The IMF has also instructed Tarom to implement a cost-cutting program by revising its routes, fleet and organizational structure, according to the Government’s letter of intent, drafted following the IMF’s latest review.
The Government has the IMF’s consent to push back by two months the deadline by which it must sell 20% of its stake in Tarom on the Stock Exchange. The sale prospectus will thus be published by the end of May and the procedure will be completed by the end of June.
The initial agreement between the Government and the IMF was that the stake would be sold by the end of 2011 and, later, when market conditions would allow it, cede control of the company. Because of delays in selecting a broker, the parties agreed to postpone the process until the end of April 2012, a target once again pushed back after the latest review.
At the end of 2008, Tarom leased three Boeing 737-800 Next Generation aircraft for five years. The first plane was delivered on November 20, 2008, the second in December 2008 and the third in February 2009. The airline’s management welcomed the planes’ arrival with champagne and announced that their fuel consumption was as much as 50% lower than other aircraft in Tarom’s fleet, meaning the total running costs would drop by up to $36 million.
The decision to lease the three planes was part of Tarom’s plan to have a fleet of 30 new aircraft by 2012, to increase its market share. At the time, the company did not present the rental costs, but the press reported they were EUR3 million per plane per month, although their occupancy rate was below 30%. Millions of euro would be added on top for fleet maintenance.
Two of the three 737-800s have already been returned to Boeing before the five-year lease period was up, to save money. Tarom’s fleet is currently made up of the remaining 737-800, four Boeing 737-700s, four Boeing 737-300s, four Airbus A318-111s, seven ATR 42-500s, two ATR 72-500s and one Airbus A310-325.
Tarom has narrowed its losses by 24.2% to 252.18 million lei (EUR58 million) in 2011, from RON332.5 million a year earlier. The company was profitable until 2008, when it switched to losses, with RON6.31 million in the red. In 2009, it posted losses of RON234.7 million.
Tarom estimates its loss will shrink to RON122.3 million in 2012 and to RON60.6 million the next year, according to the company’s revenue and expenditure budget.
Tarom is one of the companies monitored through the agreement with the IMF, as well as among the first that will have private management.
A study carried out last year by the World Bank found that one quarter of the 154 monitored state-owned companies have accrued losses of hundreds of thousands of lei per employee. Tarom is among them, with losses of RON163,000 per employee.
Romania plans to sell 20% in Tarom via a public offering on the Bucharest Stock Exchange and estimates it will raise around EUR7.4 million, significantly lower from a minimum of EUR20 million previously envisaged last year. (EUR1=RON4.354)