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Jakarta Post

Airline industry in dire need of stimulus package to withstand crisis

  • Riza Roidila Mufti

    The Jakarta Post

Jakarta   /   Thu, May 14, 2020   /   04:37 pm
Airline industry in dire need of stimulus package to withstand crisis AirAsia's Belitung livery. (AirAsia/File)

The country’s airlines are in dire need of financial stimulus to withstand the COVID-19-induced crisis, amid a sharp revenue decline and looming deadlines for short-term liabilities, the Indonesian National Air Carrier Association (INACA) has said.

The comments came as flag carrier Garuda Indonesia was in discussion to receive a state capital injection of Rp 8.5 trillion as a derivative of the latest issuance of Government Regulation No. 23/2020 on the national economic recovery program.

With the current situation, the INACA has called on the government to provide financial stimulus for the ailing airlines in the form of credit relaxation and soft loans.

“Airlines need stimulus to get fresh working capital to resume operation after two months of halted operation, and also to help them pay their restructured debts,” INACA chairman Denon Prawiraatmadja told The Jakarta Post on Tuesday.

Garuda grappled with US$3.25 billion in short-term liabilities, including $498.9 million in sukuk (Islamic bonds) due to be paid on June 3 this year, according to its 2019 financial report.

However, with decimated passenger numbers and grounded fleets, other airlines are grappling with debts and obligations to fleet lessors. Publicly listed no-frills airline AirAsia Indonesia, for example, recorded Rp 2.1 trillion (US$140.6 million) in short-term liabilities as of Sept. 30 last year, including Rp 42.7 billion due within a year, according to its financial report.

Currently, airlines are still burdened with costs such as parking fees for their grounded aircraft, maintenance costs, pilot license fees, and many other costs, Denon added.

While airlines have taken measures such as renegotiating costs with lessors and third parties, cutting operational costs, as well as furloughing employees, financial relief is still deemed essential for recovery, according to the INACA.

“If in May the stimulus is still not available, the impact will be disastrous, it will be more difficult to pick up the market,” he said, adding that the airlines also needed capital support during market pickup post-pandemic.

Data from the INACA show that passenger traffic dropped 8.23 percent year-on-year (yoy) between January and March to 25.5 million people, and the figures for April and May are expected to show an even further decline, as the government has banned people taking part in the Idul Fitri mudik (exodus).

The International Air Transport Association (IATA) previously identified Indonesia as one of the priority countries at risk as the industry worsens during the pandemic.

Conrad Clifford, the IATA's regional vice president for Asia Pacific, said airlines in the region were facing a liquidity crisis and called for governments to provide direct financial support, loans, loan guarantees and tax relief, among other things.

“We have seen the first airline casualty in the region. There will be more casualties if governments do not step in urgently to ensure airlines have sufficient cash flow to tide them over this period,” Conrad said in an April 24 statement.

Clifford was referring to Virgin Australia, which collapsed into voluntary administration in April.

The IATA estimated a 49 percent passenger drop and an $8.2 billion drop in revenue impact in Indonesia this year, compared to last year.

Garuda rescue plan

Flag carrier Garuda Indonesia may be the first to receive a rescue package from the government.

However, the state injection plan is pending the approval of a Cabinet meeting, according to Febrio Kacaribu, the head of the Finance Ministry’s fiscal policy agency.

Garuda president director Irfan Setiaputra confirmed that the decision was still being discussed and was not yet finalized.

“[The points that we are discussing] include Garuda’s liabilities and what Garuda needs. These are just plans, we have not yet reached a deal,” said Irfan on Tuesday. 

Garuda is slated to conduct a negotiation with its sukuk holders next week, as part of its strategy to buffer the financial hit.

Other airlines are still struggling

AirAsia Indonesia, meanwhile, is still taking measures to stay afloat during the pandemic, including by renegotiating aircraft leasing payments and other obligations with the airline’s partners to reduce the burden, as well as cutting employee salaries.

The COVID-19 pandemic is “significantly affecting the company’s finances”, according to the company’s April 21 statement.

“In principle, we renegotiate the payment terms and cost elements as much as we can,” said president director Veranita Yosephine Sinaga at the latest press conference on May 4.

AirAsia still had to pay sizeable aircraft leasing costs, Veranita added. It has also called for the government to provide them with taxation relief.

The country’s biggest airline Lion Air Group spokesperson Danang Mandala on Wednesday refused to provide any comment regarding the company's financial condition.

Aviation observer Gerry Soejatman said it would be fair to give credit facility and tax relief to airline industry players in general, instead of just one player.

 

--Mardika Parama and Adrian Wail Akhlas contributed to this story