European Commission Okays Romanian State Aid to Tarom

 - February 24, 2020, 2:00 PM

The European Commission has approved Romania’s plans to grant a 176 million Romanian leu (€37 million) loan to Tarom, throwing a six-month lifeline to the country’s perennially loss-making national airline. The Bucharest-based carrier faces an “acute liquidity shortage” due to the steep increase in operating costs generated by its aging fleet over the last several years, the EC said on Monday, acknowledging that absent the public aid Tarom “will no longer be able to fulfill its payment obligations while keeping operations running.” According to Romanian media, Tarom did not control the resources to finance its operations into March.

Tarom’s fleet consists of 26 narrowbody jets and turboprops, including four Airbus A318s, four Boeing 737s, eight 737NGs, and 10 ATR42/72s. The fleet averages 16.5 years of age, with the 737s nearing 26 years on average and the ATRs 19 years, based on airfleets.net data. The airline last week took delivery of the first of nine new ATR 72-600s as part of its overdue fleet renewal program. Tarom acquired the -600s, meant to replace its existing fleet of seven ATR 42-500s and two ATR72-500s, through a 10-year lease agreement signed in 2019 with Nordic Aviation Capital. Schedules call for delivery of the remaining aircraft by the end of the year. The carrier also awaits five Boeing 737 Max 8s on order—as specified in a $586 million deal signed at the Farnborough Airshow in July 2018—though the exact timing of delivery of the aircraft will depend on the return to service of the model. Original schedules specified delivery in 2021.

The government loan will contribute to the orderly continuation of service and maintain regional connectivity on the “numerous” routes where Tarom serves as the only provider without distorting competition in the bloc, the Commission reasoned in its approval of the planned Romanian state aid.

The executive body of the EU, however, did stipulate several conditions. The loan will cover only Tarom’s demonstrated liquidity needs over the next six months and Romania must carry out “stringent” monitoring of how the airline uses the funds. Tarom must fully repay the loan after six months; if it fails to do so, the flag carrier “will either submit a liquidation plan or carry out a comprehensive restructuring in order to become viable in the long-term,” under a commitment from the Romanian government.