Other investments – short term                       1                  8                      377                  987                –         1,372
                                                                                     15,467                   25,543                10,370      53,949           105,329



                                                              Fair Value               Viva                 Seniority          England
                  31-Dec-09                                                                                                                      Brazil           TOTAL
                                                                   Level           Pensions                   Bonus      representation
                  Shares                                               1              2,758                      381                 8,316        5,048           16,504
                  Derivative products                                  2                (57)                        –                    –               –           (57)
                  Bonds                                                1              3,662                    20,626                3,564       28,271           56,123
                  Public Debt                                          1              6,480                         –                    –               –         6,480
                  Real Estate                                          1              1,136                      194                     –             337         1,666
                  Liquidity                                            1              1,162                     1,400                    –               –         2,562
                  Other investments – short term                       1                  8                      387                 1,250               –         1,645
                                                                                     15,149                   22,988                13,130      33,656            84,923




                  Pensions – Transportes Aéreos Portugueses, S.A.

                  In	accordance	with	the	rules	at	TAP	S.A.,	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 the age limit or incapacity for work, and a minimum amount, guaranteed by
                  TAP	S.A..	This	amount	corresponds	to	a	fixed	percentage	of	the	pensionable	salary	at	the	date	of	retirement,	multiplied	by	each	year	of	service	at	the	
                  company, up to a maximum of 20 years, as follows:

                  ρ     Flight Deck Crew (pilots and flight technicians)	           3.2%	          per	year	of	service
                  ρ     Ground staff and cabin crew                                 4%	            per	year	of	service

                  Furthermore,	TAP	S.A.	has	undertaken	to	pay	pre-retirement	pensions	ranging	from	75%	to	100%	of	the	salary	its	employees	would	receive	if	they	
                  were still in active service.




152   TAP Group       Annual Report 2010
In October 2008, the agreement between the company and the Civil Aviation Pilots’ Union (SPAC) was changed, with the main alterations being as
follows:

ρ   (i)	Pilots	recruited	before	31	May	2007:	the	pension	plan	includes	the	seniority	bonus	guaranteed	by	the	State	(of	15%	or	10%,	according	to	the	
    starting	date	of	the	contributory	career)	and	the	possibility	of	an	additional	bonus	(up	to	25%	or	30%)	as	an	option	for	the	beneficiary	at	the	date	
    of	retirement	(this	additional	bonus	of	up	to	25%	is	paid	by	TAP	S.A.);

ρ   (ii) Pilots	recruited	after	1	June	2007:	the	pension	plan	consists	of	a	defined	contribution	scheme,	of	7.5%	of	the	base	remuneration	(14	times	a	
    year),	of	which	80%	is	paid	by	TAP	S.A..

TAP	S.A.	has	recorded	all	its	liabilities	related	to	past	services	for	the	payment	of	pension	supplements	and	pre-retirement	benefits	relative	to	the	
defined	benefit	scheme.

The	quantification	of	the	liabilities	considered	that	under	the	terms	of	the	collective	regulations	establishing	the	abovementioned	pension	plan,	the	
total pension guaranteed by TAP S.A., that is, the social security pension and pension supplement will never exceed the base monthly remuneration,
net of personal income tax (IRS) and social security payments during employment. This premise is not applicable, since it is not established in the col-
lective	regulations	relative	to	flight	deck	crew,	for	whom	this	limit	does	not	apply	and	the	pensionable	salary	is	made	up	of	the	base	salary	established	
in	the	pay	scale,	plus	monthly	earnings	in	the	financial	year	and	annuities.


Pensions – TAP Manutenção e Engenharia Brasil, S.A.

Benefit Scheme II – VEM (Defined benefits component)
The	subsidiary	sponsors	a	pension	plan	for	its	employees,	managed	by	Instituto	AERUS	de	Seguridade	Social	and	called	the	Benefit	Scheme	II	–	VEM.	
Although	this	is	a	"defined	contribution"	benefit	scheme,	it	also	offers	invalidity	and	death	benefits	under	the	concept	of	"defined	benefits",	in	addi-
tion	to	guaranteeing	special	benefits	to	a	group	of	employees	from	VARIG	who	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 Instituto AERUS de Seguridade Social (AERUS), through means of the
complementary	pension	scheme	(defined	contribution),	called	Benefit	Scheme	II	–	VEM.

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 claimed that TAP Manutenção & Engenharia Brasil, S.A. had debts that were not recognised
in	the	transfer	of	liabilities	related	to	post-employment	benefits,	since	it	was	co-responsible	for	the	pension	fund	deficits	of	other	sponsors.	TAP	
Manutenção e Engenharia Brasil, S.A. is contesting the legal validity of the abovementioned debt and the Board of Directors, supported by prelimi-
nary opinions of its lawyers and external consultants, believes that the debt is not its responsibility, the reason why it did not create a provision to deal
with the respective process.

Therefore,	only	the	previously	mentioned	defined	benefit	component	is	recorded	as	"Pensions	and	other	post-employment	benefits".	


Seniority bonus – PNT – Transportes Aéreos Portugueses, S.A.

Under the Company Agreement signed between TAP S.A. and the Civil Aviation Pilots’ Union (SPAC), TAP S.A. undertakes to pay, in addition to a
pension scheme, a one-off retirement bonus to every pilot on the day of their entitlement to a full retirement pension, which is funded by the capital
accumulated in a collective insurance policy set up by TAP S.A. on behalf of the pilots. The main conditions of the collective retirement policy con-
tracted	with	the	insurance	company,	describing	this	Retirement	Benefit	Scheme	for	Pilots	are	as	follows:

ρ   (i) Admission conditions: Pilots who are still in active service;
ρ   (ii) Normal retirement age: 60 years;
ρ   (iii) Guarantees: Each participant is entitled at normal retirement age to an amount 16 times the last earned gross monthly salary.

The	Benefit	Scheme	is	funded	through	an	insurance	policy	that	is	backed	by	contributions	(premiums)	paid	by	TAP	S.A.	and	by	income	obtained	from	
investments made by the insurance company in an independent fund that supports this kind of insurance.

In October 2008, the agreement between the company and SPAC was changed, whereby the main alterations were:

ρ   Pilots recruited before 31 May 2007: The one-off retirement bonus is maintained, but it shall be paid only if the retirement date 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;

ρ   Pilots recruited after 1 June 2007: there is no entitlement to a one-off retirement bonus.




                                                                                                                                       Annual Report 2010      TAP Group   153
                  Healthcare – Transportes Aéreos Portugueses, S.A.

                  TAP S.A. ensures that both pre-retired and early-retired employees, below the age of 65, are provided with a healthcare plan providing access to
                  medical	care	at	reduced	prices.	Moreover,	TAP	S.A.	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 each service with the remainder being subsidised by TAP S.A..

                  TAP S.A. considers that although it provides its former, pre-retired, early-retired and retired staff with access to the healthcare services of UCS (a
                  company	of	TAP	Group),	this	is	not	a	liability	but	a	freely	granted	benefit	at	any	given	time,	therefore,	the	company	assumes	no	accounting	liability	
                  regarding the provision of healthcare services to current employees after they cease working for the company. This means that at this date the exist-
                  ing provision covers the total liabilities related to medical treatment for pre-retired, early retired and retired staff, with this total liability having been
                  calculated based on an actuarial evaluation carried out by and independent entity.




                  29. Advances from customers

                  As at 31 December 2010 and 2009, the balance of "Advances from customers" was broken down as follows:

                                                                                                             31-Dec-10            31-Dec-09
                                                    SPdH                                                           2,667                 3,005
                                                    Ministère de la Defense                                         465                   203
                                                    Other                                                           442                   453
                                                                                                                  3,574                 3,661




                  30. Suppliers

                  As at 31 December 2010 and 2009, the balance of "Suppliers" was broken down as follows:

                                                                                                             31-Dec-10            31-Dec-09
                                                    Suppliers – current account                                  115,849                96,018
                                                    Suppliers – invoices pending                                  26,770                 8,203
                                                                                                                142,619               104,221



                  As at 31 December 2010 and 2009, the balance of "Suppliers current account" was broken down as follows:

                                                                                                             31-Dec-10            31-Dec-09
                                                    SpdH                                                          12,985                 2,968
                                                    ME Brasil suppliers                                            5,738                 7,674
                                                    Petrogal                                                      10,013                 7,522
                                                    Grupo ANA                                                      7,652                 7,534
                                                    Petrobras Distribuidora                                        6,268                 2,200
                                                    Amadeus It Group, SA                                           4,115                 1,306
                                                    BP Lubs–Cmp.Lub e Combust, S.A.                                1,648                 1,121
                                                    Gestmin Power – Unipessoal, Lda                                1,457                 1,497
                                                    REPSOL Portuguesa, S.A.                                        1,298                  771
                                                    NAV – Emp. Pub. Nav. Aérea Portugal                            1,290                 1,292
                                                    Siemens e Iberlim ACE                                          1,173                 1,107
                                                    INAC – Inst. Nac. Aviação Civil                                1,150                 1,095
                                                    Sonangol                                                       1,114                  502
                                                    ASECNA – Ag. Sec. Navigat. Ari                                  919                  2,645
                                                    Companhia de Seguros Fidelidade – Mundial, S.A.                 966                  1,552
                                                    Asa – Emp. Nac. Aerop. Seg. Aérea EP                            632                  1,240
                                                    Shell Brasil, Ltda                                              697                  1,095
                                                    Other                                                         56,734                52,897
                                                                                                                115,849                96,018




154   TAP Group      Annual Report 2010
31. Other accounts payable

As at 31 December 2010 and 2009, the "Other accounts payable" is broken down as follows:

                                                                                             31-Dec-10                    31-Dec-09
                                                                                        Current    Non-current       Current    Non-current
             Suppliers	of	fixed	assets                                                    2,930                –        6,745              –
             Participating entities                                                         299                –         299               –
             Staff                                                                        4,481                –        3,673              –
             Unions                                                                         301                –         335               –
             Consultants and advisers                                                         –                –          13               –
             Accrued costs                                                              141,922                –      138,820
             Other                                                                       65,854            1,032       47,636          1,275
                                                                                        215,787            1,032      197,521          1,275




Other – current

As at 31 December 2010 and 2009, the "Other – current" was broken down as follows:

                                                                                                  31-Dec-10        31-Dec-09
                                         Fees and taxes                                              41,119           29,751
                                         Work Accident indemnities                                    1,463            1,253
                                         Customer balances payable                                    1,104            3,661
                                         Interest rate swaps                                             259             662
                                         Other                                                       21,909           12,309
                                                                                                     65,854           47,636




Accrued costs

As at 31 December 2010 and 2009, the "Accrued costs" was broken down as follows:

                                                                                                  31-Dec-10        31-Dec-09
                                         Remuneration                                                62,463           62,997
                                         Maintenance reserves                                        11,894            5,750
                                         Special sales charges                                       10,718           10,051
                                         Remuneration – air crew                                     10,162           10,311
                                         Commissions payable to non-resident entities                 7,238            5,030
                                         Specialised work                                             6,218              710
                                         Handling by third parties                                    4,261            2,927
                                         Fuel                                                         4,191            3,410
                                         Conservation and repair of materials                         2,294            2,370
                                         Passenger boarding taxes                                     1,377              669
                                         Landing charges                                              1,225            1,210
                                         Social security: other entities – Brazil                     1,159                –
                                         Commissions                                                     292           2,166
                                         Booking fees                                                    287           2,154
                                         Navigation taxes                                                447          10,430
                                         Insurance payable                                               360           2,290
                                         Other                                                       17,336           16,345
                                                                                                    141,922          138,820




                                                                                                                                      Annual Report 2010   TAP Group   155
                  32. Advances from customers – tickets to be used


                  As at 31 December 2010 and 2009, the Group’s liabilities related to unused issued tickets recorded as "Advances from customers – tickets to be used"
                  was as follows:

                                                                                                           31-Dec-10            31-Dec-09
                                                   Passengers                                                 238,298               206,560
                                                   Cargo                                                          939                  424
                                                                                                              239,237              206,984



                  During	2010	and	2009,	based	on	the	partial	and	periodic	analyses	made	of	this	item	(see	Note	2.26),	adjustments	were	recorded	on	the	revenues	
                  from	passenger	and	cargo	transport	of	59,345	thousand	Euros	and	59,310	thousand	Euros,	respectively,	corresponding	to	approximately	3%	of	
                  flown	revenues,	which	were	recognised	as	"Sales	and	services	rendered".




