The government has been considering several options for the publicly listed company, including a loan or declaration of bankruptcy, which would allow for restructuring of the carrier’s liabilities, liquidating the company and possibly establishing a new national flag carrier.

Jakarta-based aviation consultant Gerry Soejatman said Wednesday Garuda would need restructuring not only for its leasing agreements but also for its fleet and human resources to lower the company’s potential need for yet another bailout, regardless of any government measures.

“Whether the company gets bailed out [or not], it still needs restructuring, otherwise the bailout will remain huge,” Gerry told The Jakarta Post in a phone interview.

With the COVID-19 pandemic battering the transportation sector particularly hard, Garuda has been operating at a loss, with more than 70 percent of its fleet grounded. Only 41 of its aircraft are in operation, since it cannot fly the other ones after failing to pay the lease, president director Irfan Saputra said on May 19 in an address to the carrier’s employees, a recording of which was leaked to media.

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The company’s debt totals Rp 70 trillion (US$4.89 billion) and has been rising by around Rp 1 trillion per month lately, with negative equity standing at Rp 41 trillion.

Garuda’s revenue for May was estimated last month to reach $56 million, far below the $98 million in total bills for aircraft lease, aircraft maintenance, fuel and employee expenses.

Gerry said the $56 million for aircraft lease was the estimated amount after some $15 million in cuts achieved through negotiations with lessors so far.

The government set aside a total of Rp 8.5 trillion to bail out Garuda through a mandatory convertible bond (MCB) scheme in July last year but the company has reportedly only received Rp 1 trillion so far.

Aviation analyst Arista Atmadjati suggested that the government allocate no less than Rp 20 trillion to provide greater support for the flag carrier. He based the figure on the state capital injection for state-owned insurer PT Jiwasraya. Under a best-case scenario, the government could provide as much as Rp 100 trillion to help Garuda solve its debt problem.

But since the government appeared wary of too large a bailout for Garuda, Arista said the government could disburse the remaining Rp 7.5 trillion bailout first and give the company between one and two years to make progress, in line with the expected recovery in the industry starting from July next year.

“Rp 8.5 trillion should be for operations with 41 aircraft,” Arista told the Post in a phone interview. “In the meantime, negotiations or mediation related to the aircraft leasing payments would take place.”

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Garuda has offered its employees an early retirement option to reduce the company’s operational expenses as it plans to halve its fleet to no more than 70 aircraft.

State-owned Enterprises Minister Erick Thohir told media Wednesday that the government planned to slash its board of commissioners to two members, while maintaining the 1,300 pilots and cabin crew. He also suggested the national flag carrier shift its focus to domestic routes.

Arista concurred, saying the international routes had contributed to Garuda’s losses, with only a few of those routes being profitable, such as flights to Japan and flights to Saudi Arabia serving umrah (minor haj) pilgrims.

“The international routes are Garuda’s weakness,” said Arista. “The [routes] to Manila, Saigon and Mumbai were closed, as they caused losses.”

Garuda could be pushed out of business abruptly should the restructuring program fail, the aircraft lessors decide to ground the entire fleet or the company falls into a “difficult legal position” if the companies to which Garuda had failed to pay its obligations wanted the national flag carrier declared bankrupt, said Irfan.

“I would like to ask media partners to understand that I cannot give any further response to the opinion that has been circulating to prevent the emergence of a new [heated public debate],” Irfan told media in a text message on Thursday. “Garuda management wants to focus [its] efforts on restoring its performance and various strategic programs at the moment.”