Mr. Bogdan Aurescu Minister of Foreign Affairs Aleea Alexandru Nr. 31, Sector 1011822 Bucharest EUROPEAN COMMISSION Brussels, 2

EUROPEAN COMMISSION

Brussels, 2.10.2020 C(2020) 6910 final

In the published version of this decision, PUBLIC VERSION some information has been omitted, pursuant to articles 30 and 31 of Council This document is made available for Regulation (EU) 2015/1589 of 13 July 2015 information purposes only. laying down detailed rules for the

application of Article 108 of the Treaty on the Functioning of the European Union, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […]

Subject: State Aid SA.56810 (2020/N) – Romania COVID-19: Aid to TAROM

Excellency,

1. PROCEDURE

(1) Following pre-notification contacts,1 on 29 September 2020 Romania notified aid in the form of a 100% State guarantee on loans (“the measure”) in favour of “Compania națională de transporturi aeriene române – TAROM” S.A. (hereinafter “TAROM” or “the beneficiary”). The aid was notified as damage compensation falling under Article 107(2)(b) of the Treaty on the Functioning of the European Union (“TFEU”) (“the damage compensation”);

(2) Romania exceptionally agrees to waive its rights deriving from Article 342 TFEU, in conjunction with Article 3 of Regulation 1/19582 and to have this Decision adopted and notified in English.

1 Romania pre-notified the measure on 10 April 2020. During the pre-notification phase, there were several telephone conferences held between the Romanian authorities and the Commission services. The Commission sent requests for information on 17 April, 27 August and 2, 14, 22 and 23 September and on 1 October 2020. The Romanian authorities replied to the requests and submitted additional information on 10 and 24 August and 10, 16, 18, 23 and 25 September and 2 October 2020. 2 Regulation No 1 determining the languages to be used by the European Economic Community, OJ 17, 6.10.1958, p. 385.

Mr. Bogdan Aurescu Minister of Foreign Affairs Aleea Alexandru nr. 31, Sector 1011822 Bucharest

Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111

2. DESCRIPTION OF THE MEASURE

2.1. Objective of the measure

(3) The objective of the damage compensation is to make good the damage suffered by TAROM due to the imposition of travel restrictions and other containment measures linked to the COVID-19 outbreak.

2.1.1. The travel restrictions linked to the COVID-19 outbreak

(4) The COVID-19 outbreak has resulted in travel restrictions and the temporary closing down of the vast majority of passenger air transport services.

(5) On 21 February 2020, following the first COVID-19 cases in Italy, the Romanian government announced a 14-day quarantine for citizens returning from the affected Italian regions. In the subsequent days the Romanian authorities adopted a number of other measures such as quarantine requirements for travellers from certain countries or regions thereof (e.g. Italy, China, South Korea, Iran) and obligations related to infection prevention.

(6) In the first half of March 2020, several countries including Romania imposed travel restrictions and closed borders to certain parts of the world in order to contain the spread of the COVID-19 virus. For instance, Romania issued travel warnings for northern Italy as of 2 March 2020. In addition, the rapid spread of COVID-19 led to the cancellation of events and fairs3 and to the implementation of travel restrictions by a number of international corporations, banks and firms. On 14 March 2020, after over 100 people were diagnosed with the new coronavirus, the Romanian authorities prohibited public gatherings with more than 50 people on the entire territory.

(7) Further to the evolution of the COVID-19 outbreak and the declaration on 11 March 2020 of the pandemic by the World Health Organization (the “WHO”), on 16 March 2020 the Commission recommended4 to the Member States to apply a coordinated restriction on non-essential travel from third countries into the Union, for an initial period of 30 days, subsequently extending it twice until 15 June 2020. That recommendation, as well as the one issued by the Commission on 11 June 20205 to prolong it until 30 June 2020, applied to all Schengen Member States (as well as Bulgaria, Croatia, Cyprus, and Romania) and the four Schengen Associated States (Iceland, Liechtenstein, Norway, and Switzerland).6

3 On 11 March 2020, the Romanian authorities imposed a ban on sports, scientific, religious, cultural or entertainment events with over 100 participants in closed spaces. 4 Communication from the Commission COM(2020) 115 final of 16 March 2020 – COVID-19: Temporary Restriction on Non-Essential Travel to the EU. 5 Communication from the Commission COM(2020) 399 final of 11 June 2020 on the third assessment of the application of the temporary restriction on non-essential travel to the EU. 6 Source: https://ec.europa.eu/info/live-work-travel-eu/health/coronavirus-response/travel-and- transportation-during-coronavirus-pandemic_en

(8) On 16 March 2020, Romania declared by Presidential Decree a state of emergency7 for an initial period of 30 days and subsequently extended it on 16 April 2020 for an additional month in an effort to contain the new coronavirus pandemic. On 14 May 2020, the Romanian government declared an alert status on the Romanian territory for a period of 30 days until 16 June 2020, replacing the state of emergency.8 It later extended the alert status until 16 July 2020.9

(9) Between 11 March and 16 July 2020, in order to prevent and limit the spread of the COVID-19 virus on the territory of Romania, the Romanian authorities adopted various containment measures strongly limiting the free movement of people, travel, gatherings and commercial activities.10 In particular, on 24 March 2020, the Romanian authorities adopted the Military Ordinance No 3/2020 imposing a national lockdown, which was extended several times until 14 May 2020. After the lockdown period, Romania maintained strict restrictions under the alert status, including the suspension or the limitation of all events and activities involving public gatherings in enclosed spaces. The national borders remained closed and foreign citizens were still prohibited from entering the national territory until 16 July 2020.11