                  35. Sales and services rendered

                  As at 31 December 2010 and 2009, the Sales and services rendered were detailed as follows:

                                                                                                           31-Dec-10            31-Dec-09
                                                   SALES AND SERVICES RENDERED
                                                   Sales
                                                      Internal Market
                                                           Air Transport and Maintenance                        2,445                  958
                                                           Catering                                             5,383                 4,405
                                                           Duty Free Shops                                     16,180                14,827
                                                           Healthcare                                               –                   56
                                                      Foreign Market
                                                           Air Transport and Maintenance                        2,918                 6,738
                                                           Duty Free Shops                                    117,876               104,330
                                                                                                              144,802              131,314

                                                   Services Rendered
                                                      Internal Market
                                                           Air Transport and Maintenance                      217,154               171,052
                                                           Catering                                             1,348                 1,345
                                                           Healthcare                                               –                 3,737
                                                           Travel Agencies                                          –                 2,942
                                                           Information Technologies                             5,862                 4,064
                                                      Foreign Market
                                                           Air Transport and Maintenance                     1,946,079            1,760,114
                                                           Travel Agencies                                          –                  176
                                                           Information Technologies                               276                  266
                                                                                                            2,170,719             1,943,696
                                                                                                            2,315,521             2,075,010




                  36. Operating grants
                  As at 31 December 2010 and 2009, the Operating grants were detailed as follows:

                                                                                                           31-Dec-10            31-Dec-09
                                                   Other revenues and gains                                     4,565                3,559
                                                                                                                4,565                3,559


                  The	Group	recognises,	on	an	annual	basis,	the	grants	receivable	from	the	Government	related	to	its	contribution	to	the	retail	price	of	fares	on	flights	
                  coming from or going to the archipelago of the Azores, provided that the passengers meet the applicable legal conditions. The value recognised for
                  each	year	corresponds	to	the	Group's	estimate	of	the	value	receivable	for	the	tickets	used	in	the	actual	year	by	passengers	covered	by	this	benefit	scheme.




156   TAP Group     Annual Report 2010
37. Gains and losses in associated companies

As at 31 December 2010 and 2009, the Gains and losses imputed to associated companies were broken down as follows:

                                                                                              31-Dec-10       31-Dec-09
                                  GAINS
                                  A.A.E. – Academia Aeronáutica de Évora, S.A.                          319            –
                                                                                                        319            –


                                  LOSSES
                                  SEAP                                                                  829            –
                                  SPdH–Serviços Portugueses de Handling, S.A.                      43,556         29,596
                                                                                                   44,385        29,596
                                                                                                   44,066        29,596




The amounts recorded under this item, as at 31 December 2010, correspond essentially to the loss for the year of SPdH, as described in Note 2.3.2
and Note 26, arising from the application of the equity method.

Furthermore, in 2010 the Group disposed of its stake in Academia Aeronáutica de Évora, S.A., which generated a capital gain of 319 thousand Euros.

Also in 2010, following the disposal of the Group's stake in Air Macau, SEAP was extinguished, generating a capital loss of 829 thousand Euros.



38. Variation in production

The variation in production in 2010 and 2009 was as follows:

                                                                                              31-Dec-10       31-Dec-09
                                  Opening Inventories                                              (8,131)       (22,824)
                                  Regularisation of Inventories                                    (7,926)            20
                                  Closing Inventories                                              15,219          8,131
                                     CHANGE IN PRODUCTION                                           (838)       (14,673)




39. Own work capitalised

Own work capitalised, in 2010 and 2009, refers to staff costs and others included in inventory acquisition/production costs and other tangible assets.

                                                                                              31-Dec-10       31-Dec-09
                                  CURRENT ASSETS
                                     Inventories                                                    2,406          1,650
                                     Other non-current assets                                             –            –
                                                                                                    2,406          1,650




40. Cost of goods sold and materials consumed
The cost of goods sold and materials consumed in 2010 and 2009 was as follows:

                                                                         31-Dec-10                                          31-Dec-09
                                                                           Raw materials, subsidiary                          Raw materials, subsidiary
                                                           Goods                                                Goods
                                                                          materials and consumables                          materials and consumables
  Opening Inventories                                        11,152                          167,199             21,914                          101,873
  Purchases                                                  77,851                          118,531             70,031                          162,956
  Regularisation of Inventories                               8,633                          (15,049)            (3,714)                           5,529
  Closing Inventories                                      (11,833)                         (180,655)           (11,152)                        (167,199)
INVENTORIES CONSUMED AND SOLD                               85,803                            90,026            77,079                           103,159
                                                                                             175,829                                             180,238




                                                                                                                                    Annual Report 2010      TAP Group   157
                  41. External supplies and services

                  External supplies and services are broken down as follows:

                                                                                                          31-Dec-10         31-Dec-09
                                                 Fuel                                                        522,933           358,641
                                                 Handling services                                           149,526           146,254
                                                 Navigation charges                                          132,644           124,180
                                                 Specialised work                                             82,007            61,413
                                                 Commissions                                                  64,333            50,249
                                                 Operating leasing of aircraft (Note 27)                      56,298            46,620
                                                 Conservation	and	repair	of	flight	equipment                  54,677            71,566
                                                 Rents and leases                                             54,243            43,145
                                                 Landing charges                                              51,383            49,560
                                                 Onboard expenses                                             41,929            35,511
                                                 Special sales charges – air transport                        36,705            30,705
                                                 Conservation and repair of other assets                      30,204            25,098
                                                 Sub-contracts                                                11,620            12,625
                                                 Insurance                                                     8,163             4,111
                                                 Fees                                                          2,854             3,299
                                                 Other                                                       145,420           149,082
                                                  TOTAL                                                    1,444,939         1,212,059



                  The increase in costs related to External supplies and services is mainly due to the increase in operations compared with the previous year plus the
                  increase	in	the	average	price	of	jet	fuel	(see	Note	3).




                  42. Payroll expenses

                  Payroll expenses are broken down as follows:

                                                                                                          31-Dec-10         31-Dec-09
                                                 Staff Remuneration                                          406,701           379,867
                                                 Social Charges                                               82,973            78,377
                                                 Other staff costs                                            52,858            44,363
                                                 Expenses	related	to	post-employment	benefits	(Note	28)       17,189             1,843
                                                                                                            559,721            504,450



                  The following remunerations were paid to the members of the corporate bodies of TAP Group during 2010:




                  Board of Directors:                            3,598 thousand Euros
                  General Meeting:                               4 thousand Euros
                  Audit Board / Statutory Auditor:               82 thousand Euros




                  Other staff costs

                  Other staff costs are broken down as follows:

                                                                                                          31-Dec-10         31-Dec-09
                                                 Social Action Costs                                          12,657            14,723
                                                 Insurance                                                    11,564            10,505
                                                 Indemnities                                                  12,849             2,962
                                                 Meals allowance                                               4,900             7,043
                                                 Work accident insurance                                       3,464             3,798
                                                 Other staff costs                                             7,424             5,332
                                                                                                             52,858             44,363




158   TAP Group     Annual Report 2010
43. Adjustments of inventories (losses/reversals)

As at 31 December 2010 and 2008, this item is broken down as follows:

                                                                                    31-Dec-10                                                       31-Dec-09
                                                                                             Reversal of inventory                                        Reversal of inventory
                                                           Inventory losses                                                     Inventory losses
                                                                                                     adjustments                                                  adjustments
Raw materials, subsidiary materials and consumables                      11,058                            (15,024)                         9,618                            (957)
                                                                         11,058                           (15,024)                          9,618                           (957)

                                                                                                          (3,966)                                                         8,661



Inventories (Note 20) are recorded net of the gains and losses for the year.




44. Impairment of debts receivable (losses/reversals)

As at 31 December 2010 and 2009, this item is broken down as follows:

                                                                                 31-Dec-10                                                    31-Dec-09
                                                          Adjustments of            Reversal of adjustments of                   Adjustments of      Reversal of adjustments of
                                                      accounts receivable                 accounts receivable                accounts receivable           accounts receivable
Customers                                                                6,922                             (9,441)                        17,820                            (376)
Other Financial Assets                                                       –                             (1,788)                              –                         (2,261)
                                                                         6,922                            (11,229)                        17,820                          (2,637)
                                                                                                           (4,307)                                                        15,183



The amounts recorded as “customers” (Note 21) are recorded net of the gains and losses for the year.




45. Provisions (increases/decreases)

The breakdown of the amount recorded as provisions, net of allocations and reversals, for the years ended on 31 December 2010 and 2009, is as follows:

                                                                                                           31-Dec-10                  31-Dec-09
                                        Provision for current lawsuits                                          (3,216)                    5,060
                                        Guaranties to associated companies                                        (387)                      (95)
                                        Other provisions                                                              (98)                (1,133)
                                                                                                               (3,701)                     3,832




46. Impairment of assets

The	impairment	of	assets	which	are,	and	those	which	are	not,	subject	to	depreciation	were	recorded	in	2010	and	2009	as	follows:

                                                                                                           31-Dec-10                  31-Dec-09
                                        FIXED ASSETS SUBJECT TO DEPRECIATION
                                           Buildings and other constructions                                          440                      –
                                                                                                                      440                      –


                                        FIXED ASSETS NOT SUBJECT TO DEPRECIATION
                                           Land and natural resources                                                 500                  1,000
                                           Other	financial	assets                                                       –                 31,600
                                                                                                                      500                32,600
                                                                                                                      940                32,600




                                                                                                                                                            Annual Report 2010       TAP Group   159
                  48. Other revenues and gains

                  As at 31 December 2010 and 2009, other revenues and gains are broken down as follows:

                                                                                                         31-Dec-10            31-Dec-09
                                                  Supplementary revenues                                     57,518               69,092
                                                  REFIS (Note 17)                                                 –               55,734
                                                  Favourable operating exchange rate differences             10,294               18,434
                                                  Gains	in	fixed	assets                                       2,547                4,949
                                                  Gains in inventories                                        2,279                  414
                                                  Other	financial	revenues	and	gains                          1,106                    –
                                                  Prompt payment discounts obtained                             223                  497
                                                  Other revenues and gains                                    1,141                  829
                                                                                                             75,108              149,949




                  As at 31 December 2010 and 2009, "Supplementary income" is broken down as follows:

                                                                                                         31-Dec-10            31-Dec-09
                                                  Recovered warehouse material                               19,592               30,912
                                                  TAP Miles sales                                            12,185               17,275
                                                  Rents and sub-leases                                        2,334                3,857
                                                  Advertising                                                 3,671                3,800
                                                  Rental of aircraft                                          2,392                2,402
                                                  Other                                                      17,344               10,846
                                                                                                             57,518               69,092


                  The year-on-year variation in "Recovered warehouse material" is essentially due to the fact that the subsidiary TAP Manutenção e Engenharia Brasil,
                  S.A. according to its available capacity used part of its available labour in the recovery of spare parts that may be used in services rendered or sold
                  during its operating activity (Note 20).




                  49. Other costs and losses

                  As at 31 December 2010 and 2009, the other costs and losses are broken down as follows:

                                                                                                         31-Dec-10            31-Dec-09
                                                  Other	costs	and	losses	of	financial	services	              15,031               17,088
                                                  Inventory losses                                            9,821                5,919
                                                  Taxes                                                       7,937                5,059
                                                  Fines and penalties                                         4,207                  947
                                                  Losses	in	fixed	assets                                      1,732                4,033
                                                  Other                                                       6,312                2,677
                                                                                                             45,040               35,723




                  50. Depreciation and amortisation costs/reversals
                  The balance of this item is broken down as follows:

                                                                                                         31-Dec-10            31-Dec-09
                                                  TANGIBLE FIXED ASSETS
                                                     Buildings and other constructions                        5,947                5,866
                                                     Basic equipment                                        127,780              125,948
                                                     Transport equipment                                        332                  361
                                                     Tools and utensils                                         984                1,059
                                                     Administrative equipment                                 2,250                5,534
                                                     Other tangible assets                                      661                  232
                                                                                                            137,954              139,000


                                                  OTHER INTANGIBLE ASSETS
                                                    Other intangible assets                                     668                1,980
                                                                                                                668                1,980
                                                                                                            138,622              140,980




160   TAP Group     Annual Report 2010
51. Interest and similar revenue received / costs paid

As at 31 December 2010 and 2009, the interest incurred and received were broken down as follows:

                                                                                                          31-Dec-10               31-Dec-09
                                   REVENUES AND GAINS
                                        Interest received from investments                                    6,896                   4,091
                                        Favourable exchange rate differences                                      –                   1,611
                                                                                                              6,896                   5,702


                                   COSTS AND LOSSES
                                        Interest paid on loans                                               44,977                  46,558
                                        Unfavourable exchange rate differences                                3,159                       –
                                        Other	financial	costs	and	losses                                      2,757                   4,029
                                                                                                             50,893                  50,587




As	at	31	December	2010	and	2009,	the	item	related	to	interest	paid	includes,	basically,	financing	interest	of	44,977	thousand	Euros	and	46,558	
thousand Euros, respectively.




