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Reset Garuda Indonesia through Citilink: A lesson from Europe
As Garuda’s subsidiary, Citilink is experienced in operating jet aircraft, namely the Airbus A320 fleet. The company’s airport slots in several ASEAN countries would be of tremendous additional value.
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A possible way out: A Citilink aircraft taxies on the runway. (Courtesy of Citilink's LinkedIn page) (LinkedIn/Courtesy of Citilink)
T
he “perfect storm” affecting Garuda Indonesia is not over yet. The toxic combination of a historically heavy overhead and high fleet lease charges, intense domestic and international competition and the current COVID-19 pandemic is a bridge too far for the company.
The situation seems to get bleaker over time. The latest Garuda Indonesia situation, in which it holds a temporary suspension of debt payment (PKPU), has led to an arduous contract renegotiation process with foreign lessors. The current status quo will not change without substantial restructuring and negotiations.
A pivotal step is needed to raise Garuda Indonesia back from the ashes, which at this point seems to be unavoidable.
Garuda Indonesia is currently boosting up its cargo operations. Similar efforts include cooperating with logistic businesses such as KirimAja and PesanAja. Many airlines around the globe have also implemented such a strategy to survive. At the very least, it keeps the business afloat and generates revenues and cash. However, this is not sufficient to cover the costs. Considering that most leased aircraft are bound to the “hell or high water” clause, the latter is essential. Rental fees still must be paid no matter what.
The company needs a reset more than just a quick and temporary fix. One of the choices is relaying the baton of the national carrier to a standby company option. Pelita Air Service, state-owned Pertamina’s charter airline company with more than 40 years of experience, has been set as a standby airline to replace Garuda. However, the airline's nature – which is performing non-scheduled flights with a fleet consisting of ATR propeller series and helicopters – does not seem adequate to replace Garuda Indonesia in its entirety.
Citilink appears to be the most realistic option for the flag carrier replacement, way better than the Pelita Air Service option. As Garuda’s subsidiary, it is experienced in operating jet aircraft, namely the Airbus A320 fleet. Citilink's airport slots in several ASEAN countries would be of tremendous additional value.
Furthermore, Indonesian law stipulates that if a company is declared bankrupt, its subsidiaries will not automatically be declared bankrupt as well. Citilink holds the necessary assets and operating licenses and might become the key to determining Garuda Indonesia's restructuring process.