7 The Presidential Decree (‘Decret semnat de Președintele României, domnul Klaus Iohannis, privind instituirea stării de urgență pe teritoriul României’) declaring the state of emergency imposed the closure of all schools. If necessary, prices could be capped on medicines and medical equipment, on strictly necessary foods and on public utility services (electricity and heat, gas, water supply, sanitation, fuels, etc.). Under the state of emergency declared on 16 March 2020 the Romanian authorities could order the temporary closure of restaurants, hotels, cafes and clubs, as well as the gradual closure of borders and the limitation/prohibition of the movement of vehicles or persons in/to certain areas. 8 Decision No 24 of the National Emergency Committee approving the establishment of national alert status and infection prevention and control measures in the context of the epidemiological situation of the SARS-CoV-2 virus. That decision was confirmed by Governmental Decision No 394 of 18 May 2020 ‘privind declararea stării de alertă și măsurile care se aplică pe durata acesteia pentru prevenirea și combaterea efectelor pandemiei de COVID-19’. 9 Governmental Decision No 476 of 16 June 2020 ‘privind prelungirea stării de alertă pe teritoriul României și măsurile care se aplică pe durata acesteia pentru prevenirea și combaterea efectelor pandemiei de COVID-19’. 10 On 17 March 2020, the Romanian authorities issued the Military Ordinance No 1/2020 ordering the closure of restaurants, hotels, cafés and bars, as well as the suspension of all cultural, scientific, artistic, artistic, religious, sports, entertainment or gambling activities until the lift of the state of emergency. On 21 March 2020, the Romanian authorities issued a second Military Ordinance prohibiting any gatherings of more than three persons in public places. The Romanian Government issued further (up to twelve) Military Ordinances until the end of June 2020. 11 See footnotes 8 and 9. Only few exceptions applied for the entry of foreign citizens on the Romanian territory (imperative reason, family members of Romanian citizen, professional reasons, etc.). In addition, all exempted citizens were subject to quarantine measures when entering in Romania. Between 13 June and 16 July 2020, Romania progressively lifted the obligation to respect quarantine/measures for citizens coming from a restricted list of Member States and Schengen Associated States, in particular as of 2 July 2020 with the adoption of Governmental Decision No 33 (‘privind stabilirea criteriilor de exceptare de la măsurile de izolare/carantină aplicabile persoanelor care sosesc din țările membre ale Uniunii Europene și Spațiului Economic European precum și aprobarea listei țărilor terțe pentru care se aplică exceptarea’).

(10) Those containment measures included the gradual suspension of most commercial flights within, to and from Romania during the lockdown period and beyond12. The flight restrictions did not apply to flights performed by State aircraft, freight and mail, humanitarian or emergency medical services, as well as non- commercial technical landings and charters transporting workers subject to the prior approval of the competent authorities of the countries of destination. Following the lifting of the lockdown measure, specific flight restrictions continued to apply on routes to/from foreign countries, including to several Member States, until at least 16 July 2020.13

2.1.2. The impact of the travel restrictions on TAROM during March-June 2020

(11) In the beginning of March 2020, the rapid spread of the COVID-19 pandemic and the adoption of the first governmental restrictions started to affect TAROM’s operations substantially. Due to those various restrictive measures taken at national level in Romania and in the other countries in relation to the movement of people on the national territory and across borders, TAROM started suspending flights on a number of international routes as early as of 9 March 2020, notably to/from Italy, following the decision of the Romanian authorities14. Between 1 March and 20 March 2020, the company registered a decrease of 50% of the number of bookings compared to the same period in 201915. Table 1 presents the evolution of the weekly number of passengers transported by TAROM, the weekly load factor and the number of weekly no show registered by TAROM between Week 9 (24 February - 1 March) and 12 (16 March – 22 March) compared to the same period in 2019. The figures show in particular a strong deterioration from week 10 to week 12, following the declaration of the state of emergency on 16 March 2020:

Table 1: Weekly evolution of the number of passengers/load factor/no show registered by TAROM between Week 9 and 12

Type of Week No of seats PAX Load factor No show flight 2019 2020 2019 2020 2019 2020 2019 2020 Charter 9 […] […] […]%

12 The Romanian authorities adopted the first flight restrictions on 9 March 2020 for flights to/from Italy. The list of countries for which the Romanian authorities imposed flight restrictions was considerably extended during the lockdown period, starting from 18 March with restrictions to/from Spain.

13 All commercial flights were prohibited under the alert status to/from Austria, Belgium, Switzerland, France, Germany, Iran, Italy, the United Kingdom, the Netherlands, Spain, the United States of America and Turkey. On 11 June 2020, the Romanian authorities allowed the resumption of flights to Austria and Germany; the restrictions continued to apply on the rest of the routes until at least 16 July 2020. 14 Press article available at: https://airlinestravel.ro/coronavirus-tarom-suspenda-zborurile-spre- italia.html. Further suspensions of TAROM’s flights followed as a result of restrictions imposed by other countries, for example in Israel (as of 12 March 2020); Serbia (as of 16 March 2020) and Moldova (as of 17 March). It is also worth noting that several Member States, such as France or Belgium, imposed on 16 March 2020 general confinement measures that impacted all commercial activities, and in particular airline activities.

15 With a lowest point reached on 15 March 2020 with 1 255 tickets sold that day compared to 6 247 sold in 2019.

12 […] […] […] […] […]% […]% Regular 9 […] […] […] […] […]% […]% […] […] 10 […] […] […] […] […]% […]% […] […] 11 […] […] […] […] […]% […]% […] […] 12 […] […] […] […] […]% […]% […] […] Total […] […] […] […] […]% […]% […] […]

Source: Submission of the Romanian authorities of 2 October 2020.

(12) TAROM had ultimately to cancel nearly all of its scheduled flights between 26 March and 17 May 2020. As a result, during the lockdown period of the state of emergency, TAROM performed only exceptional cargo flights for medical equipment and supplies and charter flights for the repatriation of Romanian citizens working abroad, after approval of the Romanian Government.

(13) Following the state of emergency, during the state of alert, TAROM resumed its activities at a very reduced level with only a few flights to and from certain destinations, due to the general containment measures substantially restricting the entry of foreign citizens into the national territory. Specific flight restrictions imposed by the Romanian authorities to/from several destinations from 18 May to at least 16 July 2020, together with the application of the lockdown or containment measures in the vast majority of the Member States until approximately mid-June 202016 and the recommendation of the Commission not to lift the restrictions on non-essential travels within the Union before 30 June 2020, further prejudiced the resumption of TAROM’s commercial activities17.