52. Corporate income tax for the year
The	companies	of	the	Group	are	subject	to	Corporate	Income	Tax	(IRC)	based	on	their	individual	net	income,	at	the	normal	rate	of	25%.	In	addition	
to	IRC,	the	taxable	net	income	of	these	companies	is	also	subject	to	a	municipal	tax	(Derrama),	resulting	in	an	aggregate	income	tax	of	approximately	
29%	in	2010	(26.5%	in	2009).

Under	the	terms	of	article	88	of	the	Corporate	Income	Tax	Code,	the	companies	of	the	Group	are	subject	to	autonomous	taxation	on	several	expenses,	
at the 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	taxable	profit.

As at 31 December 2010 and 2009, the "Taxes" is broken down as follows:

                                                                                                          31-Dec-10               31-Dec-09
                                   Current tax                                                                8,893                   7,267
                                   Deferred tax                                                                (396)                     20
                                                                                                              8,497                   7,287



The current tax for 2010 refers essentially to the current tax of the subsidiary TAP S.A., which totalises 4,337 thousand Euros (2009: 3,060 thousand
Euros),	composed	mainly	of	the	municipal	tax	on	taxable	profit	and	the	autonomous	taxation	of	the	daily	allowance	of	the	air	crew.

The reconciliation of the effective tax rate for 2010 and 2009 is detailed as follows:

                                                                                                                31-Dec-10               31-Dec-09
                         PRE-TAX PROFIT                                                                                (44,418)                 7,288
                         Nominal tax rate                                                                                29.0%                 26.5%
                                                                                                                       (12,881)                 1,931

                         Permanent differences                                                                           1,502                 19,492
                         Reversal/(reinforcement) of deferred tax assets relative to tax losses                            709                 (2,437)
                         Insufficient	estimate	of	tax	for	the	previous	year	                                              (340)                  (427)
                         Use	of	Reportable	fiscal	losses	from	previous	years	without	tax	on	def.	assets                (11,171)               (13,037)
                         Reportable	fiscal	losses	from	the	year	without	tax	on	deferred	assets                          15,072                      –
                         Autonomous tax and others                                                                       2,725                  3,696
                         INCOME TAX                                                                                      8,497                  7,287

                         EFFECTIVE TAX RATE                                                                            -19.13%                99.99%

                         Current tax                                                                                     8,893                  7,267
                         Deferred tax                                                                                     (396)                    20
                                                                                                                         8,497                  7,287




                                                                                                                                                         Annual Report 2010   TAP Group   161
                  53. Minority interests – net income

                  The	Minority	interests	detailed	in	the	Profit	and	loss	statements	as	at	31	December	2010	and	2009	are	broken	down	as	follows:

                                                                                                                           31-Dec-10              31-Dec-09
                                                     MINORITY INTERESTS OF NET INCOME
                                                     TAP Group
                                                        Cateringpor                                                              584                    546
                                                        LFP                                                                     3,604                  2,997
                                                                                                                               4,188                   3,543




                  55. Reporting by segments

                  The	information	by	segments	is	associated	to	the	identified	business	segments,	namely	Air	Transport,	Maintenance,	the	Duty	Free	Shop,	Catering	and	
                  others. The net income, 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	segment	for	2010	is	analysed	as	follows:
                                                                                        Maintenance
                                                                                                                                          Holdings     Intersegmental
                  2010                                                Air Transport    Portugal     Brazil    Free shop    Catering                                        Consolidated
                                                                                                                                        and Others        Annulments
                  INCOME
                  Income                                                  2,054,592     126,541     52,495      134,056      36,326          41,371            (129,860)       2,315,521
                  Net operating income                                       75,824      25,685    (74,149)      10,102       1,613        (39,496)                   –             (421)
                  External	net	financial	results                            (37,502)          –       (621)         127          32          (6,033)                  –          (43,997)
                  Share of net losses in associated companies                     –           –          –            –           –        (44,066)                   –          (44,066)
                  Income tax                                                 (5,210)          –          –       (2,881)       (397)             (9)                  –           (8,497)
                  Minority interests                                              –           –          –        3,604         584               –                   –            4,188
                  NET INCOME FOR THE YEAR                                    33,112      25,685    (74,770)       7,348       1,248        (45,538)                   –         (52,915)


                  OTHER INFORMATION
                  Total Segmental Assets                                  2,096,272           –    165,627       24,438      12,801         623,565            (835,880)       2,086,823
                  Total Segmental Liabilities                             2,049,114           –    418,682       14,805       7,497         697,416            (835,880)       2,351,634
                  Depreciation and impairment losses                       (124,267)     (8,797)    (3,866)        (710)       (793)         (1,129)                  –         (139,562)


                  CAPEX                                                       2,764       6,927      4,100        1,000         312           2,066                   –           17,169
                  REMUNERATED NET DEBT                                    1,014,228           –     (3,294)      (7,933)     (4,332)        55,709                    –        1,054,378



                  The	financial	information	by	business	segment	for	2009	is	analysed	as	follows:
                                                                                        Maintenance
                                                                                                                                          Holdings     Intersegmental
                  2009                                                Air Transport    Portugal     Brazil    Free shop    Catering                                        Consolidated
                                                                                                                                        and Others        Annulments
                  INCOME
                  Income                                                  1,839,516     113,316     53,790      119,157      33,665          47,502            (131,936)       2,075,010
                  Net operating income                                       90,028      12,190      7,031        8,371       1,515        (66,962)                   –           52,173
                  External	net	financial	results                            (38,402)          –     (2,306)          69          41          (4,287)                  –          (44,885)
                  Share of net losses in associated companies                     –           –          –            –           –        (29,596)                   –          (29,596)
                  Income tax                                                 (3,680)          –          –       (2,223)       (443)          (941)                   –           (7,287)
                  Minority interests                                              –           –          –        2,997         546               –                   –            3,543
                  NET INCOME FOR THE YEAR                                    47,946      12,190      4,725        6,217       1,113        (72,190)                   –                1


                  OTHER INFORMATION
                  Total Segmental Assets                                  2,006,058           –    135,154       18,198      11,943         421,133            (568,091)       2,024,395
                  Total Segmental Liabilities                             2,008,973           –    290,315       10,780       6,822         480,222            (568,091)       2,229,021
                  Depreciation and impairment losses                       (126,677)     (8,327)    (4,917)        (428)       (769)       (32,462)                   –         (173,580)


                  CAPEX                                                       4,048      19,610        630          288         639           7,092                   –           32,307
                  REMUNERATED NET DEBT                                    1,177,749           –     (2,017)      (4,571)     (3,009)          3,309                   –        1,171,461


                  The Maintenance – Portugal segment is included in the structure of the subsidiary Transportes Aéreos Portugueses, S.A., the reason why its assets
                  and liabilities are not presented separately.




162   TAP Group      Annual Report 2010
Geographic segments
                                                                        Maintenance
                                                                                                                          Holdings       Intersegmental
2010                                              Air Transport     Portugal       Brazil      Free shop     Catering                                          Consolidated
                                                                                                                        and Others          Annulments
SALES AND SERVICES RENDERED:
Continent and Islands                                   200,640          31,045            –        16,180     36,326       41,095              (129,860)             195,426
Europe                                                  693,698          64,788            –        77,759          –            –                        –           836,245
South Atlantic                                          699,420           6,920    52,495           19,637          –            –                        –           778,472
North Atlantic                                           72,102           9,863            –         2,259          –            –                        –            84,224
Mid Atlantic                                             43,187               –            –         1,321          –            –                        –            44,508
África                                                  345,543          13,532            –        15,697          –          276                        –           375,048
Other                                                        2             393             –         1,203          –            –                        –             1,598
                                                      2,054,592         126,541    52,495          134,056     36,326       41,371             (129,860)            2,315,521



                                                                        Maintenance
                                                                                                                          Holdings       Intersegmental
2009                                              Air Transport     Portugal       Brazil      Free shop     Catering                                          Consolidated
                                                                                                                        and Others          Annulments
SALES AND SERVICES RENDERED:
Continent and islands                                   212,844          26,942            –        14,827     33,665       47,236              (131,936)             203,578
Europe                                                  679,129          53,526            –        80,868          –            –                        –           813,523
South Atlantic                                          522,727           5,765    53,790           10,120          –            –                        –           592,402
North Atlantic                                           58,602          13,962            –         2,325          –            –                        –            74,889
Mid Atlantic                                             50,341               –            –         1,482          –            –                        –            51,823
África                                                  315,873           6,207            –         8,860          –          266                        –           331,206
Other                                                         –           6,914            –          675           –            –                        –             7,589
                                                      1,839,516         113,316    53,790          119,157     33,665       47,502             (131,936)            2,075,010




56. Related entities

Balances and transactions between companies of the Group which are included in the consolidation perimeter are eliminated through the con-
solidation process, and, therefore, are not disclosed in this Note. The balances and transactions between the Group and the associated companies
(consolidated through the equity method) are presented in the tables below. The terms and conditions enforced between the Group and the related
parties are similar in substance to the terms which would normally be contracted between independent entities in comparable operations.

As at 31 December 2010 and 2009, the balances with related parties are broken down as follows:

31-Dec-10                                                                         Assets                                                       Liabilities
                                                                             Other accounts                                                                   Other accounts
                                                       Customers                                        Deferrals          Suppliers         Deferrals
                                                                                 receivable                                                                          payable
SHAREHOLDER
Parpública, Participações Públicas (SGPS), S.A.                     –                          –                –                    –               –                      –


ASSOCIATED COMPANIES
SPdH–Sociedade Portuguesa de Handling, S.A.                  3,610                     74,382                   –             (12,436)            (403)                     –


OTHER RELATED ENTITIES
ANA–Aeroportos de Portugal, S.A.                                  270                          –              558              (7,761)          (1,980)                    (1)
                                                             3,880                     74,382                 558            (20,197)          (2,383)                     (1)


31-Dec-09                                                                         Assets                                                       Liabilities
                                                                             Other accounts                                                                   Other accounts
                                                       Customers                                        Deferrals          Suppliers         Deferrals
                                                                                 receivable                                                                          payable
SHAREHOLDER
Parpública, Participações Públicas (SGPS), S.A.                     –                          –                –                    –               –                      –


ASSOCIATED COMPANIES
SPdH–Sociedade Portuguesa de Handling, S.A.                  7,042                     36,222                   2              (2,968)            (796)                (3,307)


OTHER RELATED ENTITIES
ANA–Aeroportos de Portugal, S.A.                             5,957                             1              437              (7,534)          (1,655)                     –
                                                            12,999                     36,223                 439            (10,502)          (2,451)                (3,307)



The amount of “Other debtors” related to the associate SPdH includes a loan contract of 73,000 thousand Euros with a repayment schedule of less
than 1 year, earning interest at normal market rates.




