ROMANIA: STATE CARRIER TAROM STILL INTERESTED IN

C O N F I D E N T I A L BUCHAREST 000556

NOFORN
SIPDIS

STATE FOR EUR/CE ASCHIEBE AND AMB. GITENSTEIN AND FOR
EEB/TRA
COMMERCE FOR ITA

E.O. 12958: DECL: 08/10/2019
TAGS: EAIR ECON BEXP PGOV RO
SUBJECT: ROMANIA: STATE CARRIER TAROM STILL INTERESTED IN
MORE PLANES

REF: 08 BUCHAREST 963

Classified By: Charge d'Affaires, a.i. Jeri Guthrie-Corn for reason 1.4
(e).


1. (C/NF) The Director-General of the state-owned airline
Tarom, Ruxandra Brutaru, informed EconOff in an August 5
meeting that Tarom intends to consolidate its medium-range
aircraft fleet around a single aircraft type within the next
year. This fleet is currently composed of eleven Boeing
737s, four Airbus 318s, and two Airbus 310s (which are not in
active service),giving Boeing the advantage. While Brutaru
indicated her personal sympathies lie with Boeing, her first
priority is her airline, and she was clear that she would buy
from Airbus if they offered a better deal. Tarom is seeking
additional aircraft both to replace four aging 737-300s and
two A310s as well as to expand the size of the fleet.


2. (C) With the economic downturn wreaking havoc on most
airlines, Brutaru was reasonably confident that Tarom will be
able to ride out the recession relatively unscathed.
Business travel has fallen off significantly, but Tarom's
revenues from ground handling, maintenance, and domestic
travel are holding up enough to keep the airline afloat. The
Ministry of Transportation (MOT) under current Minister Radu
Berceanu has taken a relatively hands-off approach to the
airline, giving Brutaru the latitude to negotiate with the
employee unions and develop business plans based on what
makes sense for Tarom rather than political concerns.
Characterizing her personal relationship with Berceanu as a
good one, she said that he has a deep passion for aviation,
and that he even tinkers with aircraft engines in his spare
time. Although non-political herself, she did say that she
was most comfortable with the current political line-up
(Berceanu is PD-L). Financing aircraft purchases will be a
challenge in the current environment, especially since EU
competition rules prohibit any direct government aid to the
airline. To make financing more affordable, Brutaru said
Tarom plans to ally with other local airlines to push the
government to ratify the Cape Town Convention. She noted
that the U.S. ExImBank has a preferential financing package
available for companies in Cape Town Convention signatory
countries.


3. (C) By way of background, this was post's first private
meeting with Brutaru since the surprising decision in January
promoting her to be head of Tarom. (Note: Some media
reports were very critical of the decision to put such a
young woman - Brutaru is 29 and has only been with Tarom
since 2007 - at the helm.) She confirmed media reports that
she had been very reluctant to take the job initially due to
the significant pay cut it entailed. In one of the current
government's first moves, directors of state-owned companies,
who previously were paid prevailing market wages, had their
salaries capped at the level of a state secretary (ref B),
meaning salaries may be no greater than 6,691 RON (2,254 USD)
per month. No salary cap was placed on any more junior
employees, resulting in the Director being one of the
lowest-paid executives at many state firms. Brutaru's fear
was that in accepting the position and accompanying pay cut
from her previous Deputy Director salary would lead all of
her employees to assume that she was supplementing her income
through corruption. Ultimately, however, she decided to
accept the job once she realized who the other possible
candidates would be. With a management team "more capable
than Air France's," according to Brutaru, she was unwilling
to abandon her employees and cherished airline to a political
hack. At the same time, she does not consider the position
to be a permanent one and gave herself no more than a year on
the job before she is removed.


4. (C/NF) Comment. Post has heard the same message - that a
major aircraft purchase is just around the corner - from
Tarom before, only to have it delayed. That being said,
Tarom has proven capable of moving quickly when the moment is
right, as they did in approving a lease deal for 737s (ref A)
in the waning days of the previous government while the
country was distracted by a general election campaign.
Brutaru may be hoping for a repeat performance this year when
the media spotlight is focused on the fall presidential
election. Given that the fleet is already largely a Boeing
one, Airbus would either have to make the argument that
disposing of fully paid-for and recently leased 737s in
exchange for Airbus planes makes good business sense for the
airline, or they would have to convince key politicians to
make it happen regardless of what the airline wants. Airbus

is not beneath employing such low-ball political tactics;
post received unconfirmed reports in 2008 that Airbus had
offered then-PM Calin-Popescu Tariceanu a substantial bribe
to force Tarom to buy Airbus.


5. (C/NF) Comment continued. For now, Brutaru believes that
the Ministry has her back and will let her make a decision
based on the business case, but she is clearly worried about
the possibility that corruption will play a role in the final
decision. While a purchase could conceivably go either way
if Airbus includes enough sweeteners in the deal, an
agreement to buy or lease six to eight 737s is the most
likely outcome. It is in Brutaru's interest, though, to play
up Airbus's chances to the greatest possible extent in order
to make sure she has the best possible offer from Boeing
before she ultimately decides in favor of the 737. Not
picking the "European" product will impose political costs,
which Brutaru seems willing to bear, provided she can put
Tarom on a stable long-term footing first. End Comment.
GUTHRIE-CORN