(14) As shown in Table 2, the COVID-19 restrictions severely affected several indicators of TAROM’s performance between 16 March and 30 June 2020, as compared to actual figures for the same period in 201918. The number of flights operated decreased by 91% compared to the previous year. The number of booked passengers for regular flights fell by 94%, the number of boarded passengers by 94% and the Available Seat Kilometres (ASK) by 91%. Total revenues dropped by 84%, the EBIT by 250%, and the EBITDA by 157%19.

Table 2: Evolution of TAROM’s performance indicators in the period 16 March-30 June 2020 (compared to 2019 actual values)

16 Following in that regard the recommendation of the Commission to maintain closed the internal borders within the Union at least until 15 June 2020 (see Communication of 11 June 2020 from the Commission to the European Parliament, the European Council and the Council on the third assessment of the application of the temporary restriction on non-essential travel to the EU, COM/2020/399 final). 17 For instance, travelling to/from Member States such as Spain, Belgium, and the Netherlands (as well as to third countries such as Turkey or the United Kingdom) remained subject to flight restrictions until at least 30 June 2020.

18 The Romanian authorities provided 2019 figures as benchmark year. 19 EBITDA stands for earnings before interests, taxes, depreciation and amortisation.

Actual 2019 Actual 2020 Variation (Actual (16 Mar-30 Jun) (16 Mar-30 Jun) 2020 / Actual 2019) No. of flights (segments) […] […] -91% No. of booked passengers […] […] -94% (regular flights) No. of boarded passengers (both […] […] -94% regular and charter flights) Available Seat Kilometers […] […] -91% (ASK) Total revenues (EUR m) […] […] -84% EBIT* (EUR m) -[…] -[…] -250% EBITDA* (EUR m) […] -[…] -157% *Note: total revenues and EBIT/EBITDA figures are presented for the period 1 Mar-30 Jun, as extracted from TAROM’s income statement (which was only available for full month).

Source: Notification of the Romanian authorities.

(15) Table 3 illustrates in more detail the development in actual passenger numbers between January and June 2020, as compared to 2019 figures. The impact of the COVID-19 restrictions is apparent in the period between 16 March and 30 June 2020, when the decrease in the number of passengers was in the range of 83-93%.

Table 3: Evolution of TAROM’s passenger numbers in January-June 2020

Jan Feb Mar Mar Mar Apr May Jun 1-15 16-31 1-31 No. of passengers in 2019 […] […] […] […] […] […] […] […] (thousands) No. of passengers in 2020 […] […] […] […] […] […] […] […] (thousands) Variation in no. of +6% +3% -26% -83% -56% -99% -97% -93% passengers (2020 vs 2019)

Source: Notification of the Romanian authorities.

2.2. National legal basis

(16) The legal basis for the measures consists of the relevant parts (i.e. those concerning aid to TAROM) of the Romanian Governmental Emergency Ordinance on the establishment of the legal framework for granting State aid to “Romanian National Air Transport Company - TAROM” S.A., and to Commercial Company Blue Air Aviation S.A., for compensating the losses suffered as a result of COVID-19 pandemic (“the Governmental Emergency Ordinance”)20.

20 “ORDONANȚĂ DE URGENȚĂ nr. 139 din 19 august 2020 privind instituirea cadrului legal pentru acordarea unor ajutoare de stat Societății "Compania națională de transporturi aeriene române - TAROM"- S.A. și Societății Blue Air Aviation - S.A. pentru compensarea pierderilor economice suferite în contextul pandemiei de COVID-19”, published in the Official Gazette no. 763 on 20 August 2020.

2.3. Form, budget and duration of the measure

(17) The measure provides aid in the form of a State guarantee on a six-year loan (or a number of loans) to be contracted by TAROM on the market. The purpose of the aid is to make good the damage of EUR 19.33 million (equivalent to RON 93 876 360.11)21 resulting from the COVID-19 outbreak.

(18) The Romanian State will provide a guarantee covering 100% of the loan(s) amount and the interest and commissions thereof to cover the losses generated by the COVID-19 pandemic. The guarantee will be equal to the total value of the aid calculated, i.e. EUR 19.33 million.

(19) The guarantee will be issued by the Ministry of Public Finance, in the name and on behalf of the Romanian State. According to Romania, TAROM could not raise the required funds without a 100% State guarantee on the loan.

(20) According to the Governmental Emergency Ordinance, the conditions for granting the guarantee including the guarantee premium and the structure of the State-guaranteed financing, the related contractual documentation (e.g. the model guarantee agreement), the financial terms and conditions (e.g. maturity, interest, grace period) will be approved by Government Decision on a proposal of the Ministry of Public Finance. According to the information submitted by Romania, the guarantee premium will be 2%.

(21) The guaranteed loan will be granted for six years. Based on the Governmental Emergency Ordinance, the State guarantee to be granted to TAROM will be secured by first rank mortgages on a number of assets representing movable / immovable property owned by TAROM or by a third party, free of charges, covering at least the value of the loan and the related interest and fees. The collaterals will be established in favour of the State based on an evaluation report drawn up by an authorised appraiser no more than 2 months before those mortgages are provided to the State, establishing the market value of the goods on which mortgages are established. Other conditions may be set by the Government Decision approving the guarantee, in order to protect the interests of the State with a view to ensuring the continued viability of TAROM's activities.

(22) Moreover, Romania confirms that it will annually submit to the Commission the reports provided for by Article 26 of Council Regulation (EU) 2015/158922 and maintain for at least 10 years from the date of granting of the aid detailed records containing the information and supporting documentation necessary to establish that all compatibility conditions are met, and provide them, on a written request, to the Commission within a period of 20 working days or such longer period as may be fixed in the request.

21 Exchange rate based on National Bank of Romania exchange rate of 15 September 2020 of 4.8567 RON/EUR. 22 Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union, OJ L 248, 24.9.2015, p. 9.

(23) Finally, Romania indicates that relevant information on the aid measure23, including the full text of the aid granting decision and its implementing provisions or a link to it, will be published on the following websites, in line with the requirements of the Commission’s communication on transparency24: www.ajutordestat.ro, www.mt.gov.ro, http://www.monitoruloficial.ro/.

2.4. Administration of the measure

(24) While the State guarantee will be granted by the Ministry of Public Finance, the Ministry of Transport, Infrastructure and Communications is responsible for administering the measure.