                                                                                                                                                    Annual Report 2010           TAP Group   163
                  As at 31 December 2010 and 2009, the transactions with related parties are broken down as follows:

                  31-Dec-10                                                                              Costs related to                      Other costs            Sales and services            Other revenues
                                                                                                      services consumed                         and losses                    rendered                   and gains
                  SHAREHOLDER
                  Parpública, Participações Públicas (SGPS), S.A.                                                             –                               –                        –                          –


                  ASSOCIATED COMPANIES
                  SPdH–Sociedade Portuguesa de Handling, S.A.                                                            78,278                             19                    10,414                      1,565


                  OTHER RELATED ENTITIES                                                                                      –                               –                        –                          –
                  ANA–Aeroportos de Portugal, S.A.                                                                       67,640                            155                        82                       468
                                                                                                                       145,918                             174                    10,496                     2,033


                  31-Dec-09                                                                              Costs related to                      Other costs            Sales and services            Other revenues
                                                                                                      services consumed                         and losses                    rendered                   and gains
                  SHAREHOLDER
                  Parpública, Participações Públicas (SGPS), S.A.                                                             –                               –                        –                          –


                  ASSOCIATED COMPANIES
                  SPdH–Sociedade Portuguesa de Handling, S.A.                                                            77,278                             21                    10,293                      2,342


                  OTHER RELATED ENTITIES                                                                                      –                               –                        –                          –
                  ANA–Aeroportos de Portugal, S.A.                                                                       62,525                            118                     1,213                        74
                                                                                                                       139,803                             139                    11,506                     2,416




                  57. Contingent assets and liabilities


                  Contingent assets

                  As at 31 December 2010 and 2009, the Group did not own any contingent assets.


                  Contingent liabilities

                  The	Brazilian	subsidiary	TAP	Manutenção	e	Engenharia	Brasil,	S.A.	is	involved	in	taxation,	civil	and	labour	claims,	where	the	risks	of	loss	are	classified	
                  by the Management as possible, based on the evaluation of its legal consultants, but for which no provision has been constituted. These lawsuits are
                  described below:

                  Contingency                         Description                                                                 Current Developments                             31-Dec-10            31-Dec-09
                                                                                                                                  Probable success of TAP Manutenção e
                   (i)     Labour-related             FGTS not deposited between 2002/ 2004 and Syndicate action.                                                                          90,329            81,973
                                                                                                                                  Engenharia Brasil, S.A.
                                                                                                                                  Probability of possible loss in the
                                                      Tax foreclosure relative to the payment of ICMS duties for the
                   (ii)    Tax-related                                                                                            administrative sphere and remote in the                  74,378            61,808
                                                      import	of	goods	or	fixed	assets	for	use	or	consumption
                                                                                                                                  judicial	sphere.
                                                                                                                                  Awaiting the suspension of the call-in
                   (iii)   Tax-related                Tax foreclosure relative to accessory obligations of ICMS.                  of the loan. Probability of success of TAP                5,590             4,913
                                                                                                                                  Manutenção Brasil.
                                                                                                                                  Awaiting	judgement	and	impugnation	with	
                   (iv)    Tax-related                IRPJ/CSLL – DIPJ for 2002.                                                                                                           71,192            60,862
                                                                                                                                  probability of success.
                                                      AI	POA	–	insufficient	collection	of	tax	on	imports	for	the	period	of	       Awaiting	judgement	and	impugnation	with	
                   (v)     Tax-related                                                                                                                                                     13,231            11,089
                                                      08/2002 to 12/2004.                                                         probability of success.




164   TAP Group       Annual Report 2010
Labour claims

ρ   (i) FGTS not deposited between 2002/ 2004 and Hazard/Unfitness
    Value: 90,329 thousand

                                                                                                                                                   	
The	main	labour	action	involves	a	lawsuit	filed	by	the	union	claiming	the	FGTS	deposit	between	2002	and	2004	for	all	the	employees	of	Porto	Alegre.	

The other lawsuit refers to the request for additional insalubrity and hazard payments for all employees who work as aircraft maintenance auxiliaries
in Porto Alegre. Following the analysis of the expert's report, it was concluded that the activities exercised are not characterised as dangerous or insa-
lubrious.	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 Manutenção e Engenharia Brasil, S.A. believes that these legal actions will have no materially rel-
evant	impact	on	its	financial	statements	as	at	31	December	2010.


Tax claims

ρ   (ii) Tax foreclosure relative to compulsory payment of ICMS – Tax on the import of goods
    Value: 74,378 thousand

In March 2009, legal proceedings were brought against TAP Manutenção e Engenharia Brasil, S.A. on the supposed responsibility to pay ICMS on
imported goods. The subsidiary contested 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.

ρ   (iii) Tax foreclosure relative to accessory obligations of ICMS – Tax on import of goods
    Value: 5,590 thousand

In	December	2007,	the	subsidiary	was	notified,	in	the	context	of	tax	foreclosure,	proposed	by	the	National	Treasury	of	the	State	of	São	Paulo	
(Guarulhos),	relative	to	accessory	obligations	of	ICMS.	The	subsidiary	pledged	2%	of	its	invoicing,	and	suspended	the	foreclosure	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 foreclosure. The prob-
ability of success on the part of the subsidiary is considered as likely.

ρ   (iv) Notice of Infraction of IRPJ/CSLL/PIS/COFINS
    Value: 71,192 thousand

The	notice	of	infraction	was	filed	against	the	subsidiary	in	April	2007,	where	the	Federal	Revenue	Office	claims	tax	credits	of	IRPJ,	CSLL,	PIS	and	
COFINS, from 2002, arguing: (i) the alleged omission of revenues; and (ii) the deduction of non-documented costs by the subsidiary, which,
therefore,	should	not	have	been	deducted	by	the	company.	In	addition,	a	fine	is	charged	resulting	from	differences	between	the	amounts	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 effectively proven during
the tax inspection. The trial is pending at the Administrative Court of First Instance. Based on information provided by its lawyers, TAP Manutenção
e	Engenharia	Brasil,	S.A.	believes	that	these	legal	actions	will	have	no	materially	relevant	impact	on	its	financial	statements	as	at	31	December	2010.

ρ   (v) Notice of Infraction of II/IPI/PIS/COFINS – Import
    Value: 13,231 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 Manutenção e Engenharia Brasil, S.A. believes that this lawsuit will have no materially relevant impact which
might	affect	its	financial	statements	as	at	31	December	2010.


Other

ρ   (i) On 2009 the holding company of the AERUS fund (Brazilian pension fund) alleged that TAP Manutenção e Engenharia Brasil, S.A. had debts
    that were not recognised in the transfer of liabilities with post-employment benefits to the said fund of approximately 16 million Euros (40 mil-
    lion R$), since it was co-responsible for the pension fund deficits of other sponsors (VARIG and VASP). According to the assessment made by the
    Management of TAP Manutenção e Engenharia Brasil, S.A., based on the opinion of its legal advisers, the debt presented by AERUS has no legal
    justification.	The	estimated	probability	that	TAP	Manutenção	e	Engenharia	Brasil,	S.A.	will	be	forced	to	pay	this	debt	is	remote.	Consequently,	as	
    at 31 December 2010, the subsidiary did not record any provision to meet this contingency.

ρ   (ii) The subsidiary TAP Manutenção e Engenharia Brasil, S.A. has pledged various assets of 25,852 thousand Euros (30,265 thousand Euros in
    2009), relative to guaranties required in tax and labour actions. These assets include vehicles, computers, and components, items of the hangars
    of Rio de Janeiro and Porto Alegre, amongst others.

ρ   (iii) In previous years, Lisbon Municipality appealed to the Supreme Administrative Court, which is currently awaiting the decision of the
    Portuguese Government, as established in Decree-Law No. 351/89 of October 13, against the transfer to the ownership of TAP S.A. of land, build-
    ings and other constructions used by TAP, situated next to Lisbon Airport, thus removing them from the public domain. At the same time, a civil
    action was also filed and its result depends on the outcome of the abovementioned case. TAP S.A. believes that the outcome of these legal actions
    will have no materially relevant impact on TAP S.A.




                                                                                                                                     Annual Report 2010      TAP Group   165
                  58. Breakdown of financial assets and liabilities

                  The	reconciliation	of	the	consolidated	balance	sheet	as	at	31	December	2010	and	2009	relative	to	the	different	categories	of	the	financial	assets	and	
                  liabilities included therein is broken down as follows:

                                                                                  Derivative financial
                                                                                         instruments            Credit and   Other financial               Non-financial
                  31-Dec-10                                                                                                                                                         TOTAL
                                                                               designated as hedging           receivables        liabilities       assets and liabilities
                                                                                         instruments
                  ASSETS
                     Other non-current assets                                                             –         30,197                      –                         –          30,197
                     Current receivables                                                                  –        351,346                      –                   28,141          379,487
                     Cash and cash equivalents                                                            –        222,677                      –                         –         222,677
                  TOTAL ASSETS                                                                            –        604,220                      –                   28,141         632,361


                  LIABILITIES
                     Non-current remunerated liabilities                                                  –              –         (1,028,060)                            –      (1,028,060)
                     Other non-current liabilities                                                     (747)             –                 (285)                          –          (1,032)
                     Current remunerated liabilities                                                      –              –             (248,995)                          –        (248,995)
                     Current payables                                                                  (259)             –             (600,958)                  (199,679)        (800,896)
                  TOTAL LIABILITIES                                                                  (1,006)             –        (1,878,298)                    (199,679)      (2,078,983)



                                                                                  Derivative financial
                                                                                         instruments            Credit and   Other financial               Non-financial
                  31-Dec-09                                                                                                                                                         TOTAL
                                                                               designated as hedging           receivables        liabilities       assets and liabilities
                                                                                         instruments
                  ASSETS
                     Other non-current assets                                                             –         30,058                      –                         –          30,058
                     Current receivables                                                              6,285        283,367                      –                   32,641          322,293
                     Cash and cash equivalents                                                            –        131,077                      –                         –         131,077
                  TOTAL ASSETS                                                                        6,285        444,502                      –                   32,641         483,428


                  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)             –             (511,725)                  (166,934)        (679,321)
                  TOTAL LIABILITIES                                                                  (1,937)             –        (1,814,263)                    (166,934)      (1,983,134)




                  The table below presents the assets and liabilities measured at fair value as at 31 December 2010 and 2009, according to the following hierarchical
                  levels of fair value established in IFRS 7:

                     Level 1:		fair	value	of	financial	instruments	based	on	active	net	market	prices	on	the	end	of	reporting	period;


                     Level 2: the	fair	value	of	financial	instruments	is	not	determined	based	on	active	market	prices,	but	rather	through	the	use	of	evaluation	models.	The	main	inputs	of	
                     these models are observable on the market; and


                     Level 3:	the	fair	value	of	financial	instruments	is	not	calculated	based	on	active	market	prices,	but	rather	through	the	use	of	evaluation	models,	whose	main	inputs	are	
                     not observable on the market.


                  31-Dez-10                                                                                                            TOTAL        Level 1         Level 2         Level 3
                  Financial Assets at Fair Value recognised in reserves – hedging derivatives                                               –             –                –                –


                  31-Dec-09                                                                                                            TOTAL        Level 1         Level 2         Level 3
                  Financial Assets at Fair Value recognised in reserves – hedging derivatives                                           6,285             –           6,285                 –


                  31-Dec-10                                                                                                            TOTAL        Level 1         Level 2         Level 3
                  Financial Liabilities at Fair Value recognised in reserves – hedging derivatives                                      1,006             –           1,006                 –


                  31-Dec-09                                                                                                            TOTAL        Level 1         Level 2         Level 3
                  Financial Liabilities at Fair Value recognised in reserves – hedging derivatives                                      1,937             –           1,937                 –




                  Derivative financial instruments

                  The	fair	value	of	the	derivative	financial	instruments	is	recorded	as	“accounts	payable”	when	negative	and	as	“accounts	receivable”	when	positive.




166   TAP Group      Annual Report 2010
During	2010	and	2009,	the	changes	in	the	fair	value	of	the	derivative	financial	instruments	were	recorded	as	equity.

The	breakdown	of	the	fair	value	of	the	derivative	financial	instruments	is	presented	in	Note	24.


Other financial assets

These items are recognised at fair value, corresponding to their market value, minus any impairment.


Credit and other receivables

These	items	are	recognised	at	fair	value,	corresponding	to	their	nominal	value,	minus	any	impairment	identified	during	the	analysis	of	the	credit	risks	
of the loan portfolios held.


Other financial liabilities

These	items	are	recognised	at	their	amortised	cost,	corresponding	to	the	value	of	the	respective	cash	flows,	discounted	using	the	effective	interest	
rate associated to each liability.




