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?
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.
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.
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.
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.
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.
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.