2.5. Beneficiary

(25) The beneficiary of the measures is the airline TAROM.

(26) TAROM is a Romanian airline headquartered in Otopeni, Ilfov. TAROM was set up as a State company in 1954, was reorganised under a 1997 Government Ordinance and set up as a joint-stock company under a 1998 Law as Romania’s national air transport company25. The Romanian State, represented by the Ministry of Transport, Infrastructure and Communications, owns directly 97.22% of the shares26. TAROM is not part of a wider group of companies. It holds 50% of shares in Romanian Fuelling Services S.R.L. and is a minority shareholder in several other companies27.

(27) TAROM is mainly active in the air transport of passengers, cargo and mail. At the beginning of 2020, it had 1795 employees. It has been a member of the Sky Team alliance since 2010.

(28) TAROM is a single hub carrier, its hub being located at the Bucharest Henri Coanda International Airport. In addition to scheduled flights, it also offers transport services to tour operators (around 5% of total traffic). Moreover, it provides maintenance services to KLM, TAP, Air Serbia and other airlines.

23 The information published will include: the identity of the granting authority; the identity of the individual beneficiary, the aid instrument and amount; the objective of the aid, the date of granting, the type of undertaking; the Commission's aid measure reference number; the region where the beneficiary is located (at NUTS level 2) and the principal economic sector of the beneficiary. 24 Communication from the Commission amending the Communications from the Commission on EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks, on Guidelines on regional State aid for 2014–2020, on State aid for films and other audio- visual works, on Guidelines on State aid to promote risk finance investments and on Guidelines on State aid to airports and airlines, OJ C 198, 27.6.2014, p. 30. 25 Law no. 136/1998 from 29/06/1998 Published in the Official Gazette, Part I no. 241 of 02/07/1998 for the approval of the Government Ordinance no. 45/1997 regarding the establishment of the "National Romanian air transport company - TAROM" - S.A (“Law 136/1998”). 26 The remaining minority shareholdings are held by several public companies - National Airport Company Bucharest (1.46%), ROMATSA (Romanian Air Traffic Service Administration) (1.24%) – and the private Investment Fund Muntenia (0.08%). 27 Globe Ground S.R.L. (37%), DNATA S.A. (Alpha Rocas) (30.8%), World Trade Centre Bucuresti. S.A. (2.6%), World Trade Hotel S.A. (2.6%, in insolvency), CREAC S.A. (25%, in liquidation), Association for the Promotion and Development of Tourism Bucharest (11%).

(29) TAROM has benefited from a rescue aid that the Commission approved under the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty ("R&R Guidelines") on 24 February 2020 (“the rescue aid”)28. Furthermore, on 24 August 2020, the Romanian authorities submitted a draft restructuring plan for the Commission’s assessment. The assessment of the restructuring aid is not part of the present decision and will be the object of a separate Commission decision.

2.6. Eligible costs and modalities for damage compensation under Article 107(2)(b) TFEU

(30) According to Romania, the eligible costs correspond to the damage directly suffered by TAROM during the period running from 16 March until 30 June 2020 (“the compensation period”). The compensation period falls entirely within the period during which Romania and other countries had put in place containment measures that affected the ability of TAROM to operate its business, and it is conservative given that TAROM had to cancel a substantial number of international flights to/from countries in regions with significant communities of Romanian diaspora even before the declaration of state of emergency by the Romanian authorities and the Commission recommendation to the Member States to apply a coordinated restriction on non-essential travel to the EU29 on 16 March 2020. Romania defines the damage as the net losses due to the containment measures taken by governments as a consequence of the COVID-19 outbreak. The net losses in that period are quantified as the difference between the profit/loss incurred between 16 March and 30 June 2020 and those incurred during the same period in 2019. There was no profit registered in 2019, so that the compensation does not cover profit losses.

(31) Romania proposed two different approaches to assess the eligible costs, as explained in sections 2.6.1 and 2.6.2. In any event, the Romanian authorities explained that the damage quantification will be audited and certified by an independent expert at the end of the accounting year based on TAROM’s financial accounts. TAROM committed to providing the Romanian authorities with a full report of all the revenues and costs related to its passenger transport activities operated during the compensation period (i.e. 16 March – 30 June 2020) by 30 April 2021 at the latest. Any overcompensation that may potentially result from such auditing will be paid back by TAROM to the Romanian authorities with interest (see recital (40)).

2.6.1. Methodology based on a list of operating revenues and costs registered per route

(32) According to the Romanian authorities, TAROM provided the list of all operating revenues and costs30 registered route by route between 16 March and 30 June

28 Published in the OJ C310 of 18 September 2020.

29 Communication from the Commission COM(2020) 115 final of 16 March 2020 – COVID-19: Temporary Restriction on Non-Essential Travel to the EU. 30 Direct costs were calculated on the basis of the number of block hours operated for each route and hourly rate based on the type of aircraft used. The indirect costs avoided include personnel costs for the indirect staff, as well as some consumables and utilities.

2020 and during the same period in 2019. The difference between the results of 2019 and 2020 constitutes the net losses suffered by the company due to the COVID-19 outbreak. The calculation takes into account the following elements:

(a) loss of operating revenues: a review of the impact of the containment measures taken by governments as a consequence of the COVID-19 outbreak on total revenue, including (i) fare revenues from tickets (tickets which could not be sold), and (ii) additional/accessory revenues (seat reservations, upgrades);

(b) avoided operating costs: a review of TAROM’s cost base and the impact (both positive and negative) of the containment measures taken by governments as a consequence of the COVID-19 outbreak on variable costs, including deviation in (i) all variable costs (in particular fuel costs, fees and charges, maintenance costs, IATA commissions and catering costs) and (ii) fixed costs which varied due to the containment measures taken by governments as a consequence of the COVID-19 outbreak (in particular lower personnel costs and marketing costs).

(33) According to those calculations, TAROM suffered an estimated operating revenue loss of EUR […] million, resulting from both a decrease in the number of flights operated as well as a reduced load factor for the few remaining flights (essentially charter and flights upon request). An estimated EUR […] million in cost reductions were deducted from lost revenues. This results in net losses eligible for compensation of EUR 19.33 million, as detailed by Table 4.