60. Commitments

As at 31 December 2010 and 2009, the Guarantees provided by the Group are broken down as follows:

                                                                                                   31-Dec-10           31-Dec-09
                      BANK GUARANTEES PROVIDED BY THE HEAD OFFICE OF TAP S.A.
                        Portuguese State – Agreement covering the Azores routes                        4,460                4,910
                        Natwest – "Acquiring" relative to credit cards                                 5,855                5,855
                        Labour Court                                                                   2,674                2,522
                        Aircraft                                                                      10,318                6,636
                        Fuel                                                                           2,997                3,116
                        Other                                                                          4,198                3,883
                      BANK GUARANTEES PROVIDED BY L.F.P., S.A.
                        Duty free shop operating license concession contracts                          6,336                6,699
                      BANK GUARANTEES PROVIDED BY OTHER COMPANIES OF THE GROUP                          399                   387
                      GUARANTEES AND COMFORT LETTERS PROVIDED TO ASSOCIATED
                                                                                                       2,854                2,916
                      COMPANIES
                      SECURITIES PROVIDED TO INSURANCE COMPANIES                                        762                   742
                                                                                                      40,853               37,666


The	reinforcement	carried	out	during	the	current	financial	year	regarding	the	Bank	guarantees	provided	by	TAP	Group	relative	to	aircraft	is	essentially	
due to the new operating leasing contracts.


Purchase commitments

As	at	31	December	2010,	the	financial	commitments	assumed	by	the	subsidiary	TAP	S.A.	associated	with	operating	leasing	contracts	for	aircraft	
totalise 241,871 thousand Euros (259,777 thousand Euros as at 31 December 2009).

In addition, a contract has been signed with Airbus for the future acquisition of twelve Airbus A350, with the option of three further aircraft, to be
received between 2014 and 2018.




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




                                                                                                                                    Annual Report 2010   TAP Group   167
            Audit
            Report
                                       Legal Certification
                                       of the Consolidated Accounts


                                        Introduction

                                         1.	 We	 have	 examined	 the	 attached	 consolidated	 financial	
                                             statements of TAP–Transportes Aéreos Portugueses, SGPS,
                                              S.A., which include the Consolidated statement of the
                                              financial	position	as	at	31	December	2010	(showing	a	
                                               total of 2,086,823 thousand euros and negative equity of
                                                264,811 thousand euros, which includes total minority
                                                interests of 7,355 thousand euros and a negative con-
                                                 solidated net income of 57,103 thousand euros), the
                                                  Consolidated income statement, the Consolidated full
                                                  income statement, the Consolidated statement of the
                                                   changes	in	equity	and	the	Consolidated	cash	flows	of	
                                                    the	financial	year	ended	on	that	date,	as	well	as	the	
                                                     corresponding	Notes	to	the	consolidated	financial	
                                                      statements.




168   TAP Group   Annual Report 2010
Responsibilities                                                             Opinion

2. It is the responsibility of the Executive Board of Directors to prepare   7. In	our	opinion,	the	abovementioned	consolidated	financial	state-
   consolidated	financial	statements	that	present	a	true	and	appropri-          ments present a fair and appropriate view, in all materially relevant
   ate	view	of	the	financial	position	of	the	group	of	companies	included	       aspects,	of	the	consolidated	financial	position	of	TAP–Transportes
   in the consolidation, the consolidated net income and full income of         Aéreos Portugueses, SGPS, S.A., as at 31 December 2010, the
   their operations, the consolidated changes in equity and the consoli-        consolidated net income and full income of its operations, the con-
   dated	cash	flows,	the	adoption	of	adequate	accounting	policies	and	          solidated	changes	in	equity	and	consolidated	cash	flows	for	the	year	
   the maintenance of appropriate internal control systems, as well as          ended on that date, in accordance with the International Financial
   information	on	any	relevant	facts	that	have	influenced	the	activity,	        Reporting Standards as adopted in the European Union.
   financial	position	or	net	income	of	the	companies	included	in	the	
   consolidation perimeter.

3. Our responsibility consists of expressing a professional and independ-    Reporting on other legal requirements
   ent	opinion	based	on	our	examination	of	those	financial	statements.
                                                                             8.	It	is	also	our	opinion	that	the	financial	information	presented	in	the	
                                                                                consolidated management report is concordant with the consoli-
                                                                                dated	financial	statements	for	the	year.
Scope

4. The examination we carried out was performed in accordance with
   the Standards and Technical Directives of Review /Auditing issued by      Emphasis
   the Portuguese Institute of Statutory Auditors (“Ordem dos Revisores
   Oficiais	de	Contas”),	which	require	that	the	examination	be	planned	      9. Without affecting the opinion expressed in the previous paragraphs,
   and	performed	with	the	objective	of	obtaining	an	acceptable	level	of	        we would like to draw attention to the fact that half of the share cap-
   assurance	that	the	consolidated	financial	statements	are	free	from	          ital of the Company has been lost, a situation that falls under article
   materially relevant distortions. For this purpose, this examination          35	of	the	Commercial	Companies	Code,	which	requires	its	rectifica-
   included	the	verification	of	a	sample	of	supporting	documents	of	the	        tion under the conditions established therein.
   amounts	and	information	disclosed	in	the	financial	statements	and	
   the	assessment	of	the	estimates,	based	on	judgements	and	criteria	
   defined	by	the	Executive	Board	of	Directors,	used	in	their	prepara-
   tion,	verification	of	the	consolidation	operations,	assessment	of	the	
   adequacy of the adopted accounting policies, their uniform applica-
   tion	and	their	disclosure,	considering	the	circumstances,	verification	
   of the applicability of the going concern principle and assessment of
   the	adequacy	of	the	overall	presentation	of	the	consolidated	finan-
   cial statements.a verificação, numa base de amostragem, do suporte
   das quantias e divulgações constantes das demonstrações finan-
   ceiras	e	a	avaliação	das	estimativas,	baseadas	em	juízos	e	critérios	
   definidos pelo Conselho de Administração Executivo, utilizadas na
   sua preparação;

5. Our	examination	also	covered	verification	of	the	concordance	of	the	
   financial	information	presented	in	the	consolidated	management	
   report	with	the	consolidated	financial	statement.

6. We believe that the examination carried out provides an acceptable
   basis for expressing our opinion.
                                                                             Lisbon, 6th April 2011
                                                                             OLIVEIRA, REIS & ASSOCIADOS, SROC, LDA.
                                                                             Represented by


                                                                             José Vieira dos Reis, ROC no. 359




                                                                                                                            Annual Report 2010   TAP Group   169
            Proposed
            Application
            of Results
                                       TAP–Transportes Aéreos Portugueses, SGPS, S.A. presented a nega-
                                        tive	net	income	of	the	value	of	145,079,387	Euros,	for	the	financial	
                                         year of 2010.

                                         It	is	thus	proposed	that	the	negative	net	income	for	the	financial	
                                          year be fully transferred to retained earnings, in accordance with
                                           current legislation and the Company’s statutes.




170   TAP Group   Annual Report 2010
In view of the negative amount of the net income at the end of the year, and since
equity is negative by 302,151,363 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:

ρ   Cash entry to the value of 309,700,000 Euros.




Lisbon, 30th March 2011




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




                                                                                        Annual Report 2010   TAP Group   171
                  Financial Statements




                  174     STATEMENT OF THE FINANCIAL POSITION
                  175     PROFIT AND LOSS STATEMENT
                  176     FULL INCOME STATEMENT
                          STATEMENT OF CHANGES IN EQUITY
                  177     CASH FLOW STATEMENT


                  178     NOTES TO THE FINANCIAL STATEMENTS


                  178     Introduction
                  179     1. Summary of the main accounting policies
                               1.1. Basis of Presentation
                               1.2.	Comparability	of	the	financial	statements
                               1.3. First-time adoption of the IFRS
                  180          1.4. New standards, amendments and interpretations of existing standards
                               1.5. Shareholdings in subsidiaries and associated companies
                  181          1.6. Currency conversion
                               1.7. Impairment of assets
                  182          1.8. Financial assets
                               1.9. Current accounts receivable
                  183          1.10. Cash and cash equivalents
                               1.11. Share capital
                               1.12. Remunerated liabilities
                               1.13. Financial costs related to loans
                               1.14. Income tax
                               1.15. Provisions
                  184          1.16.Contingent assets and liabilities
                               1.17. Accrual principle
                               1.18.	Cash	flow	statement
                               1.19. Subsequent events




172   TAP Group   Annual Report 2010
184   2. Judgements and estimates
185   3. Financial risk management policies
187   4.	Categories	of	financial	instruments
      5. Other accounts receivable
188   6.Stakes in the share capital of subsidiaries and associated companies
189   7. State
      8. Cash and equivalent
      9. Share capital
      10. Reserves
190   11. Provisions
      12. Remunerated liabilities
191   13. Other accounts payable
192   14. Gains/(losses) relative to stakes in share capital
      15. External supplies and services
      16. Payroll expenses
      17. Other costs and losses
      18. Depreciation, amortisations and impairment losses
      19.	Net	financing	costs
193   20. Tax for the year
      21. Net income per share
194   22. Related entities




                                                                               Annual Report 2010   TAP Group   173
             Statement of the Financial Position
             AS AT 31 DECEMBER 2010 AND 2009
             VALUES IN EUROS




                                                                                                                 Note           2010            2009
             ASSETS
             NON-CURRENT ASSETS

             Accounts receivable                                                                                   5      220,246,123      104,109,332
             Shareholdings in subsidiaries and associated companies                                                6       25,118,375       21,911,669
                                                                                                                   5     245,364,498      126,021,001

             CURRENT ASSETS

             Accounts receivable                                                                                           75,006,643       35,017,942
             State                                                                                                 7               30            7,777
             Cash and cash equivalents                                                                             8          353,568          20,012
                                                                                                                          75,360,241       35,045,731
             TOTAL ASSETS                                                                                                320,724,739      161,066,732

             EQUITY AND LIABILITIES
             CAPITAL AND RESERVES

             Share capital                                                                                         9       15,000,000       15,000,000
             Legal reserve                                                                                        10        3,000,000        3,000,000
             Currency conversion reserves                                                                         10       25,949,018        7,498,109
             Other reserves                                                                                       10       (7,744,323)               –
             Retained	profits                                                                                           (193,276,671)    (133,258,153)
             Retained	profits	for	the	year                                                                              (145,079,387)     (60,018,518)
             TOTAL EQUITY                                                                                               (302,151,363)    (167,778,562)

             NON-CURRENT LIABILITIES

             Provisions                                                                                           11      220,775,124       64,078,566
             Remunerated liabilities                                                                              12       54,460,072        4,866,953
             Accounts payable                                                                                     13       3,237,522        3,475,542
                                                                                                                         278,472,718       72,421,061

             CURRENT LIABILITIES

             Remunerated liabilities                                                                              12        1,993,342         142,378
             Accounts payable                                                                                     13      342,410,042      256,274,337
             State                                                                                                 7               –            7,518
                                                                                                                         344,403,384      256,424,233
             TOTAL LIABILITIES                                                                                           622,876,102      328,845,294
             TOTAL EQUITY AND LIABILITIES                                                                                320,724,739      161,066,732

             The notes are an integral part of the Statement of the Financial Position as at 31 December 2010.




174   TAP Group      Annual Report 2010
Profit and Loss Statement
AS AT 31 DECEMBER 2010 AND 2009
VALUES IN EUROS




                                                                                          Note           2010                 2009
Gains/(losses) relative to shareholdings                                                   14    (142,145,502)         (25,175,418)
                                                                                                 (142,145,502)        (25,175,418)

COSTS AND LOSSES
   External supplies and services                                                          15         (733,257)             (66,506)
   Payroll expenses                                                                        16           (4,906)              (2,740)
   Impairment of accounts receivable                                                        5           (7,951)                      –
   Other costs and losses                                                                  17         (154,145)             (7,651)
                                                                                                 (143,045,761)        (25,252,315)

Depreciation, amortisations and impairment losses                                                            –         (31,600,000)
NET OPERATING INCOME                                                                       18    (143,045,761)        (56,852,315)

Net	financing	costs                                                                        19       (2,033,626)         (3,166,203)
PRE-TAX NET INCOME                                                                               (145,079,387)        (60,018,518)

Income tax                                                                                 20                –                       –
NET INCOME FOR THE YEAR                                                                          (145,079,387)        (60,018,518)


RETAINED PROFITS FOR THE YEAR                                                                    (145,079,387)        (60,018,518)

NET INCOME PER SHARE

Basic and diluted net income per share                                                     21             (97)                    (40)

The	notes	are	an	integral	part	of	the	Profit	and	Loss	Statement	as	at	31	December	2010.




