The European Commission has approved Romania’s plans to provide state funding, in the form of a temporary loan, of around EUR36.7 million euros (USD39.9 million) to ailing state-owned flag carrier TAROM (RO, Bucharest Henri Coanda), a statement by the Commission dated February 24 confirmed.

The measure “will contribute to ensuring the orderly continuation of air transport services, in particular on the numerous routes where Tarom is the only provider”, the statement said, so that disruptions for passengers are avoided, and competition in the European Union is not distorted.

“The airline faces an acute liquidity shortage, due to the steep increase in operating costs generated by its ageing fleet” in recent years, it explained, adding that without the aid the carrier would no longer be able to fulfil its payment obligations while keeping operations running.

The European Commission said that its guidelines on rescue and restructuring aid allow member states to support companies in difficulties, provided that the public support is limited in time and scope and with a specific aim in mind. Rescue aid can be granted for a maximum of six months to give the company time to work out solutions in an emergency situation.

In the case of Tarom, the loan will cover only its liquidity needs over the next six months, while Bucharest has agreed to carry out “stringent monitoring” of how the funds are used.

Romania has committed to fully repay the loan after six months, or Tarom will either submit a liquidation plan or carry out comprehensive restructuring - subject to the Commission’s assessment and approval - so that it becomes viable in the long-term.

“The strict conditions attached to the loan and its duration limited to six months will reduce the distortion of competition potentially triggered by the state support to a minimum,” the statement stressed.

The European Commission also approved public financing that was granted by Romania to Timisoara Airport between 2007 and 2009. The regional carrier Carpatair (V3, Timisoara) had formally complained about funding in favour of the airport and Wizz Air (W6, Budapest), prompting the Commission to investigate the issue in 2011. But the Commission said the funds were used either to finance non-economic activities or did not give any economic advantage to the airport.