Garuda halves debt, believes profitability in sight
Indonesia’s national carrier Garuda Indonesia has halved its debt and achieved comparable cuts to aircraft leasing costs in negotiations with creditors, according to a stock exchange filing on June 28.
The company had also approached financial investors and foreign airlines to increase its capital, Kartika Wirjoatmojo, the country’s deputy minister of state-owned enterprises, said, noting that the positive outcome of the talks would position the airline to reach profitability.
Restructuring of the airline’s obligations, agreed on earlier in June, has come six months after an unpaid creditor forced it into proceedings for a court-supervised debt moratorium.
Obligations down to $5.1 billion
In negotiations supervised by the court and in out-of-court settlements, Garuda had halved its debt to $5.1 billion from $10.1 billion, Kartika said, adding that the airline has also renegotiated the terms of aircraft orders and leasing contracts.
Garuda, which is currently owned 60.54 per cent by the Indonesian government, was formerly paying “abnormally high” rents for aircraft, he noted, and in the course of restructuring was able to cut lease rates for wide-body aircraft by at least 65 per cent and for narrow-body aircraft by 35 per cent.
“Garuda was rarely profitable, because of its low fleet utilisation and high lease costs,” the deputy minister said, according to Reuters.
“With an efficient fleet, optimised domestic routes and reduced lease rates, Garuda can make a profit, we believe,” he added.
Positive operating income expected
Garuda Indonesia would still face challenges in managing costs amid soaring fuel prices, but the carrier eventually expects to turn its operating income into positive territory after reporting negative cashflow each month during the Covid-19 pandemic.
The airline will now to focus on serving domestic routes and maintaining only profitable international services. Including its low-cost unit Citilink, Garuda will operate just 120 aircraft, down from 210 in 2020.
The government has said it will top up Garuda’s capital through a rights issue later this year and that the company will later make a second rights issue for international airlines and financial investors.
Plans are to invite a potential strategic partner to invest in Garuda, given the considerable potential of the recovering domestic air travel market in a country of 274 million people living on around 6,000 inhabited islands.
[caption id="attachment_38573" align="alignleft" width="300"] Photo: Antara[/caption] Indonesia’s national carrier Garuda Indonesia has halved its debt and achieved comparable cuts to aircraft leasing costs in negotiations with creditors, according to a stock exchange filing on June 28. The company had also approached financial investors and foreign airlines to increase its capital, Kartika Wirjoatmojo, the country’s deputy minister of state-owned enterprises, said, noting that the positive outcome of the talks would position the airline to reach profitability. Restructuring of the airline’s obligations, agreed on earlier in June, has come six months after an unpaid creditor forced it into proceedings for a court-supervised...
Indonesia’s national carrier Garuda Indonesia has halved its debt and achieved comparable cuts to aircraft leasing costs in negotiations with creditors, according to a stock exchange filing on June 28.
The company had also approached financial investors and foreign airlines to increase its capital, Kartika Wirjoatmojo, the country’s deputy minister of state-owned enterprises, said, noting that the positive outcome of the talks would position the airline to reach profitability.
Restructuring of the airline’s obligations, agreed on earlier in June, has come six months after an unpaid creditor forced it into proceedings for a court-supervised debt moratorium.
Obligations down to $5.1 billion
In negotiations supervised by the court and in out-of-court settlements, Garuda had halved its debt to $5.1 billion from $10.1 billion, Kartika said, adding that the airline has also renegotiated the terms of aircraft orders and leasing contracts.
Garuda, which is currently owned 60.54 per cent by the Indonesian government, was formerly paying “abnormally high” rents for aircraft, he noted, and in the course of restructuring was able to cut lease rates for wide-body aircraft by at least 65 per cent and for narrow-body aircraft by 35 per cent.
“Garuda was rarely profitable, because of its low fleet utilisation and high lease costs,” the deputy minister said, according to Reuters.
“With an efficient fleet, optimised domestic routes and reduced lease rates, Garuda can make a profit, we believe,” he added.
Positive operating income expected
Garuda Indonesia would still face challenges in managing costs amid soaring fuel prices, but the carrier eventually expects to turn its operating income into positive territory after reporting negative cashflow each month during the Covid-19 pandemic.
The airline will now to focus on serving domestic routes and maintaining only profitable international services. Including its low-cost unit Citilink, Garuda will operate just 120 aircraft, down from 210 in 2020.
The government has said it will top up Garuda’s capital through a rights issue later this year and that the company will later make a second rights issue for international airlines and financial investors.
Plans are to invite a potential strategic partner to invest in Garuda, given the considerable potential of the recovering domestic air travel market in a country of 274 million people living on around 6,000 inhabited islands.
