220270 8/11/2009 13:27 09BUCHAREST556 Embassy Bucharest CONFIDENTIAL//NOFORN 08BUCHAREST963 VZCZCXYZ0000 PP RUEHWEB DE RUEHBM #0556/01 2231327 ZNY CCCCC ZZH P 111327Z AUG 09 FM AMEMBASSY BUCHAREST TO RUEHC/SECSTATE WASHDC PRIORITY 9809 RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC PRIORITY C O N F I D E N T I A L BUCHAREST 000556
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