Table 4: Calculation of TAROM’s net losses (EUR million)

Total 16-31 Mar Apr May Jun 16 Mar-30 Jun Revenues - passenger flights 2019 […] […] […] […] […] 2020 […] […] […] […] […] Lost revenues due to COVID- 19 […] […] […] […] […] Revenues - charter flights 2019 […] […] […] […] […]

2020 […] […] […] […] […] Lost revenues due to COVID- 19 […] ([…]) ([…]) […] […] Total revenues lost due to COVID-19 […] […] […] […] […] - Relative change in revenues -68.2% -96.7% -90.5% 85.3% Direct costs – passenger flights 2019 […] […] […] […] […] 2020 […] […] […] […] […] Avoided direct costs due to COVID-19 […] […] […] […] […] Direct costs – charter flights 2019 […] […] […] […] […] 2020 […] […] […] […] […] 10

Total 16-31 Mar Apr May Jun 16 Mar-30 Jun Avoided direct costs due to COVID-19 […] ([…]) ([…]) […] […] Avoided indirect costs* ([…]) […] […] ([…]) […] Total avoided costs […]

Net losses 0.38 4.11 6.03 8.81 19.33

*Note: The estimations for indirect costs avoided cover the full month of March, as these costs were only available for the full month.

Source: Notification of the Romanian authorities.

2.6.2. The EBITDA methodology

(34) Romania proposed another evaluation of the damage directly suffered by TAROM due to the COVID-19 outbreak by comparing the EBITDA figures of the company from 1 March to 30 June 2020 to the same period in 2019 (Table 5).31

Table 5: TAROM’s EBITDA from March to June 2020 vs. 2019 (EUR million)

Mar- Mar- Apr- Apr-20 May- May- Jun- Jun-20 19 20 19 19 20 19

Operating revenues […] […] […] […] […] […] […] […]

Revenues from flights […] […] […] […] […] […] […] […]

Revenues from other services […] […] […] […] […] […] […] […]

Other operating income […] […] […] […] […] […] […] […]

Operating expenses […] […] […] -[…] […] […] […] […]

Fuel […] […] […] […] […] […] […] […]

Traffic services […] […] […] […] […] […] […] […]

Consumables, maintenance and […] […] […] […] […] […] […] […] repairs

Personnel costs […] […] […] […] […] […] […] […]

Other operating expenses […] […] […] -[…]* […] […] […] […]

31 Romania also provided EBIT data. However, depreciations and amortizations in TAROM’s 2019 accounts remained constant compared to 2019, so that there was no impairment of assets or increase of depreciations resulting from the COVID-19 outbreak. Therefore, taking into account the EBIT data was not relevant for establishing the damage directly resulting from the COVID-19 outbreak since the EBITDA refers only to operating revenues and costs.

Mar- Mar- Apr- Apr-20 May- May- Jun- Jun-20 19 20 19 19 20 19

EBITDA -[…] -[…] […] […] -[…] -[…] […] -[…]

*Note: the negative figure is the result of an accounting correction of provision of EUR […] million for the purchase of CO2 certificates booked in April 2020, but relating to operations registered in 2018 and 2019. Therefore, that correction does not result from the COVID-19 outbreak and should be ignored for the calculation of the damage compensation under the EBITDA-based methodology (see recital (35) for further details).

Source: Notification of the Romanian authorities.

(35) Romania explained that the EBITDA figure for April 2020 includes the impact of a one-off transaction, namely the reversal of a provision for CO2 certificates (i.e. a reduction in expenses of EUR […] million) made in 2018 and 2019 for flight operations carried out by TAROM in those years. Given that TAROM received and used free CO2 certificates to partially meet its CO2 related-obligations for flight operations carried out in 2018 and 2019, the Romanian authorities stated that part of the provision made by TAROM was not used and therefore reversed to the company’s accounts. Based on the information provided by Romania, the accounting entry for April 2020 constitutes only the reversal of the provision correction booked in April 2020, but referring to operations registered in 2018 and 2019 (when the free certificates were used). That correction is a result of an accounting mistake as the reversal was not registered in the 2018 and 2019 financial accounts of TAROM. Since it is not linked to the COVID-19 outbreak, the Romanian authorities considered that this one-off transaction could not be taken into account for the damage estimation under the EBITDA methodology.

(36) Romania further adjusted the calculation of the EBITDA-based damage to the period from 16 March to 30 June 2020. Since no daily EBITDA data were available, Romania calculated the pro-rata EBITDA loss for the second half of March (i.e. between 16 and 31 March), and the corresponding total damage estimation for the period between 16 March and 30 June. The Romanian authorities calculated that 78% of the losses suffered by TAROM in March 2020 could be allocated to the second half of March 2020. The determination of the allocation factor of 78% is presented in the Table 6:

Table 6: Variation in the number of passengers during the month of March 2020

Number of passengers and variance 1 to 15 March 16 to 31 March 1 to 31 March

2019 […] […] […]

2020 […] […] […]

Absolute difference […] […] […]

Relative change 22,0% 78,0% 100,0%

Source: Notification of the Romanian authorities.

(37) Thus, on the basis of the EBITDA comparison between 2019 and 2020, taking into account the corresponding adjustments, the total net losses of TAROM due to

the COVID-19 outbreak between 16 March and 30 June 2020 are estimated by Romania at EUR 21.53 million compared to the corresponding period in 2019, as shown by Table 7:

Table 7: Damage estimation based on EBITDA comparison for the period 16 March to 30 June 2020 vs. 2019 (EUR million) Category Var Mar19 - Var Var Var Damage Mar20 - equiv. Apr19 - May19 - Jun19 - 16Mar- for 16-31 Mar Apr20 May20 Jun20 30Jun

Operating revenues […] […] […] […] […]

Revenues from flights […] […] […] […] […]

Revenues from other services […] -[…] […] -[…] […]

Other operating income […] […] […] […] […]

Operating expenses […] […] […] […] […]

Fuel […] […] […] […] […]

Traffic services […] […] […] […] […]

Consumables, maintenance and repairs […] […] […] […] […]

Personnel costs […] […] […] […] […]

Other operating expenses […] […] […] -[…] […]

EBITDA […] -[…] […] […] […]

EBITDA (adjusted*) […] […]* […] […] 21.53*

* Note: As explained in recital (35), Romania eliminated the effect of the one-off transaction in April 2020 (reversal of a provision for CO2 certificates) by eliminating the savings amounting to EUR […] million (a negative expense in the other operating category) not related with 2020 activities.

