Will The EU Allow Romania To Subsidize TAROM?

The flag carrier of the European country of Romania is yet another national airline to request millions of Euros in government subsidies to cover its operational losses. But European Union rules do not allow this, so Romania has asked Brussels for permission. Will this be approved?

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TAROM needs a lifeline from the Romanian government. Photo: Getty Images

Why is TAROM struggling?

Romanian Insider reports that TAROM is expected to post a loss of 40 million Euros in 2019, up from 28 million Euros in 2018. The last time it posted a profit was in 2007. That is a lot of money lost for this relatively small European carrier.

The most pressing problem for the airline is its highly diverse fleet. It has just 25 aircraft in service but of eight different models manufactured by three different aircraft manufacturers.

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These are Airbus (A318), Boeing (B733, B737, B738 and B738MAX on order), and ATR (ATR 42-500, ATR 72-500 and ATR 72-600 on order). This is starkly different to the industry standard, which is that of standardized fleets.

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In contrast, Lufthansa has a fleet of 300 aircraft of 15 models by two manufacturers. TAROM’s varied fleet is relatively far more costly to maintain and diminishes the Romanian airline’s purchasing economies of scale.

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TAROM is struggling like many of the national airlines of the post-communist block. Photo: TAROM

Furthermore, the airline is one of the few operators in the world to fly the ‘Baby Bus’, Airbus A318. The aircraft is highly costly to operate compared to its other short-range counterparts. In the era of rising fuel prices, the A318 is far too costly to operate for the likes of TAROM.

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The proposed government subsidy

To help its struggling national airline, the Romanian government is proposing a 150 million Euro subsidy. This is almost the identical amount that Croatia Airlines will be receiving from Croatia‘s government.

This would come in two parts: first, an immediate “salvage loan” of 47 million Euros. Then, the remainder will be used as money for a restructuring plan. It might even be used to launch flights to the US.

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The Romanian government wants to give TAROM over 150 million Euros. Photo: TAROM

Will the EU approve?

It appears the TAROM is requesting the same kind of subsidy from Romania that has already been announced by Croatia for Croatia Airlines. Both subsidies would come in two parts, and both would cover operating losses only. Both are for around 150 million Euros

These funds will not go towards fleet renewal or investment of any kind. Instead, both Croatia Airlines and TAROM intend to use it as a lifeline. This is presumably how they intend for it to get the green light from Brussels.

There is also the precedent of continued government aid to Alitalia that might work in TAROM’s favor.

However, even if the EU does approve this round of subsidies, TAROM still faces the same persistent problems. This means losses are likely to continue unless the management undertakes more significant structural changes.

Given that the supposed CEO is refusing to accept the job position, this seems unlikely.

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K.P.

This is funny, Alitalia has been funded through “loans” for more than 2 years and it won’t stop anytime soon as that airline won’t make a profit till the unions are put in check, but TAROM must play by the rules. However, if they cancel the MAX and promise to go all AIrbus they might get approval. GO EU!

Chuck

TAROM appears to be another small flag-carrier like Croatia Airlines using equipment that doesn’t fit its needs. B737 and A320 equipment has an inherent cost bias towards larger continental carries like Lufthansa and BA which can leverage the operating cost over a larger network. Better for the smaller flag carriers to get equipment like AirBaltic (another small flag carrier) which is fully leveraging the A220 which is ideal for short haul (Delta JFK to Boston) and long haul (AirBaltic to the Persian Gulf). Stop aspiring to be like the big boys and focus on equipment that serves your country’s needs.… Read more »

Chuck

Re: Jakov Fabinger. I disagree with your response. However, it still does not change the situation. Multiple small flag carriers have gone away and others will continue to drop like flies. The current practice of throwing government money at the problem is classic European mindset. The poster child of this process is Alitalia. Once a country signs on to the EU and accepts deregulation, LLC carriers have no regard for flag carriers, whether large or small. The rules have completely changed while many flag carriers continue to latch on to an outdated revenue model. Those that change (AirBaltic, AirFrance, British… Read more »

M.K.

Well correct me if i’m wrong but Croatia Airlines isn’t receiving the identical amount of 150 mil EUR from it’s goverment like it says in the article, but some around 34 mil EUR…