Garuda in Between Life and Death
Hit by the pandemic and mounting debts, Garuda Indonesia is struggling to stay afloat and is reviewing its future business schemes while anticipating the recovery of the aviation industry.
/https%3A%2F%2Fkompas.id%2Fwp-content%2Fuploads%2F2018%2F01%2Fkompas_tark_14975281_141_1.jpeg){kind=logo}
Garuda planes are parked at Soekarno Hatta Airport, Tangerang, Banten, Tuesday (23/6/2015).
JAKARTA, KOMPAS — For almost two years, the Covid-19 pandemic has hit the global aviation industry, including in Indonesia. When the industry was about to recover, Omicron, the new variant of Covid-19, emerged to shake up the market.
Because of the severe impacts of the pandemic and the company’s difficulties to repay its debts, state-owned airline Garuda Indonesia has been struggling to stay afloat.
Garuda’s president director, Irfan Setiautera, acknowledged that the aviation industry, which relied on people’s mobility, had been severely hit by the pandemic.
As a result, the number of airline passengers around the world, including in Indonesia, has dropped drastically by 90 percent. Garuda is among the airlines that have been hard hit by the pandemic. In 2020, the number of passengers began to improve and by the end of 2020, Garuda’s passenger numbers had increased by 50 percent thanks to its safe and comfortable flight campaign in addition to its strict implementation of health protocols.
However, Garuda’s business plunged again 3 July 2021 when global travel restrictions were reimposed following the spread of the Delta variant of the coronavirus. The aviation business began to show signs of recovery again during September and October 2021.
Also read:
> Not The First Time Garuda Is Bankrupt
"In November 2021, the industry began to see a sharp increase in the number of passengers. We hope in December the number will further increase. The number of passengers is still around 30 percent of the level in normal conditions, but, once again, the pandemic continues to hamper the business," said Irfan in a special interview with Kompas in early December.
Before the pandemic, Garuda flew between 15 million and 19 million domestic passengers per year. The number dropped to 4.5 million passengers in 2020. The seat occupancy rate of domestic airlines, which reached above 70 percent before the pandemic, fell to 43.3 percent in 2020. In fact, domestic passengers accounted for between 80 and 85 percent of the total Garuda passengers.
According to Irfan, it was not easy for Garuda to cope with the situation, given its high operational costs and mounting debts. Yet at the same time, there is a long history behind the airline and great public expectations.
President Director of PT Garuda Indonesia Irfan Setiaputra
Garuda is not alone. In 2020, as many as 43 airlines with at least 485 aircraft stopped their operations. "Without government intervention, many airlines will go bankrupt," said Brendan Sobie, analyst at Sobie Aviation.
Garuda is among the airlines which are able to stay afloat. "God willing, it will be able to survive. We still have to undergo debt restructuring and to reduce operating costs. While doing that, we are reviewing the future business scheme and anticipating the recovery of the aviation industry," said Irfan.
Transportation Minister Budi Karya Sumadi also hoped that Garuda would be able to survive. "We want Garuda to continue to exist. [Garuda is] is a flag carrier and we are proud of it," he said.
The minister said that he had also heard there was good news from the restructuring of Garuda’s debts. Another source of good news, according to the minister, was that demand for air travel in Indonesia was estimated to return to the normal level before the crisis in mid-2022.
Also read:
> Choosing Garuda Indonesia’s Fate
Once demand soars, the minister hoped that Garuda and other airlines in Indonesia could find a way to increase their seat capacity. Indonesian airlines should be able to take advantage of the rise in demand as no foreign airlines had so far expressed their interest in flying in Indonesia.
“The global aviation industry is also contracting deeply. Airlines in Malaysia, Thailand and Singapore are also experiencing difficulty,” the minister said.
According to the State-Owned Enterprises (SOEs) Ministry, Garuda Indonesia has been technically bankrupt because of its difficulty to repay its debts which reached US$9.756 billion (around Rp 140 trillion). Of the total amount, US$6.351 billion comprising debts to leasing companies.
Aircraft leasing agreements were signed during the 2012-2014 period with tenors of between eight to 12 years. Garuda’s aircraft leasing cost reached 24.7 percent or four times that of other airlines in the world.
The huge debts have also affected Garuda's equity position. As of September 2021, Garuda's equity was negative $2.8 billion, with additional negative equity each month reaching between $110 million and $150 million.
Meanwhile, with an income of $50 million per month and operating costs of about $150 million, Garuda suffers a financial loss of $100 million a month. From January to September 2021, Garuda's total revenue reached $568 million, far lower than its total operating costs of $ 1.29 billion in the same period.
Efficiency efforts
To cut operational costs, Garuda Indonesia has returned a number of leased aircraft and negotiated aircraft rental costs, which has enabled the airline to save $200 million. The airline has also reduced flight routes and the number and types of aircraft to further cut operating costs.
The Garuda Group targets the number of aircraft operated by Garuda and its sister company Citilink aircraft to decrease from 202 aircraft in 2021 to 134 aircraft in 2022. Meanwhile, the types of aircraft will be reduced from 13 types to 7 types. Garuda and Citilink flight routes will also be reduced from 237 routes in 2019 to 140 routes in 2022.
Garuda has also reduced the number of employees by about 2,000 people by offering an early retirement package. Garuda has also cut the salaries of employees, including directors and commissioners. "The salaries of those who earn more than Rp 27 million per month will be cut 50 percent. While the salaries of those who earn less than Rp 27 million will be cut by 30 percent," said Irfan.
Also read:
Garuda is also trying to increase the contribution of cargo revenues by 40 percent at least until the pandemic is over. In previous normal conditions, the contribution of cargo to Garuda's revenue was between 10 percent and 15 percent.
As of 19 August 2021, for example, Garuda's cargo revenue reached $90.9 million. The figure increased from $61.3 million in the third quarter of 2020.
Deputy SOEs Minister, Kartika Wirjoatmodjo, said the efficiency measures taken by Garuda could cut operational costs from an average of $150 million per month to about $80 million per month. However, the amount was still too low given its large operating costs.
Like it or not, the airline’s debts must still be further restructured, either through court or non-judicial methods. The government is committed to overseeing the debt restructuring while continuing to encourage the improvement of Garuda's business. (HEN/OSA/MHD/RYO)
This article was translated by Hendarsyah Tarmizi.
