Hard Landing: Tarom’s Management Goes Into Tailspin
If there is anything that Romania’s long war against graft proves, it is that corruption is not just a simple governance problem. It is more than a contract attributed to a son-in-law, more than a bribe a businessman gives and a politician receives to smooth things over for both their benefits. Corruption is a state of mind. Corruption is a disregard for the public good, a putting of oneself above the rest and a sincere belief that the rules can not just be bent but be completely broken with impunity. It’s not just the businessman that defrauds the state and ends up in prison or the politician that gets wealthy off the public purse that qualify as corrupt. “Petty corruption” like giving small bribes given to facilitate the bureaucratic process, nepotism or making that phone call that gets you out of a speeding ticket might not be as damaging as selling scrapyard transformers to the state but they slowly amount to an overall climate of “anything goes”. Rightfully so, foreign businessmen have long seen Romania as “the wild east”, where this stifling climate of petty corruption and instability infiltrates even privately managed companies.
One of the best examples of how a climate of corruption can ruin a business is Tarom, the Romanian national air transport company. A decade ago, Tarom boasted one of the newest air transport fleets in Europe and a steady — albeit state subsidized — evolution despite increasing competition from low cost airlines. Coincidentally that is also the last time the Romanian air transport company turned a profit. In 2017, it boasted 20 raggedy airplanes and posted losses of more than a hundred million euros in the first two quarters of 2017, a four-fold increase year-on-year. It’s worth noting that 2016 losses were themselves 74% higher than in 2015.
This disastrous tailspin now seems unstoppable, and has led to heavy government criticism and even managed to draw the ire of Romania’s cantankerous prime-minister Mihai Tudose and power-behind-the-throne Liviu Dragnea. This mounting pressure and criticism led, after a few days of outrage, to the resignation of the Tarom general manager and the company board.
The situation however is not as clean-cut as it might seem. Indeed this is not just a story about defective management and the steps it takes to right it. This is a story about how taxpayer money gets wasted when state companies are used as ways to settle scores and dumping grounds for political hires.
As we have seen, Tarom has not turned a profit in almost a decade. That is due to a lot of factors including an aging fleet and the loss of the de-facto monopoly on internal travel. Low cost companies have entered the internal flight market, drastically undercutting Tarom’s prices. Yet more importantly, it is the bevy of political appointments to management positions that have sabotaged Tarom at every step. The first massive losses the company incurred were between 2009 and 2011 when Ruxandra Brutaru, the daughter of a former CEO was appointed to that very same position. In a little over two years, she managed to run the company at a loss of a staggering €135 million, losses that a series of interim managers did little to alleviate. Tarom continued its decline throughout the 2010s under the management of CEO Christian Heinzmann as its fleet aged and it leaked customers. Throughout that period, the CEO, with his €10000 a month salary — as a point of reference, Romania’s average wage during his term averaged €400 a month — had little control over appointments and hiring practices. A 2015 report reveals that a staggering 40% of TAROM employees are related to one another. This is revealed by administrative director Tiberiu Ticlea who, himself is accused of having been hired by Tarom due to him being the son of a Ministry of Transportation director. Salaries run as rampant as losses and cases of corruption and bribery are not unheard of. Two leaked emails from 2009 talked about how Airbus managers were ready to offer bribes to Tarom and government officials in exchange for plane purchases.
In 2016, Christian Heinzmann resigned and, after an interim period, the new social democratic Minister for Transportation, Răzvan Cuc appointed a new CEO, Eugen Davidoiu, allegedly a friend of his. Davidoiu, an old hand at the management of state companies, does little to stop Tarom’s record losses. Indeed, with several equipment failures, partly thanks to the aging fleet and a number of political appointments on the board there is little Davidoiu really can do to stop Tarom from losing 104 million lei ( about €23 million) over two quarters.
One year and two governments later, Davidoiu becomes the sacrificial lamb of the growing conflict between the new Prime Minister and his Transportation Minister, with the all-powerful PSD chief, Liviu Dragnea, chiming in as well in defence of Transportation Minister Cuc. And thus, Tarom become the victim of an internal PSD power struggle, further compounded by decades worth of nepotism and mismanagement. With yet another interim manager after Davidoiu’s resignation, an ongoing power struggle and governmental audit Tarom looks doomed to fail, yet another victim of Romania’s climate of corruption.
