The proposal was submitted to the Financial Service Authority (OJK), the Indonesian Stock Exchange (IDX) and the Singapore Stock Exchange (SSE) on Tuesday.

The airline will formally ask for approval from bondholders to extend the Islamic bonds during their meeting, which will be held at the end of the grace period on June 10.

“The COVID-19 outbreak has had a significant impact on the airline’s financial performance. However, we are optimistic that we will be able to pull through this difficult situation and adapt to a new normal,” Garuda president director Irfan Setiaputra said in a statement on Tuesday.

With the extension, Garuda will be able to strengthen its liquidity and improve its overall financial performance, he said.

Garuda Indonesia booked $3.25 billion in short-term liabilities last year, including $498.9 million in sukuk bonds, according to its 2019 financial report. Flight disruptions caused by emergency measures to curb the spread of COVID-19 have dealt a major blow to the country’s airlines, including Garuda.

According to a letter available on the IDX website signed by Garuda finance director Fuad Rizal, Garuda’s flight traffic dropped by 83 percent year-on-year (yoy) in April as the government banned flights between major cities in the country.

The number of passengers decreased by 45 percent in the January to April 30 period, compared to the same months last year. Travel restrictions imposed by several countries also led to a 95 percent decline in international flights.

“Flight disruptions have impacted the company’s financial condition, with operating revenue decreasing by 89 percent in April compared to that in the same month in 2019. The outbreak has also led to negative cash flows as a result of a 47 percent increase in the company’s trade payable arrears — or $236 million — during the first quarter, from the last quarter of 2019,” the statement read.

To cope with the difficult situation, Garuda Indonesia will receive a capital injection of Rp 8.5 trillion from the government.

Analyst and the head of research of MNC Sekuritas, Edwin Sebayang said Garuda’s request for an extension was necessary and inevitable. However, the decision may also lead to a downgrade in the company’s credit rating.

Going forward, Edwin said Garuda must be very careful in maintaining its cash flow and had to apply strict cost efficiency measures for the next two years. Edwin estimates that in the next two years, the aviation industry would face a tough recovery as passenger demand would slowly return to normal and a decline in revenue would likely continue.

“Thus, Garuda must implement cost efficiency measures because it also has more debts, either from bank loans or from other bonds,” he said on Tuesday.

Edwin said that in the future, Garuda must only focus on profitable routes within the country and across Asia instead of insisting on operating long-haul but unprofitable flights such as Jakarta-Amsterdam or Jakarta-London.

“Garuda must change the way it does business. It must put aside its pride and focus on routes that can turn a profit and avoid those that would only incur losses,” he said.

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