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Garuda faces bankruptcy, weighs options
Garuda Indonesia is mulling over ways to extricate itself from a debt crisis, and one of the favored options involves creating a new national flag carrier.
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Heavy clouds: A Garuda Indonesia Boeing 777-300 ER plane arrives at the Garuda Maintenance Facility of Soekarno Hatta International Airport in Banten on June 19, 2015. The national flag carrier is facing an existential threat as debt has piled up in the wake of the COVID-19 pandemic. (JP/Jerry Adiguna)
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ational flag carrier Garuda Indonesia is leaning toward two options to extricate itself from a debt crisis without placing additional burden on government finances.
Garuda president director Irfan Setiaputra said the airline's board was considering four major options in negotiations with creditors but was learning to the second or third. The first option — a loan or capital injection from the government — was not preferred as it would weigh on the state budget.
The second option would involve a debt postponement petition (PKPU) to restructure Garuda’s liabilities, such as debt, owed lease and owed salaries. Should Garuda choose that path, it would have 270 days under the Bankruptcy Law to reach agreements with lenders and lessors. Failing to do so, Garuda would automatically be declared bankrupt.
The third would require the government to establish a new national flag carrier, while Garuda would be left to restructure its debt. The fourth option would be to liquidate Garuda without replacing it, rendering its market share to be taken over by private carriers.
“What are options two and three? Restructuring. It is impossible for the government to be the one bearing all these debts,” Irfan told lawmakers during a meeting at the House of Representatives on Tuesday to explain why the board disliked the first option.
On top of that, Garuda is keen on a fifth option but was hesitant to include it in its proposal to lenders, as that option would require approval from shareholders. It would see Garuda’s lenders convert their debt into equity, which means existing shareholders’ stakes would be diluted.
The government holds a stake of just over 60 percent in Garuda, and CT Corp holds a little more than 28 percent.
