Restructuring plan and rescue aid for TAROM: European Commission opens in-depth investigation

The European Commission decided on 5 July 2021 to open an in-depth investigation into the restructuring plan of the airline TAROM notified by Romania in May 2021, as well as into the EUR 190 million aid to support it under the Guidelines on State aid for rescuing and restructuring undertakings in difficulty.

The Romanian airline TAROM has been in financial difficulties for many years. In February 2020, the Commission approved rescue aid of EUR 36.7 million in favour of the airline in the context of a Romanian notification.

It should be recalled that the Commission's Guidelines on state aid for rescuing and restructuring non-financial undertakings in difficulty allow Member States to grant rescue and/or restructuring aid to companies in difficulty, provided certain strict conditions are met and subject to prior notification to the European Commission.

Rescue aid must be granted in the form of loans or guarantees to companies in difficulty and be limited to a maximum period of 6 months, which must allow the company either to prepare for restructuring, to opt for liquidation or to repay the rescue aid.

Restructuring aidcan take various forms (such as a long-term loan, conversion of a loan into capital, capital injection and a guarantee) that aim at covering a company’s restructuring costs to secure its long-term viability.

Against this background, at the end of May 2021, Romania notified to the European Commission a restructuring aid project in favour of TAROM. The restructuring plan submitted to the Commission aims to rationalise the airline's activities, renew its ageing fleet and boost its revenues. For that purpose, Romania would provide a financial contribution of EUR 190 million in the form of a capital injection, a grant and a debt write-off corresponding to the amount of the previously approved restructuring aid plus interest.

At this stage, the Commission has doubts as to whether the proposed restructuring plan and the aid to support it meet the strict conditions of the abovementioned Guidelines.

In the course of the formal investigation procedure, the Commission will verify:

• whether the proposed restructuring plan is appropriate to remedy TAROM's difficulties and to restore its long-term viability within a reasonable time-frame without continued State aid;
• whether TAROM or market operators will contribute sufficiently, in principle at least 50%, to the restructuring costs, thereby ensuring that the restructuring plan does not rely excessively on public funding and that the aid is proportionate; and,
• whether the airline undertakes to take appropriate measures to limit the distortion of competition created by the aid. Such measures aim at offsetting the impact of the aid on the airline's competitors and may take the form of the divestment of slots, the sale of subsidiaries, a commitment not to expand, etc.

Any interested third party may submit its comments within one month of the publication of the Commission's decision to open the in-depth procedure in the Official Journal of the EU.

Rescue and restructuring aid has regularly been granted to traditional airlines. In many cases, this aid has enabled the airline to recover. In October 2019, the European Commission authorised a rescue loan of EUR 380 million for the German airline Condor. In June 2020, the Commission approved a rescue loan of EUR 1.2 billion for TAP, a Portuguese airline. Another Portuguese airline, SATA, received liquidity support totalling EUR 133 million.