The provisions of the management plan at TAROM
TAROM is in a delicate moment. The government has the mission to bring the national airline operator to profit or to privatize it. The second option was suggested by the IMF and seems like a good solution, but no one guarantees that the privatization will be successful.
So the first option is tried and a private council has been elected. The directors, with a four-year mandate, have a duty to make TAROM a profitable company. After several months of analysis and statements, a management plan was established for the next 3 years. It was approved at the meeting of the Board of Directors on March 11 2013.
In order to achieve the main objective of the company, to achieve profit in 2015, it is necessary to introduce a new commercial policy, much more dynamic and proactive. All the priorities of the company are focused on the needs of the clients, so that the projects in the commercial area aim to increase the degree of loading in order to meet the standard norms of the industry, the revision of the schedules and the network of flights according to the existing demand in the market, the diversification and the improvement of the services, diversification of the tourist packages offered.
TAROM will introduce an automatic route profitability management system and will implement a new, more efficient pricing mechanism.
Emphasis will be placed on online sales on the site www.tarom.ro, and to boost sales through their own agencies, a unique scheme of sales commissions will be introduced, which will include rewards for exceeding the target sales level. The targets will be set monthly, by reference to previous years, and the reward commissions will be applied for all the amounts that exceed the monthly targets. By introducing this reward scheme, it aims to increase sales by 5% in the first year, through its own agencies.
For the foreign markets operated by TAROM, contracts with general sales agents (GSA) will be concluded to cover the majority of sales at European and international level, thus increasing revenues. The selection process for general sales agents will be started immediately and will target as many European markets as possible, but an evaluation of the Middle East markets will also be carried out. In the next two years, an increase of sales with 5 up to 10% per year is estimated as compared to the current sales on foreign markets.
Fleet harmonization and capacity alignment with market demand
TAROM's current fleet consists of a disparate collection of aircraft with different capacities, with high maintenance and operating costs, which do not allow the allocation of capacities according to market requirements. In order to harmonize the fleet, a tender documentation will be prepared that will allow discussions with all the major aircraft manufacturers, and the decision on the new supplier will be taken as soon as possible. Any of the big manufacturers can offer a fleet that will generate significant savings in operating costs and fuel consumption compared to the company's current fleet.
To cover the currency risk
Given the volatility of the leu against international currencies, such as the US dollar and the euro, the company is significantly exposed to fluctuations in the foreign exchange market, as it generates a large amount of revenues expressed in lei or euros, while a large part of costs is expressed in US dollars. Each month, TAROM has a surplus of euros and a deficit of US dollars. To eliminate the large losses generated by this situation, risk coverage measures will be taken as soon as possible, after assessing the cash flow requirements according to the currency.
Optimizing purchasing efficiency
TAROM has developed a new, improved version of the internal procurement regulation, in order to ensure more transparent and efficient procurement processes that respond to the commercial needs of the company. Entry into force of amendments to GEO no. 34 / 2006 to 01.01.2013, changes made through GEO no. 77 / 2012, and the listing of TAROM as a contracting authority, represents a competitive disadvantage that may stiffen and even block the company's activity. Moreover, TAROM does not meet the conditions for being a contracting authority, according to the European directives in force, so the necessary steps have already been taken to exempt TAROM from this ordinance, and the Ministry of Transport has offered the company the necessary support to support this endeavor. The TAROM exemption from the application of this law is estimated as soon as possible, and the company will apply the internal procurement regulation in the future, in order to be able to activate in the competitive conditions specific to the air transport industry.
The Procurement Supervisory Committee, organized at the level of the Board of Directors, will supervise and monitor the procurement process.
Renegotiation of existing contracts
New, improved aircraft insurance policies will be negotiated to reduce costs. The renegotiations of all the insurance policies of the company will be started when the time of their renewal will arrive during the year 2013, however, respecting the compliance procedures, as it is considered that there is a substantial margin for improving the rates. Management believes that cost improvements are possible with both aircraft insurance policies and employee benefit insurance.