                                                                                                             Annual Report 2010     TAP Group   175
             Full Income Statement
             AS AT 31 DECEMBER 2010 AND 2009
             VALUES IN EUROS



                                                                                                                                             2010                      2009

             RETAINED PROFITS FOR THE YEAR                                                                                         (145,079,387)               (60,018,518)

             Currency conversion differences                                                                                             18,450,909               13,339,698


             INCOME RECORDED DIRECTLY IN EQUITY                                                                                          18,450,909              13,339,698


             TOTAL INCOME AND COSTS RECORDED IN THE YEAR                                                                           (126,628,478)               (46,678,820)


             ATTRIBUTABLE TO:
                  TAP SGPS Shareholders                                                                                             (126,628,478)               (46,678,820)
                  Minority interests                                                                                                              –                         –
                                                                                                                                   (126,628,478)               (46,678,820)


             The notes are an integral part of the Full Income Statement as at 31 December 2010.




             Statement of Changes in Equity
             AS AT 31 DECEMBER 2010 AND 2009
             VALUES IN EUROS


                                                                                                                  Currency                                     Retained
                                                             Share       Adjustments of               Legal                     Other           Profits
                                                                                                                conversion                                       profits            TOTAL
                                                            Capital       shareholdings             reserve                   reserves        retained
                                                                                                                   reserves                                 for the year
             EQUITY
             AS AT 01 JANUARY 2009
             (POC)                                     15,000,000             (7,364,032) 3,000,000             (7,452,093)         –       51,606,532    (289,352,800)    (234,562,393)


             First adoption of the new
             accounting standards                                   –            7,364,032                  –    1,610,504          –      104,488,115                –      113,462,651


             EQUITY AS
             AT 01 JANUARY 2009 (IFRS)                 15,000,000                           – 3,000,000         (5,841,589)         –      156,094,647    (289,352,800)    (121,099,742)

             Application of the net income
             for 2008                                               –                       –               –            –          –     (289,352,800)     289,352,800                  –
             Currency conversion of the
             extension of the net investment                        –                       –               –   13,339,698          –                 –               –         13,339,698
             Fair value of derivative
             financial	instruments*                                 –                       –               –            –          –                 –               –                  –
             Other movements                                        –                       –               –            –          –                 –               –                  –
             Retained	profits	for	the	year                          –                       –               –            –          –                 –    (60,018,518)     (60,018,518)
             EQUITY AS
             AT 31 DECEMBER 2009                       15,000,000                           – 3,000,000          7,498,109          – (133,258,153)        (60,018,518)    (167,778,562)

             Application of the
             net income for 2009                                    –                       –               –            –                 (60,018,518)      60,018,518                  –
             Merger with
             Reaching Force – S.G.P.S., S.A.                        –                       –               –            – (7,744,323)                –               –         (7,744,323)
             Currency conversion of the
             extension of the net investment                        –                       –               –   18,450,909          –                 –               –         18,450,909
             Retained	profits	for	the	year                          –                       –               –            –          –                 –   (145,079,387)    (145,079,387)
             EQUITY AS
             AT 31 DECEMBER 2010                       15,000,000                           – 3,000,000         25,949,018 (7,744,323) (193,276,671)      (145,079,387)    (302,151,363)

             The notes are an integral part of the Statement of Changes in Equity as at 31 December 2010.




176   TAP Group     Annual Report 2010
Cash Flow Statement
AS AT 31 DECEMBER 2010 AND 2009
VALUES IN EUROS



                                                                                    Note          2010                  2009

OPERATING ACTIVITIES
Receipts from customers                                                                                –                       –

Payments to suppliers                                                                           (55,599)              (64,429)

Payments to staff                                                                                (1,040)               (2,080)
   Flows from operations                                                                        (56,639)              (66,509)



(Payments)/receipts of income tax                                                                (2,004)                    (618)

Other (payments)/receipts related to operating activity                                        (405,488)          (2,378,412)
   FLOWS FROM OPERATING ACTIVITIES (1)                                                         (464,131)          (2,445,539)

INVESTMENT ACTIVITIES
Receipts from:

   Dividends                                                                                   2,795,000            2,644,397

   Loans granted                                                                              35,000,000              500,000

   Interest and similar income                                                                  293,677                38,637
                                                                                              38,088,677            3,183,034



Payments relative to:

   Loans granted                                                                           (168,328,447)         (89,602,000)
                                                                                           (168,328,447)         (89,602,000)


   FLOWS FROM INVESTMENT ACTIVITIES (2)                                                    (130,239,770)        (86,418,966)

FINANCING ACTIVITIES
Receipts from:

   Loans obtained                                                                            388,960,003         190,021,000



Payments relative to:

   Loans obtained                                                                          (257,536,942)        (102,162,000)

   Interest and similar costs                                                                  (385,604)          (1,519,772)
                                                                                           (257,922,546)        (103,681,772)


   FLOWS FROM FINANCING ACTIVITIES (3)                                                      131,037,457           86,339,228



 VARIATION IN CASH AND CASH EQUIVALENTS (1)+(2)+(3)                                             333,556           (2,525,277)

 EFFECT OF EXCHANGE RATE DIFFERENCES                                                                   –                       –

 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR                                          20,012             2,545,289
 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR                                    8          353,568                20,012


The notes are an integral part of the Cash Flow Statement as at 31 December 2010.




                                                                                                       Annual Report 2010      TAP Group   177
            Notes to                   Introduction


            the Financial               TAP–Transportes Aéreos Portugueses, SGPS, S.A. (“Company” or “TAP SGPS”)
                                         is	a	state-owned	limited	company	with	head	office	in	Lisbon.	It	was	incor-

            Statements                    porated 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., through transfer of the shares
                                            representing the total share capital of Transportes Aéreos Portugueses,
                                             S.A. (“TAP S.A.”).




                                               Registered Office                  Aeroporto de Lisboa, Edifício 25
                                               Share Capital                      Euros 15,000,000
                                                Taxpayer Number                   506 623 602




                                                   The	corporate	object	of	the	Company	is	the	management	of	share-
                                                    holdings in other companies as an indirect form of carrying out
                                                     economic activities.

                                                      These	 financial	 statements	were	 approved	 by	the	Board	of	
                                                       Directors on 30 March 2011

                                                        The members of the Board of Directors who sign this report
                                                         declare that, to the best of their knowledge, the informa-
                                                         tion provided herein was drafted in conformity with the
                                                          applicable Accounting Standards, presenting a true and
                                                           appropriate	view	of	the	assets	and	liabilities,	financial	situ-
                                                            ation and results of the Company.




178   TAP Group   Annual Report 2010
1. Summary of the main accounting policies

The	main	accounting	policies	applied	in	the	preparation	of	these	consolidated	financial	statements	are	described	below.


1.1.Basis of Presentation

The	financial	statements	were	prepared	in	accordance	with	the	International	Financial	Reporting	Standards	adopted	by	the	European	Union	(IFRS	–	
previously designated International Accounting Standards – IAS), issued by the International Standards Accounting Board (IASB) and Interpretations
issued by the International Financial Reporting Interpretations Committee (IFRIC) or by the former Standing Interpretations Committee (SIC), in force
on	the	date	of	preparation	of	the	said	financial	statements.

The	attached	financial	statements	were	prepared	under	the	assumption	of	the	continuity	of	the	business,	based	on	the	Company's	accounting	ledg-
ers and records at historical cost.

The	preparation	of	the	financial	statements	requires	the	use	of	relevant	estimates	and	judgements	in	the	application	of	the	Group´s	accounting	poli-
cies.	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	2.


1.2.Comparability of the financial statements

The values included in the present Financial Statements are comparable with those of the previous year.


1.3.First-time adoption of the IFRS

The Company adopted the International Financial Reporting Standards, issued and in force on 1 January 2010, and applied these standards ret-
rospectively for all the periods presented. The transition date was 1 January 2009 and TAP SGPS prepared its opening balance sheet on that date,
considering the exemptions and exclusions to other existing standards permitted by IFRS 1 – First-time adoption of the International Financial
Reporting Standards.

IFRS 1 permits exemptions, regarding namely retrospective application, relative to the treatment recommended by other IFRS, with TAP SGPS having
chosen the following exemption on the transition date:

i) Accumulated transposition differences
The	Company	chose	to	transfer	to	retained	profits	the	accumulated	value,	on	the	transition	date,	of	the	currency	conversion	reserves	of	the	financial	
statements of the subsidiaries. It should be noted that this decision has no impact whatsoever on the reported equity.

Reconciliation of the IFRS transition adjustments
As at 31 December 2009 and 1 January 2009, the adoption of the accounting principles and policies in accordance with the IFRS had the following
result on equity:

Reconciliation of Equity
The	IFRS	transition	adjustments	with	impact	on	the	Company's	equity	as	at	1	January	2009	and	subsequently	as	at	31	December	2009	and	the	respec-
tive impact on net income as at 31 December 2009 are as follows:

                                                                             As at 31-DEC-09                                    Net income for 2009
                                                                                                           As at 01-JAN-09
Equity                                                 Adjust.               (date of the last                                       (date of the last
                                                                                                          (transition date)
                                                                               report in POC)                                          report in POC)
EQUITY (POC)                                                                     (289,802,431)                (234,562,393)               (17,754,883)


Adjustment	to	financial	shareholdings                     1)                       114,445,730                  113,462,651                (49,841,774)
Annulment of Goodwill amortisations                       2)                         7,578,139                            –                  7,578,139


Total	adjustments                                                                  122,023,869                  113,462,651                (42,263,635)


EQUITY (IFRS)                                                                    (167,778,562)                (121,099,742)               (60,018,518)


Breakdown of the adjustments
The	adjustments	referred	to	above	result	from	the	identified	differences	between	the	POC	and	IFRS	rules,	summarised	as	follows:

1) Under the transition to the IFRS, TAP SGPS no longer applies the equity method in the valuation of the financial investments in its individ-
   ual financial statements, which are considered at deemed cost on the transition date. In the cases where it was negative and provisioned
   (149,721,402 Euros), TAP SGPS considered that there was no additional liability in the situation since (i) it did not incur additional obligations
   and (ii) the present value of the future cash flows of the said investments are sufficient to meet their liabilities. As a result of the abovemen-
   tioned	alteration,	the	Company	carried	out	the	transition	adjustment	of	the	total	value	of	113,462,651	Euros.

2) TAP SGPS adopted the IFRS, with effect reported as at 1 January 2009. Consequently, the goodwill amortisations carried out after that date
   were	annulled	and	the	respective	value,	in	the	different	cases	applicable,	is	subject,	since	then,	to	annual	impairment	tests.	As	a	result	of	the	
   abovementioned	alteration,	the	Company	carried	out	the	transition	adjustment	of	the	total	value	of	7,578,139	Euros.




                                                                                                                                 Annual Report 2010       TAP Group   179
                  1.4. New standards, amendments and interpretations of existing standards

                  The	interpretations	and	amendments	of	the	existing	standards	identified	below	are	enforceable	by	the	IASB,	for	financial	years	which	began	on	1	
                  January 2010:

                        New standards in force                                                                                            Date of application
                        IFRS 3 (review) – Business combinations                                                                           1 January 2010
                        IAS	27	(review)	–	Consolidated	and	separate	financial	statements                                                  1 January 2010
                        IFRS 5 (Improved 2008) – Non-current assets held for sale and discontinued operations                             1 January 2010
                        IFRS 1 (amendment) – First-time adoption of IFRS                                                                  1 January 2010
                        IFRS	2	(amendment)	–	Share-based	payments	–	transactions	paid	financially	by	the	Group                            1 January 2010
                        IAS 39 (amended) – Financial instruments – Items eligible for coverage                                            1 January 2010
                        IFRIC 12 – Service concession arrangements                                                                        1 January 2010
                        IFRIC 15 – Agreements for construction of real estate                                                             1 January 2010
                        IFRIC 16 – Hedges of a net investment in a foreign operation                                                      1 January 2010
                        IFRIC 17 – Distributions of non-cash assets to owners                                                             1 January 2010
                        IFRIC 18 – Transfer of assets from customers                                                                      1 January 2010

                        * Financial years commencing on or after the indicated date.