Source: Notification of the Romanian authorities

(38) Romania explains that the different results between the two methodologies stem from two main reasons. First, on the revenue side, the revenues from other services and other operating income (e.g. rental, technical services, publicity, training etc.), were not included in the first methodology calculation based on revenues/costs per route, for which only differences in the revenues from flights were taken into account. Secondly, on the cost side, unlike in the EBITDA-based damage estimation, where the calculation covers all operational expenses, the damage calculation based on revenues takes into account the actual costs registered route by route and was based mainly on the direct costs affected by the COVID-19 outbreak and included only some indirect costs that have been subject to economies as a result of active management in the COVID-19 context, such as staff.

(39) Therefore, according to the Romanian authorities, the result of the damage using the methodology based on the list of revenues and costs registered route by route appeared more conservative than the result using the EBITDA methodology.

2.7. Commitments

(40) As regards the damage compensation, the Romanian authorities committed to put in place the following safeguards to avoid overcompensation:

(a) The Romanian authorities will provide a report by 30 June 2021 on the implementation of the aid and the final calculation of the damage suffered by TAROM, based on TAROM’s audited accounts in accordance with point 13(4) of the Governmental Emergency Ordinance.

(b) If that final calculation indicates that the aid leads to an overcompensation, any payment exceeding the damage suffered as a direct consequence of the COVID-19 outbreak will be recovered from TAROM, including interest from the date when the aid was granted until the date of effective recovery.

(c) The amount of the guarantee in favour of TAROM will be net of any amount recovered by insurance, litigation, arbitration or other source for the same damage. If the guarantee is granted before any such amount is recovered by other measure (insurance, litigation, etc.) the authorities will recover the respective amount from TAROM, including interest.

(d) The benefit of the aid is excluded to the extent that TAROM is responsible for the damage suffered or did not conduct its activities with due diligence or in compliance with applicable legislation or did not take any measure to mitigate its damage. Romania also confirms that TAROM is not under such a situation.

(e) The aid may not be cumulated with other aid for the same eligible costs.

3. ASSESSMENT

3.1. Lawfulness of the measure

(41) By notifying the measure before putting it into effect, the Romanian authorities have respected their obligations under Article 108(3) TFEU.

3.2. Existence of State aid

(42) For a measure to be categorised as aid within the meaning of Article 107(1) TFEU, all the conditions set out in that provision must be fulfilled. First, the measure must be imputable to the State and financed through State resources. Second, it must confer an advantage on its recipients. Third, that advantage must be selective in nature. Fourth, the measure must distort or threaten to distort competition and affect trade between Member States.

(43) The Commission notes that Romania notified the measure as State aid and does not dispute the State aid character of the measure.

(44) The measure is imputable to the State, since it is administered by the Ministry of Transport, Infrastructure and Communications and is based on the Governmental Emergency Ordinance referred to in recital (16). The aid is financed through State resources, since the guarantee on the loan will be granted by the Ministry of Public Finance and funded by the general budget of Romania.

(45) The measure confers an advantage on TAROM by compensating TAROM for a damage directly caused by the COVID-19 restrictions. As explained in recital (19), Romania sets out that TAROM cannot get financing from the market absent the guarantee. The measure therefore gives TAROM access to finance that, given its specific situation and the circumstances resulting from the COVID-19 outbreak, it would not have been able to obtain on the market. Hence, the measure confers an advantage on TAROM in the form of a State guarantee on a loan by relieving it of costs that it would have to bear under normal market conditions since without the intervention of the State, it would obtain a loan only at higher costs, if at all. The advantage is equal to the amount of the guarantee, as financing in the market would not be available absent the State intervention (see recital (19)).

(46) The advantage granted by the measure is selective, since it is awarded to a single beneficiary, TAROM.

(47) The measure is liable to distort competition, since it strengthens the competitive position of TAROM. It also affects trade between Member States, since TAROM is active in the aviation sector, in which intra-Union trade exists.

(48) In view of the above, the Commission concludes that the measure constitutes State aid within the meaning of Article 107(1) TFEU.

3.3. Compatibility of aid under Article 107(2)(b) TFEU

(49) Since the damage compensation involves aid within the meaning of Article 107(1) TFEU, it is necessary to consider whether that aid is compatible with the internal market.

(50) Article 107(2)(b) TFEU covers aid which is, in law, compatible with the internal market, provided that it satisfies certain objective criteria. Since this is an exception to the general principle stated in Article 107(1) TFEU that State aid is incompatible with the internal market, Article 107(2)(b) TFEU must be interpreted narrowly. Therefore, only damage caused by natural disasters or exceptional occurrences may be compensated for under that provision. There must be a direct link between the damage suffered by an undertaking and the exceptional occurrence, and the compensation must not exceed the amount of damage.

(51) Where those criteria are satisfied, the Commission is bound to declare such aid compatible with the internal market, and it has no discretion in that regard. The principle of ‘one time last time’32 of the Rescue and Restructuring Guidelines

32 See section 3.6.1 of the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty, OJ C 249, 31.7.2014, p. 1.

does not cover aid that the Commission declares compatible under Article 107(2)(b) TFEU, since the latter type of aid is not “rescue aid, restructuring aid or temporary restructuring support” within the meaning of point 71 of the Rescue and Restructuring Guidelines. Therefore, the Romanian authorities may compensate under Article 107(2)(b) TFEU the damage directly caused by the COVID-19 outbreak to undertakings that have received aid under the Rescue and Restructuring Guidelines.