The renegotiation of the contracts with the major suppliers of the company was started. The management of the company has already obtained discounts of 5% to 10% in the case of 12 contracts, generating cost reductions of approximately one million USD annually. Renegotiations with the rest of the company's suppliers will continue in the coming months.
New fuel supply policy
A new fuel supply policy will be introduced, which will result in cost savings and savings of 5 up to 10% per year. Given that 30% of total operational costs are fuel costs, a new fuel recording and measurement method should be introduced, which includes specific technical actions that have the effect of reducing fuel consumption, with all safety rules being repeated in force.
Reduction of the stock of existing parts
Measures will be taken to reduce stockpiles for cash generation, through controlled and planned procedures, to eliminate unused or rarely used parts, freeing up space and unlocking cash from the capital currently locked in these stocks. This action will start immediately and will continue for the next 6 months. The target is to release existing stocks with 15% annually.
Voluntary withdrawal program
Starting this month, a program of voluntary withdrawal of staff will be implemented, which will be carried out according to some measurements and in a controlled manner. This program will run throughout the 2013 year and will be reviewed at the end of the year to see if it needs to be extended in the 2014 year as well. The objective of this plan is to reduce the staff monthly so that the operations of the company are not affected or interrupted. The aim is that by the end of the year the company staff will be reduced by 10%.
SkyTeam benefits optimization
Immediate measures should be taken to review and improve the TAROM position within the alliance in order to optimize marketing and revenue generation opportunities. This activity will be carried out during the years 2013 and 2014. TAROM must exploit the opportunities offered by SkyTeam by expanding the network of cooperation with alliance partners, operating new routes that may be of real interest to partners, more active participation in the SkyTeam decision-making process and more effectively protecting commercial interests. of TAROM.
Migration to a common IT platform
There are now many suppliers and numerous internal IT systems, and the use of third party providers has become extremely expensive, especially in the case of commercial (sales, ticketing and distribution) and accounting systems. The migration to a common IT platform will simplify the way it works and allow the use of modern technology at costs of about 20% of current costs. The tender process and the decision to select a single supplier will be made during the year 2013. The migration to a single platform will take into account all the IT systems used by the company, from the crew management systems, the introduction of e-commerce modules, reservation system, departure control system, revenue optimization system. The migration will take place gradually and the functionality and complete security of the operations and systems will be ensured.
Independent profit centers
The transformation of some activities of the company, such as activities regarding charter flights, cargo, training center, technical activity, into independent profit centers, will be considered, but these decisions will be made based on breakdown and detailed analysis in the immediate period next. All these activities will remain part of TAROM, operating as independent and profit-oriented business units.
TAROM Technical Directorate in its current form is organized as an internal maintenance division. The division is a key asset for the company, because in addition to the maintenance unit that includes repair shops, tools, spare parts, work platforms, etc., the know-how and the highly qualified workforce for three must be taken into account. of the most used aircraft fleets in the world: Airbus, Boeing and ATR.
This is due to the fact that the unit performs almost all the internal fleet checks. The Technical Direction of TAROM company meets absolutely all the criteria to be positioned as a strong competitor in the market, but for this it needs an independent management and its own governance structure. It will analyze the transformation of TAROM Technical Directorate into a separate entity that would continue to operate under the leadership of TAROM, but responsible for its own financial results, using to the maximum all its assets, labor force and all facilities.
The plan is ok and optimistic. I am glad to see that the aberrations in the statements of some politicians have not been taken into account and I am referring to the removal of TAROM from IATA and SkyTeam. It would have been a powerful shot. But there are many question marks regarding this plan because nothing concrete has been said. The number of optimal employees is not known, it is hoped for some additional budgets through secondary activities (freight, charter races), but nothing is known about fleet, procurement and the problems regarding the regulations with the auctions and salaries of the employees have not been solved yet. .
Romania would lose a lot in terms of image if the national air carrier went bankrupt. This country has made big names in the aviation industry and it would mean the destruction of a history. I want to trust TAROM, personally, in aircraft. I hope for a profitable and prosperous TAROM.