                  Furthermore, as part of the process to review the consistency of the practical application of the IAS/IFRS, the IASB decided to improve the standards
                  in	order	to	clarify	some	of	identified	inconsistencies.	The	most	significant	improvements	refer	to	the	amendments	made	to	IAS	17,	IAS	36	and	IAS	38.

                  The introduction of these interpretations and amendments of the standards referred to above did not have any relevant impact on the Company's
                  financial	statements.

                  New standards and interpretations whose application is not mandatory as at 31 December 2010:
                  There are new standards, amendments and interpretations of existing standards, which, in spite of having been published, are enforceable only for
                  annual periods which begin on or after 1 January 2011. The company has decided not to adopt the following standards in advance:

                        Annual improvement of standards in 2009 (applicable for years commencing on or after 1 January 2010)                 Date of application *
                        IAS 17 – Leasing                                                                                                     1 January 2010
                        IAS 36 – Impairment of Assets                                                                                        1 January 2010
                        IAS 38 – Intangible Assets                                                                                           1 January 2010


                        * Financial years commencing on or after the indicated date.



                        New standards not approved by the European Commission                                                                Date of application *
                        IAS 24 (amendment) – Related parties                                                                                 1 January 2010
                        IFRS 9 (new) – Financial instruments – classification and measurement                                                1 January 2013
                        IFRIC 19 – Extinguishing financial liabilities with equity instruments                                               1 July 2011


                        PROJECT OF ANNUAL IMPROVEMENT OF STANDARDS IN 2010
                        IFRS 1 – First-time adoption of IFRS                                                                                 1 January 2011
                        IFRS 3 – Business combinations                                                                                       1 January 2011
                        IFRS 7 – Financial instruments – Disclosures                                                                         1 January 2011

                        IAS 1 – Presentation of the Financial Statements                                                                     1 January 2011

                        IAS 27 – Consolidated and separate financial statements                                                              1 January 2011
                        IAS 34 – Interim financial reporting                                                                                 1 January 2011
                        IFRIC 13 – Customer loyalty programmes                                                                               1 January 2011


                        * Financial years commencing on or after the indicated date.



                  1.5.Shareholdings in subsidiaries and associated companies

                  Investments representing shareholdings in subsidiaries and associated companies are recorded at acquisition cost, minus impairment losses, when
                  they occur.

                  After the interest of the investor has fallen to zero, TAP SGPS recognises a liability in order to meet any additional liabilities arising from (i) legal or
                  constructive obligations incurred or payments made in favour of subsidiaries and associated companies, (ii) expectations of the generation of cash
                  flows	by	the	subsidiary	or	associated	company	which	are	insufficient	to	meet	any	legal	or	constructive	liabilities	incurred,	and	(iii)	the	impossibility	of	
                  calculating the fair value of the said investments reliably.

                  Dividends	received	from	subsidiary	and	associated	companies	are	recorded	as	financial	income	when	attributed.

                  Under	the	transition	to	the	IFRS,	TAP	SGPS	no	longer	applies	the	equity	method	in	the	valuation	of	the	financial	investments	in	its	individual	financial	
                  statements, which are considered at deemed cost on the transition date.




180   TAP Group      Annual Report 2010
1.6. Currency conversion

i) Functional and reporting currency
The	items	included	in	the	Company's	financial	statements	are	measured	using	the	currency	of	their	economic	environment,	the	Euro.	Therefore,	TAP	
SGPS	financial	statements	and	the	respective	attached	notes	are	presented	in	Euros,	unless	explicitly	indicated	otherwise.

ii) Transactions and balances
Transactions in currencies different from the Euro are converted into the functional currency using the exchange rate on the date of the transactions.
Any gains or losses arising from the payment/ receipts of the transactions, as well as from the conversion at the exchange rate at the end of the report-
ing	period	of	the	assets	and	liabilities	expressed	in	foreign	currency,	are	recognised		in	the	profit	and	loss	statement	under	the	costs	net	of	financing	
item, when related to loans or under operating gains or losses, with the exception of the updating of the extension of the net investment in the sub-
sidiaries where the currency conversion updating is considered as currency conversion reserves under Equity.

iii) Exchange rates used
The exchange rates used in the conversion of balances expressed in foreign currency were as follows:

                                            Currency                                 2010                  2009
                                            USD                                     1.3362                1.4406
                                            BRL                                     2.2177                2.5113



1.7. Impairment of assets

i) Impairment of non-financial assets
The assets of TAP SGPS are reviewed on the date of each balance sheet in order to detect indications of any possible impairment losses. If this indi-
cation exists, the recoverable value of the asset is valued.

The recoverable value of the assets of TAP SGPS is determined for assets where there is indication of potential impairment losses. Whenever the book
value	of	an	asset,	or	of	a	cash	flow	generating	unit	in	which	the	asset	is	included,	exceeds	the	recoverable	value,	it	is	revised	downwards	to	the	recov-
erable	value	with	this	impairment	loss	being	recognised	through	profit	or	loss	for	the	year.

ii) Determination of the recoverable value of the assets
The recoverable value of the accounts receivable corresponds to the present value of the expected future receipts with the discount rate used being
the effective interest rate implicit in the original operation.

For all other assets, the recoverable value is the highest value between its net sales price and its use value.

In	the	determination	of	the	use	value	of	an	asset,	the	estimated	future	cash	flows	are	discounted	using	a	discount	rate	before	tax	which	reflects	the	
current	market	evaluations	of	the	time	value	of	money	and	the	specific	risks	of	the	said	asset.

The	recoverable	value	of	assets	which	do	not	in	themselves	generate	independent	cash	flows,	is	determined	together	with	the	cash	flow	generating	
unit where the assets are included.

An	impairment	loss	recognised	in	a	medium	and	long	term	receivable	value	is	reversed	only	when	the	justification	for	the	increase	of	the	respective	
recoverable value is based on an event which takes place after the date of recognition of the impairment loss.

Impairment losses related with other assets are always reversed when there are changes in the estimates used to determine the respective recoverable
value. Impairment losses are reversed up to the value that the asset would have had if the impairment loss had not been recognised.

iii) Impairment of financial assets
TAP	SGPS	analyses,	on	every	balance	sheet	date,	whether	there	is	objective	evidence	that	a	financial	asset	or	group	of	financial	assets	is	impaired.

iv) Debtors and other financial assets
Impairment	losses	are	recorded	when	there	is	objective	indication	that	TAP	SGPS	will	not	receive	all	the	amounts	to	which	it	was	entitled	in	accord-
ance with the original terms of the established contracts.

The	adjustment	due	to	impairment	losses	is	determined	by	the	difference	between	the	recoverable	value	and	the	balance	sheet	value	of	the	financial	
asset,	and	is	recorded	as	a	profit	or	loss	for	the	year.	The	balance	sheet	value	of	these	assets	is	revised	downwards	to	the	recoverable	value	through	the	
use	of	an	adjustments	account.	When	a	value	receivable	from	customers	and	debtors	is	considered	irrecoverable,	it	is	written	off	through	the	account	
of	adjustments	due	to	impairment	losses.	Any	subsequent	recoveries	of	values	which	have	been	written	off	are	recorded	as	profit	or	loss.

When the overdue values receivable from customers or other debtors are renegotiated, these values are no longer considered overdue but are
treated as new credit.




                                                                                                                                     Annual Report 2010     TAP Group   181
                  1.8. Financial assets

                  Financial assets are recognised in the balance sheet on the negotiation or contracting date, which is the date on which the Company undertakes to
                  acquire	or	dispose	of	the	asset.	Initially,	financial	assets	are	recognised	at	fair	value	plus	directly	assigned	transaction	costs,	except	for	assets	at	fair	
                  value	through	profit	or	loss	where	the	transaction	costs	are	recognised	immediately	through	profit	or	loss.	These	assets	are	derecognised	when:	(i)	the	
                  Company's	contractual	rights	expire	on	the	receipt	of	their	cash	flow;	(ii)	the	Company	has	substantially	transferred	all	the	risks	and	benefits	associ-
                  ated	to	their	ownership;	or	(iii)	even	if	the	Company	retains	part,	but	not	substantially	all	the	risks	and	benefits	associated	to	their	ownership,	it	has	
                  transferred the control over the assets.

                  The	financial	assets	and	liabilities	are	compensated	and	presented	at	net	value,	when	and	only	when,	the	Company	has	the	right	to	compensate	the	
                  recognised values and intend to settle them at their net value.

                  TAP	SGPS	classifies	its	financial	assets	into	the	following	categories:	financial	assets	at	fair	value	through	profit	or	loss,	loans	granted	and	accounts	
                  receivable,	financial	assets	available	for	sale	and	investments	held-to-maturity.	The	classification	depends	on	the	purpose	for	which	the	investment	
                  was	acquired.	The	classification	is	made	when	the	investments	are	recorded,	with	this	classification	being	reviewed	on	each	reporting	date.

                  All procurements and disposals of these investments are recognised on the respective purchase and sale contracts signing date, regardless of the
                  financial	settlement	date.

                  Investments are initially recorded at their acquisition value, with their fair value being equivalent to the price paid, including transaction costs.
                  Thereafter,	measurement	depends	on	the	category	into	which	the	investment	is	classified,	as	follows:	

                  Financial assets at fair value through profit or loss
                  Non-derivative	financial	assets	are	classified	into	this	category	if	acquired	for	the	purpose	of	sale	in	the	short	term	or	if	designated	so	by	the	manage-
                  ment. This category also includes derivatives which do not qualify for hedging accountancy. Any gains and losses arising from the alteration on the
                  fair	value	of	assets	measured	at	fair	value	through	profit	or	loss	are	recognised	as	a	profit	or	loss	of	the	period	when	they	occur.	

                  Financial assets available for sale
                  Financial	assets	available	for	sale	are	non-derivative	financial	assets	that	are	either	recorded	in	this	category	or	are	not	classified	into	any	other	catego-
                  ries. They are included in non-current assets, unless the management intends to dispose of the investment within 12 months after the balance sheet
                  date.	These	financial	investments	are	recognised	at	market	value,	defined	as	the	respective	stock	market	price	on	the	end	of	the	reporting	period.	

                  If	there	is	no	active	financial	market,	the	Company	decides	the	fair	value	through	the	application	of	valuation	techniques,	which	include	the	use	of	
                  recent	commercial	business,	reference	to	other	instruments	with	similar	characteristics,	discounted	cash-flow	analysis	and	option	pricing	models	
                  modified	to	reflect	the	issuer’s	specific	circumstances.	

                  Potential	gains	and	losses	arising	in	this	way	are	recorded	directly	in	the	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 the fair value reserve is included in net income for the period.

                  If there is no market value or if it is not possible to determine it, the said investments are maintained at acquisition cost. Any loss of value is recognised
                  as	an	impairment	loss	when	justified.	

                  The	Company	assesses,	on	each	balance	sheet	date,	whether	there	is	objective	evidence	that	a	financial	asset	or	group	of	financial	assets	has	under-
                  gone	an	impairment	loss.	If	there	is	a	prolonged	decrease	in	the	fair	value	of	the	financial	assets	available	for	sale,	then	the	cumulative	loss	–	measured	
                  as	the	difference	between	the	acquisition	cost	and	current	fair	value,	minus	any	impairment	loss	on	that	financial	asset	previously	recognised	as	profit	
                  or	loss	–	is	annulled	from	the	equity	and	recognised	as	profit	or	loss	for	the	period.

                  A	recognised	impairment	loss	on	financial	assets	available	for	sale	is	reversed	if	the	loss	has	been	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, the reversal does not affect
                  the	profit	and	loss	statement,	and	the	subsequent	positive	fluctuation	of	the	asset	is	recorded	under	the	fair	value	reserve.

                  Held-to-maturity Investments
                  Held-to-maturity	investments	are	non-derivative	financial	assets,	with	fixed	or	determinable	payments	and	fixed	maturities	that	the	Company	has	the	
                  intention and capacity to hold to the maturity. Investments in this category are recorded at amortised cost through the effective interest rate method.