3.3.1. The notion of exceptional occurrences with the meaning of Article 107(2)(b) TFEU

(52) Article 107(2)(b) TFEU provides that aid to make good damage caused by natural disasters or exceptional occurrences shall be compatible with the internal market. Neither the TFEU nor Union legislation contains a precise definition of the notion of exceptional occurrence. As they constitute exceptions to the general prohibition of State aid within the internal market laid down in Article 107(1) TFEU, the Commission, in line with the consolidated Union case- law33 has consistently held that the notions of ‘natural disaster’ and ‘exceptional occurrence’ referred to in Article 107(2)(b) TFEU must be interpreted restrictively.

(53) The characterisation of an event as being an exceptional occurrence is made by the Commission on a case-by-case basis, having regard to its previous practice in the field34. In that regard, the following indicators relating to the event concerned must be cumulatively met: (i) unforeseeable or difficult to foresee35; (ii) significant scale/economic impact36 and (iii) extraordinary, i.e. differing sharply from the conditions under which the market normally operates37.

33 Judgment of the Court of Justice of 11 November 2004, Spain v Commission, C-73/03, EU:C:2004:711, paragraph 37 and judgment of the Court of Justice of 23 February 2006, Atzeni and others, in Joined Cases C-346/03 and C-529/03, EU:C:2006:130, paragraph 79. 34 Exceptional occurrences which have been accepted in the past by the Commission include war, internal disturbances and strikes, and, with certain reservations and depending on their extent, major industrial accidents which result in widespread economic loss, see Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020, paragraph 330, OJ C 204, 1.07.2014, p. 53. 35 Commission decision of 1 August 2008 in case SA.32163, Remediation of damage to airlines and airports caused by seismic activity in Iceland and the volcanic ash in April 2010, Slovenia, paragraph 31, OJ C 135, 9.5.2012, p. 1. 36 Elements taken into account by the Commission to consider that the occurrence reached a significant scale: negative consequences cannot be contained (Commission decision of 4 October 2000 in case NN 62/2000, Régime temporaire d'aides aux entreprises victimes des intempéries et de la marée noire –France, OJ C 127, 29.05.2003, p. 32), or the number of dead or injured people (Commission decision of 11 April 2012 in case SA.33487, Agricultural and fisheries aid to compensate for damage due to exceptional occurrence (red mud "Aluminium accident"), Hungary, paragraph 35, OJ C 120, 25.04.2012, p. 1; Commission decision of 2 May 2002 in case N241/2002, Régime en faveur des entreprises victimes de la catastrophe industrielle de Toulouse, France, paragraph 19, OJ C 170, 16.07.2002, p. 16), the immense scale of ecological and economic damage (Commission decision of 11 April 2012 in case SA.33487, paragraph 36, OJ C 120, 15.04.2012, p. 1), the amount of material damage, despite the local character of the industrial accident (Commission decision of 2 May 2002 in case N 241/2002, paragraph 19, OJ C 170, 16.07.2002, p. 16). 37 In its decision of 19 May 2004 in case C-59/2001, OJ L 62, 2007, p. 14, the Commission considered that the (alleged) fall in sales of poultry meat in a Member State not directly affected by the dioxin

3.3.2. COVID-19 as an exceptional occurrence

(54) Following the first reports of cases of acute respiratory syndrome (COVID-19) in the Wuhan municipality in China at the end of December 2019, the Chinese authorities identified a novel coronavirus (SARS-CoV-2) as the main causative agent, which had not been previously identified in humans. The outbreak rapidly evolved, affecting not only other parts of China but also spreading to a majority of countries worldwide, including all Member States. Outbreaks of novel virus infections among people are always a public health concern and can have a significant economic impact. Specific sectors and areas are particularly affected by the outbreak, be it because of national outbreak control measures, travel restrictions or supply chain disruptions.

(55) The WHO warned about the very high risk that COVID-19 would spread and have a global impact. The subsequent spread of COVID-19 ultimately resulted in far-reaching disruption of various economic sectors. That disruption was thus clearly outside the normal functioning of the market. In order to avoid an exponential increase in the number of cases, accompanied by social alarm and severe economic consequences, containment measures needed to be adopted.

(56) On 11 March 2020, the WHO characterised the COVID-19 disease as a pandemic. The public health risk deriving from the absence of therapeutics or vaccines for the novel COVID-19 virus determined the exceptionality of the circumstances. The rapidity of the spread caused enormous consequences both in terms of fatal outcomes in high-risk groups and in terms of economic and societal disruption38. The necessity to adopt and encourage the respect of measures aimed at interrupting transmission chains stemmed from that acknowledgement.

(57) In March and April 2020, Member States adopted various measures that aimed to limit the spread of the coronavirus, e.g. travel restrictions for non-essential travels, closure of borders, closure of non-essential shops, obligation for companies to organise working from home for every position where this was possible and various social distancing measures.

(58) In view of the above, the COVID-19 outbreak qualifies as an exceptional occurrence, as it was not foreseeable and is clearly distinguishable from ordinary events, by its character and its effects on the affected undertakings and the economy in general, and therefore falls outside the normal functioning of the market.

(59) In this context, the COVID-19 outbreak can be considered as an exceptional occurrence within the meaning of Article 107(2)(b) TFEU39.

contamination did not in itself constitute an exceptional occurrence. Even though it was an unforeseeable event, it formed part of the normal commercial risks to which an undertaking is exposed. 38 ECDC’s Rapid Risk Assessment, Outbreak of novel Coronavirus disease 2019 (COVID-19): increase transmission globally – fifth update, 2 March 2020. 39 See Commission decision of 12 March 2020 in case SA.56685 (2020/N) – Denmark – Compensation scheme for cancellation of events related to COVID-19, OJ C 112, 03.04.2020, and Commission decision of 31 March 2020 in case SA.56765 (2020/N) – France – COVID-19 Moratoire sur le

3.3.3. Causal link between the damage compensation and the COVID-19 outbreak

(60) The Commission has examined the notified individual measure pursuant to Article 107(2)(b) TFEU, which requires a direct link between the damage and the exceptional occurrence for which the State aid measure provides compensation.

(61) As described in section 2.1.1, the COVID-19 outbreak has resulted in travel restrictions all over the world and the closing down of the vast majority of passenger air transport. Those containment measures aimed to avoid the spread of the virus, but they negatively affected the aviation sector. The damage suffered by TAROM is directly linked to the COVID-19 outbreak through the travel restrictions and other containment measures imposed by the Romanian government (as well as other governments around the world) on TAROM flights.

