The management board of Romania’s flag carrier Tarom dismissed CEO Christian Heinzmann on March 21, Agerpres reported, quoting unofficial sources. On the same day, the government released a report listing the main problems at the country’s state-controlled airline.

Ironically, the government of technocrats has dismissed the first technocratic manager of a state owned company. Heinzmann was the first independent CEO to be appointed at a major Romanian state-controlled company under the IMF-inspired private management programme.

The report released on March 21 says the government identified major failures by Tarom’s management that resulted in a disappointing financial performance and lack of discipline with an impact on operational security.

“All the inconsistencies related to hiring [new] personnel, the [lack of any] income policy and the lack of a unified income structure generated significant imbalances in regard to the individual wages and diminished the motivation of old personnel,” the report reads.

The ministry’s report also outlined a lack of discipline and fraud concerning employees’ working hours resulting in excessive overtime hours claimed for and inefficient distribution of personnel. Pilots used to call in sick to work for other companies, the report found.

Heinzmann responded to the accusations in an interview with news.ro, blaming inherited contracts and the attitude of the managing board and employees for the incomplete reforms at the company.

Heinzmann claims that he was never given the power to manage the company. In the interview with news.ro, he claimed that the company was constantly under political pressure, and that what shocked him most was the network of family relationships among the airline’s employees.

While the government blames the company for not renewing its fleet, Heinzmann said his attempts to do so were blocked by the management board.

Before his appointment for a four-year term at Tarom in 2012, Heinzmann had worked in the airline industry since 1998, mainly for small firms. Heinzmann’s highest position was president and CEO at the national carrier of Luxembourg from 2001 to 2006. After this, he worked for airlines in Albania and Bangladesh.

PwC, the consultancy firm that hired him, initially proposed Heinrich Vystoupil, the former head of Austrian Airlines' Romanian office, for the position. However, Vystoupil turned down the offer. PwC’s nomination might have been not the most appropriate; the manager’s hat might have been too large for Heinzmann.

During his four years at Tarom, he was often in conflict with the managing board, which has been replaced five times since his appointment. One year after his appointment, Heinzmann was nearly forced to resign by the head of the managing board – Dan Pascariu, a banker who gained his experience during the communist regime. The government stepped in and instead forced the management board to resign, but this did not help relations between Heinzmann and the board, which has constantly included managers with no experience in the airline industry.

The 2011 ordinance on private management of state-owned companies (OUG 109/2011) has yielded modest results. Of the 180 state-owned companies subject to the ordinance, only 35 have complied so far.  

The main criticism is that the hiring of managers and members of the management boards, though delegated to specialised firms, was still politically biased. A large number of managers recruited since the ordinance was issued were in fact leading members of the ruling parties – the left-wing Party of Social Democrats (PSD) and the centre-right National Liberal Party (PNL).

Some of the so-called private managers - those appointed on professional rather than political grounds - resigned following conflicts with the government. Others turned out to be the same “political managers” that previously headed state-owned enterprises - although they were selected by headhunting agencies after thorough and costly selection procedures.

“Emergency ordinance 109 [for the private management in state owned companies] is not working at Tarom, it is a mockery. You only wear the private manager’s hat, but you have no means [to manage],” Heinzmann told news.ro.

Tarom has been under constant political influence since the communist regime, when all those exposed to foreigners used to report to the intelligence services, the Securitate. The company has remained, like much of the Romanian economy, under the influence of former Securitate officers and their relatives. Changing the management of such a company requires significant resources.

Heinzmann’s case reveals the need for tougher instruments in introducing corporate management to Romanian state-owned enterprises.

Based on Heinzmann’s statements, which are in line with common knowledge about how a local state company works, his failure was caused by inherited contracts for labour, maintenance and supplies, by the politically-biased managing board and by the employees in the company. He also indicated that the transport ministry, which drafted the report on the company’s performance, was partly responsible.

By coincidence, the court-appointed manager at CE Hunedoara, a large mining and power group under insolvency, concluded one week ago that the imminent bankruptcy of the company was caused by all the stakeholders - management, employees, customers and suppliers - who acted as if the company was a charity. It is highly likely that a court-appointed manager at Tarom would have come to the same conclusions.

In January, the government announced plans to revive the private management programme. The government wants to add an informal instrument in the selection process and to introduce penalties for failure to meet the targets.

However, the programme clearly needs major improvements. It is unclear, judging from Tarom’s experience, if even a professional management has, under normal circumstances, the instruments to implement deep restructuring. It seems that it is much easier to introduce reforms of the magnitude needed at Romanian major state-owned companies under insolvency procedures, such as in the case of power company Hidroelectrica.