S

tate-owned flag carrier Garuda Indonesia obtained shareholder approval on Friday to spend the remaining proceeds of last year’s initial public offering (IPO) to finance the purchase of up to 97 new planes.

The company had planned to use funds from the IPO to finance 36 planes — consisting of 10 Boeing 737-800NGs, 10 Boeing 777-300 ERs, six Airbus 330-200s, five narrow-body planes for Garuda’s low-cost branch Citilink and five sub-100 seat jets.

However, under new fleet development plans approved by shareholders, Garuda is planning to spend the funds on 20 Boeing 737-800NGs, 10 Boeing 777-300 ERs, 21 Airbus 330-200s, 25 narrow-body planes and 18 sub-100 seat jets.

The company will use a payment scheme of 24 monthly installments before taking delivery of the new planes, which will bring the company’s fleet to 194 in 2015.

“We initially planned to use IPO funds to finance the purchase of several planes until their delivery in 2014. Now, we will spend all remaining IPO funds this year to finance the down payments and installments on more new planes,” Garuda finance director Elisa Lumbantoruan said after the shareholders meeting.

Elisa said that the new fleet-development plan was part of Garuda’s austerity measures.

“If we didn’t use IPO funds, we would only put them on deposit while looking for other financing to buy planes, which were not included in previous IPO funds plans. We would be burdened by interest payments higher than we would gain from our deposits,” Elisa said.

Garuda earned about Rp 3 trillion (US$333 million) during its IPO last year. According to its business plan, Garuda will use 80 percent of the IPO funds to buy new planes and the remaining 20 percent on capital expenditure.

Garuda’s president director Emirsyah Satar said that his company’s unrealized IPO funds currently stood at Rp 1.78 trillion.

“We still have Rp 1.39 trillion to develop our fleet,” Emirsyah said.

Garuda will use the funds to pay this year’s down payments and security deposits amounting to $430 million for the new planes, according to Elisa.

“The remaining payments will be supported from our operational free cash flow, expected to reach Rp 2.7 trillion this year. We will look for bank loans to provide the remaining funds,” Elisa said.

He added that Garuda had already obtained principal approval from commissioners to seek loans of up to $200 million this year. However, Garuda is expecting that a new flight booking system will help the company to secure higher free cash flow, which will reduce the amount needing to be borrowed.

“We estimate additional cash flow of Rp 500 billion to Rp 1 trillion,” Elisa said. He added that additional free cash flow would be supported by changes in flight-booking culture.

“At this moment, most people book flights seven days before departure. If we can encourage them to book flights three or six months before departure, we will secure more funds. How much we obtain will determine whether we will have to look for the maximum $200 million in loans,” he said.

Elisa also confirmed on Friday that the company was in negotiations with Canadian plane maker Bombardier for the purchase of sub-100 seat jets.

“However, these are negotiations. There is no guarantee that we can come to an agreement. There may be no deal achieved,” Elisa said.

He said that Garuda needed longer to decide whether to purchase the sub-100 seat jet from Bombardier or Embraer as the company had little experience in handling such planes. “We are experienced in purchasing Airbus or Boeing,” he said.. (rcf)