(62) The notified measure aims to compensate TAROM for the damage suffered due to the imposition of travel restrictions and other containment measures linked to the COVID-19 outbreak (see recital (3)). For the calculation of the damage, the Romanian authorities have considered the travel restrictions imposed in Romania and other countries during the period from 16 March to 30 June 2020 (see section 2.1.1) and their impact on TAROM’s operations (see section 2.1.2).

(63) The Commission notes that, for the purposes of calculating the damage subject to possible compensation under Article 107(2)(b) TFEU, the net losses suffered by TAROM in the period from 16 March to 30 June 2020 can be directly attributed to governmental restrictions resulting in the grounding and cancellation of nearly all of TAROM’s flights (the only exception being repatriation, charter and cargo flights).

(64) Therefore, the Commission concludes that there is a direct causal link between the damage suffered by TAROM during the compensation period and the exceptional occurrence, i.e. the COVID-19 outbreak. As a result, the Commission accepts that the damage caused to TAROM between 16 March and 30 June 2020 can be considered as eligible to be compensated under Article 107(2)(b) TFEU.

3.3.4. Proportionality of the damage compensation

(65) In order to be compatible with Article 107(2)(b) TFEU, the aid must be proportional to the damage directly caused by the exceptional occurrence. Aid must not result in overcompensation of damage. It should only make good the damage caused by the exceptional occurrence.

(66) To effectively ensure proportionality, it is necessary to analyse the assumptions and evidence on which the calculation of damage for the factual scenario is based. In particular, it is necessary to look at how the exceptional occurrence has actually and directly affected the operations of TAROM (e.g. TAROM has been prevented from operating) and what actual impact it has had on the costs and revenues of the company.

paiement de taxes et redevances aéronautiques en faveur des entreprises de transport public aérien sous licences d'exploitation délivrées par la France, OJ C 294, 04.09.2020.

(67) The damage to be compensated corresponds to the net loss, defined as loss of revenue minus avoided costs. The loss of revenue is the difference between the revenue that TAROM would have expected during the compensation period (16 March to 30 June 2020), had the containment measures linked to the COVID-19 outbreak not occurred, and the revenue that TAROM has actually generated during that period. To approximate counterfactual revenues, actual revenues for the same period in 2019 are used.

(68) Avoided costs correspond to costs that TAROM would have had during the compensation period had its operations not been affected by the COVID-19 restrictions, but which it did not have to bear as a result of the cancelled operations (e.g. fuel, staff costs, etc.). The avoided costs have been quantified by comparing the costs registered during the corresponding period in 2019 and the actual costs borne by TAROM during the compensation period (see recitals (32) to (33).

(69) As stated in section 2.6.1, Romania assessed the overall net losses on the basis of a list of all flight-related direct revenues minus direct and some indirect costs registered route by route between 16 March and 30 June 2020, evaluating the total net losses at EUR 19.33 million during that period compared to the corresponding period in 2019 (taking into account avoided costs). Romania also assessed and estimated the overall net losses on the basis of a monthly and adjusted EBITDA comparison for the period March-June 2020 and the same period in 2019. It established the total net losses of TAROM between 16 March and 30 June 2020 at EUR 21.53 million (see section 2.6.2).

(70) The Commission notes that the proposed damage compensation of EUR 19.33 million does not exceed any of the damage estimations calculated by the Romanian authorities under the different methodologies used, the most conservative damage estimation setting it at EUR 19.33 million. As explained in recital (45) the aid is equal to the full guarantee on that amount.

(71) In addition, the Commission notes that those calculations are based on TAROM’s financial accounts and will be subject to auditing and verification by an independent expert. By 30 April 2021, TAROM will provide the Romanian authorities with a full report including audited revenues and costs during the compensation period40. The Romanian authorities committed to submit to the Commission by 30 June 2021 the results of the ex-post assessment of the damage suffered by TAROM during the compensation period, based on TAROM’s audited accounts. If the ex-post assessment were to show that TAROM had been overcompensated, the Romanian authorities undertook to ensure that TAROM repays any such overcompensation including interest. Furthermore, Romania agreed to put in place a number of additional safeguards to avoid overcompensation of damage (see recital (40)).

(72) Thirdly, based on the information provided by Romania, TAROM took measures in order to act diligently and to minimize the damage suffered due to COVID-19 outbreak. Such measures include eliminating catering for passengers starting as early as 13 March 2020, introducing cargo flights during the lockdown period (generating revenues from transporting protection materials and medical supplies

40 Governmental Emergency Ordinance, point 8.

imported from China), and suspending flights with high no-show rates. Such no- show rates spiked in March when the effects of the lockdown started to emerge, from a normal rate of approx. 5-7% to over 50%, with some flights recording up to 90% no-show rates. To reduce the losses for such flights, TAROM management decided to suspend several flights and reschedule/ reimburse the fares to passengers in order to reduce the losses from operating flights with a very low load factor.

(73) Lastly, Romania confirmed that the notified aid may not be cumulated with other aid for the same eligible costs, so it will not be possible to have overcompensation arising from any potential restructuring aid that may be found compatible with the internal market.

(74) In view of the above, the Commission concludes that the damage compensation is proportionate and does not exceed what is necessary to make good the damage directly suffered by TAROM as a result of the COVID-19 restrictions.

3.3.5. Conclusion on compatibility of aid with Article 107(2)(b) TFEU

(75) In view of the above, the Commission considers that the damage compensation in the form of a State guarantee for a value of EUR 19.33 million is compatible with the internal market in accordance with Article 107(2)(b) TFEU.

4. CONCLUSION

The Commission has accordingly decided not to raise objections to the aid on the ground that it is compatible with the internal market pursuant to Article 107(2)(b) of the Treaty on the Functioning of the European Union.

If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/competition/elojade/isef/index.cfm.

Your request should be sent electronically to the following address:

European Commission, Directorate-General Competition State Aid Greffe B-1049 Brussels [email protected]

Yours faithfully,

For the Commission

Margrethe VESTAGER Executive Vice-President