TAROM aircraft purchases could boost privatisation value

Published: 2/7/2000

ABN Amro Bank has been confirmed as the coordinator for the forthcoming privatisation of the Romanian national carrier, TAROM, following an international tender, in which four other major foreign investment banks took part, including Credit Commercial de France. The privatisation expected to be completed this summer, through the sale of a 51% stake. The state intends to retain a 30% golden share in the company. No further reference has been made to earlier reports that a strategic investor might be pursued. TAROM currently operates a fleet of 26 aircraft, including two Airbus A-310s, eight Boeing 737s, six ATR 42-500s and five Romanian licenced built BAC 1-11s. The airline has also signed an agreement with the European Investment Bank, for €40m, to refinance the four ATRs acquired in March 1999, with € 3m being used to upgrade one of TAROM's maintenance facilities. In addition, a €210m loan agreement guaranteed by the Romanian National Roads Agency has been signed. The loan, made up of €50m from the European Investment Bank and the EBRD and €160m from the Romanian government over a 12 years, with a grace period of 30 months. According to TAROM, €170m of the facility will be used to acquire eight Boeing 737s. The reasons for TAROM buying new aircraft outright in contrast to other airlines in the region, such as Malev, is unexplained, but suggests two possibilities: - an attractive valuation for privatisation will be difficult to achieve without additional owned aircraft, given the nature and returns of the TAROM route structure - the terms for the money from the EIB were extremely good and a significantly better deal than the leasing being proposed. According to Gheorghe Racaru, General Manager of TAROM, the EIB offered “very good terms, with a lower interest rate than previous loans”. Traian Basescu, Romanian Minister of Transport, said that some EUR 325m has been invested in the airline since 1992. Associated article: www.concise.org. 14th October 1999

Article ID: 1393