                  Loans granted and accounts receivable
                  Loans	granted	and	accounts	receivable	are	non-derivative	financial	assets	with	fixed	or	determinable	payments	and	not	listed	on	an	active	market.	
                  They arise when the Company 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	above	12	months	after	the	balance	sheet	date,	in	which	case	they	are	classified	as	non-
                  current assets.


                  1.9. Current accounts receivable

                  Customer balances and other current receivables are initially recorded at fair value and subsequently recognised at amortised cost, minus the impair-
                  ment losses required to place them at their expected net realisable value (Note 5).

                  Impairment	losses	are	recorded	when	there	is	objective	evidence	that	the	Company	will	not	receive	the	said	balances	in	accordance	with	the	original	
                  conditions of the accounts receivable.




182   TAP Group      Annual Report 2010
1.10. Cash and cash equivalents

The cash and cash equivalents item includes cash, bank deposits and other short-term investments with initial maturity up to 3 months, which can be
mobilised	immediately	without	any	significant	risk	of	value	fluctuations.	On	the	cash	flow	statement,	this	item	also	includes	bank	overdrafts,	which	
are	recorded	in	the	statement	of	the	financial	position,	in	current	liabilities,	under	"Remunerated	liabilities".


1.11. Share capital

Ordinary shares are recorded as equity. Costs directly assigned to the issuance of new shares or options are recorded on 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 purchase.


1.12. Remunerated liabilities

Remunerated liabilities are recognised initially at fair value, net of transaction costs incurred, and are subsequently stated at amortised cost. Any dif-
ference	between	the	receipts	(net	of	transaction	costs)	and	the	repayment	value	is	recognised	in	the	profit	and	loss	statement	over	the	period	of	the	
debt, using the effective interest rate method.

Remunerated	debt	is	classified	under	current	liabilities,	unless	the	Company	has	an	unconditional	right	to	postpone	the	settlement	of	the	liability	for	
at	least	12	months	after	the	financial	reporting	date	(Note	12).


1.13. Financial costs related to loans

Financial	costs	related	to	loans	are	usually	recognised	as	financial	costs	in	accordance	with	the	accrual	principle.

The	financial	costs	of	loans	directly	related	to	the	acquisition,	construction	(if	the	period	of	construction	or	development	exceeds	one	year)	or	the	
production	of	fixed	assets	are	capitalised,	and	become	part	of	the	asset’s	cost.	

The capitalisation of these costs begins after the start-up of the preparations for the construction or development of the asset and is suspended after
the	beginning	of	its	use	or	when	the	execution	of	the	project	in	question	is	suspended	or	substantially	concluded.	

Any	revenue	directly	related	to	a	specific	investment	is	subtracted	from	the	cost	of	the	asset.


1.14. Income tax

Income	tax	for	the	period	includes	current	and	deferred	taxes.	Income	tax	is	recorded	in	the	profit	and	loss	statement,	except	when	it	is	related	to	
items	which	are	recognised	directly	as	equity.	The	value	of	the	current	income	tax	payable	is	determined	based	on	earnings	before	tax,	adjusted	in	
accordance with tax rules in force.

Deferred tax is calculated on the basis of the liability shown on the balance sheet, over temporary differences between the book value of the assets
and liabilities and the respective tax base. In order to calculate the deferred tax, the tax rate used is that expected to be in force during the period when
the temporary differences will be reversed.

Deferred	tax	assets	are	recognised	as	assets	whenever	there	is	reasonable	assurance	that	future	profit	will	be	generated,	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	tax	assets	are	recognised	whenever	there	is	reasonable	assurance	that	future	taxable	profit	will	be	available	for	the	use	of	the	temporary	
difference. Deferred tax liabilities are recognised for all taxable temporary differences, except those related to: i) the initial recognition of goodwill; or
ii) the initial recognition of assets and liabilities, which do not result from a business concentration, and which on the date of the transaction do not
affect the book value of net income or net income for tax purposes. However, taxable temporary differences related to investments in subsidiaries
should not be recognised when: i) the parent company has the capacity to control the period of the reversal of the temporary difference; and ii) it is
probable that the temporary difference will not be reversed in the near future.

Deferred taxes are recorded as costs or revenues for the period, unless they arise from values recorded directly under equity, in which case the deferred
tax is also recorded under the same item.


1.15. Provisions

Provisions are recognised whenever the Company has a present legal or constructive obligation, as a result of past events, where it is likely than an
outflow	of	resources	will	be	required	to	settle	the	obligation	and	the	value	of	the	obligation	may	be	estimated	reliably.	

Provisions	for	future	operating	losses	are	not	recognised.	Provisions	are	reviewed	on	the	balance	sheet	date	and	are	adjusted	to	reflect	the	best	esti-
mate on that date (Note 11).




                                                                                                                                        Annual Report 2010      TAP Group   183
                  1.16. Contingent assets and liabilities

                  Contingent	liabilities	relative	to	which	the	likelihood	of	an	outflow	of	funds	to	the	detriment	of	future	economic	benefits	is	only	a	possibility	are	not	
                  recognised	in	the	financial	statements,	but	are	disclosed	in	the	notes,	unless	the	possibility	of	the	occurrence	of	an	actual	outflow	of	funds	affecting	
                  future	economic	benefits	is	remote,	in	which	case	they	are	not	disclosed.	

                  Provisions for liabilities that meet the conditions established in Note 1.15 are recognised.

                  Contingent	assets	are	not	recognised	in	the	financial	statements,	but	are	disclosed	in	the	notes	when	a	future	economic	benefit	is	probable.


                  1.17. Accrual principle

                  Income and costs are recorded in the period to which they refer, independently of their payment or receipt, in accordance with the accrual principle. The
                  differences between the values received and paid and the corresponding revenues and costs are recorded as assets or liabilities, if they qualify as such.


                  1.18. Cash flow statement

                  The	cash	flow	statement	is	prepared	in	accordance	with	the	direct	method.	The	Company	classifies	assets	with	maturity	below	three	months	and	for	
                  which	the	risk	of	alteration	of	value	is	insignificant	under	the	item	of	cash	and	cash	equivalents.	On	the	cash	flow	statement,	this	item	also	includes	
                  bank	overdrafts,	which	are	recorded	in	the	statement	of	the	financial	position,	in	current	liabilities,	as	"Remunerated	liabilities".

                  The	cash	flow	statement	is	classified	into	operating,	investment	and	financing	activities.	Operating	activities	include	revenues	from	customers	and	
                  payments to suppliers, staff and others related to the operating activity.

                  The	cash	flows	of	investment	activities	include,	namely,	acquisitions	and	disposals	of	investments	in	participated	companies	and	revenues	and	pay-
                  ments from the sale and purchase of tangible and intangible assets.

                  Financing	activities	includes	namely,	payments	and	revenues	related	with	loans	received,	financial	leasing	contracts,	the	purchase	and	sale	of	own	
                  shares and the payment of dividends.


                  1.19. Subsequent events

                  Events	which	have	occurred	after	the	date	of	the	statement	of	the	financial	position	and	provide	additional	information	on	conditions	existing	at	that	
                  date	are	reflected	in	the	financial	statements	for	the	period.

                  Events	which	have	occurred	after	the	date	of	the	statement	of	the	financial	position	and	provide	additional	information	on	conditions	that	occur	after	
                  that	date	are	disclosed	in	the	notes	to	the	financial	statements,	if	they	are	materially	relevant.




                  2. Judgements and estimates

                  The	preparation	of	the	financial	statements	requires	that	the	Company's	management	made	judgements	and	estimates	which	affect	the	values	of	
                  income, costs, assets, liabilities and disclosures on the date of the balance sheet.

                  These	estimates	are	determined	by	the	judgements	of	the	management	of	TAP	SGPS,	based:	(i)	on	the	best	information	and	knowledge	of	present	
                  events and, in some cases, on reports prepared by independent experts, and (ii) on the actions the Company 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	leading	to	a	material	adjustment	in	the	book	value	of	the	assets	and	liabilities	in	the	
                  following year are presented below:

                  i) Impairment of shareholdings
                  As a rule, the recording of impairment in an investment in accordance with the IFRS is made when the balance sheet value of the investment exceeds
                  the	current	value	of	the	future	cash	flows.	The	calculation	of	the	current	value	of	the	estimated	cash	flows	and	the	decision	to	consider	the	impair-
                  ment	as	permanent	involves	judgement	and	substantially	takes	in	account	the	management's	analysis	of	the	future	development	of	its	associated	
                  companies. For the calculation of impairment, market prices are used when available, or other valuation parameters based on the information pro-
                  vided	by	the	associated	companies.	In	order	to	define	if	an	impairment	is	permanent,	the	Company	considers	the	capacity	and	intention	of	holding	
                  the	investment	for	a	reasonable	period	of	time	which	is	sufficient	for	a	forecast	of	the	recovery	of	the	fair	value	up	to	(or	above)	the	balance	sheet	
                  value, including an analysis of factors such as the expected net income of the associated company, the economic circumstances and the conditions of
                  the sector. The recoverable values of the cash generating units are determined based on the calculation of the use values. These calculations require
                  the use of estimates.

                  ii) Provisions
                  The Company periodically analyses any obligations which might arise from past events and which should be recognised or disclosed.

                  The	subjectivity	inherent	to	the	determination	of	the	probability	and	value	of	the	internal	resources	required	to	pay	the	obligations	might	lead	to	
                  significant	adjustments,	whether	through	variation	of	the	assumptions	used,	or	through	the	future	recognition	of	provisions	previously	disclosed	as	
                  contingent liabilities.




184   TAP Group     Annual Report 2010
3. Financial risk management policies

TAP SGPS, as a holding company (SGPS), directly and indirectly develops management activities related with its participated companies. Therefore,
the	Company's	compliance	with	its	obligations	depends	on	the	cash	flows	generated	by	its	participated	companies.	The	Company	thus	depends	on	
the	possible	distribution	of	dividends	by	its	subsidiaries,	the	payment	of	interest,	the	repayment	of	loans	granted	and	other	cash	flows	generated	
by these companies.

The	financial	risk	management	of	TAP	SGPS,	as	a	Company	responsible	for	the	strategic	coordination	of	TAP	Group,	takes	on	dimensions	and	
implications	which	are	much	broader	than	those	of	the	financial	management	applied	to	a	company	whose	activity	is	limited	to	a	specific	area	of	
activity.	In	its	statutory	capacity	as	the	Parent	Company	of	Grupo,	TAP	SGPS	assesses,	reflects	and	decides	on	the	major	guidelines	of	its	participated	
companies and takes long term decisions relative to investment and divestment in shareholdings according to their structural relevance for the
functioning of the Group.

However, the consequence of the strategic and long term nature of the Company's action, which cannot be unconnected from the assessment of
the	economic	circumstances	and	fluctuations,	sometimes	violent,	of	the	markets	in	which	the	Group	operates,	is	a	policy	of	decentralisation	and	
subsidiarity	in	the	specific	actions	of	hedging	against	the	financial	or	commodity-related	risk	of	its	participated	companies.	Therefore	the	individual	
companies	take	and	implement	their	own	decisions	in	observance	of	the	strategic	guidelines	defined	for	the	Group,	in	an	autonomous	manner.

In	particular,	TAP	S.A.	which	tends	to	represent	a	proportion	of	approximately	90%	of	the	Group's	income,	carries	out	numerous	risk	management	
actions in the areas of debt, liquidity and treasury management, in the areas of protection against interest rate risk or exchange rate risk, in the area
of risk of exposure to the price of fuel, in the management of market risks, and so on. Other companies of the Group, such as TAP Manutenção e
Engenharia Brasil, S.A. also manage their market exposure and credit risk, for example, in accordance with their geographical base of action and the
business opportunities present at any given time.

TAP SGPS, as the aggregating entity of the Group, carries out intra-group liquidity distribution operations which are remunerated at market levels
and in accordance with the actual conditions obtained by the participated companies which present high liquidity surpluses and usually place them
on the market.

The	financial	exposure	of	TAP	SGPS	essentially	results	from	the	repercussion	on	its	balance	sheet	of	the	performance	of	the	participated