Not The First Time Garuda Is Bankrupt
It is difficult to set up another flight as a replacement. Garuda's wealth is still the highest among other airlines in Indonesia, in terms of human resources, infrastructure and market share.
Heryunanto
Throughout its history, Garuda Indonesia has been declared bankrupt at least three times. The first in 1968, the second in 1998 and the third in 2021.
In early 1968, Garuda Indonesia Airways was faced with various problems, especially financial problems, which made the company categorized as bankrupt. The government then summoned Wiweko Soepono, who had run a commercial airline business in Myanmar to fix and improve Garuda Indonesia.
When he was offered the job, Wiweko did not immediately accept it. He asked for a week to study it and a week later Wiweko went to President Soeharto, stating his ability on two conditions. First, Wiweko asked that he be given the freedom to fix the company, which was in a worrying condition, without interference from any party. Second, he asked to be given direct access to report his progress to the President.
The two requests were immediately approved by the President and, instantly, the President also gave instructions regarding three things: (1) improvements should prioritize domestic flights; (2) if necessary, foreign flights can be stopped; (3) the company must be able to be self-funded. Based on the President's directive, without delaying time, Wiweko immediately stepped on the gas pedal to fix the problems that entangled Garuda.
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The first step was to evaluate the organization. The number of employees at 6,000 was considered too many, and not in accordance with the output being achieved, so he cut it in half to only 3,000 people. This reduction in employees was in line with the organization's streamlining program to make it simpler, faster in making decisions, or what was called the single management approach.
With this leadership pattern, Wiweko served as the president director of Garuda for 16 years, from February 1968 to November 1984. At the end of his tenure, he left a legacy of 79 jets, consisting of four Boeing B-747, six Douglas DC- 10, nine Airbus A-300, 29 Douglas DC-9 and 36 Fokker F-28.
In 1998, Garuda was again hit by severe financial problems. This time, it was Robby Djohan who the President tasked with fixing it, through State-Owned Enterprises Minister Tanri Abeng. Like Wiweko, at first Robby was reluctant to become a “captain” at Garuda, not only because he felt old, but also because he “didn't understand” about aviation, he said. However, he finally accepted the task and his first response -- at that time -- was to privatize it, because the government had no money to continue to fund it. However, Garuda's book value at that time was probably only US$1.
Technically, Garuda had gone bankrupt. The negative net worth was beyond help. Its obligations swelled at a terrifying rate. The bottom line was already bleeding.
What did you want to sell? Therefore, Garuda had to be restructured first. In fact, technically, Garuda had gone bankrupt. The negative net worth was beyond help. Its obligations swelled at a terrifying rate. The bottom line was already bleeding.
However, with his casual style, Robby then created various solutions and brought a breath of fresh air to employees, to industry and to the tourist community. His solutions included staff reduction with the golden handshake pattern, route restructuring, fleet restructuring, organizational restructuring to be leaner and financial restructuring. Robby led Garuda for a very short time, only six months, but he brought about a significant change, namely its financial performance started to improve.
Strong leadership
Looking at the two financial situations in which the company was declared bankrupt and then was able to turn around, there were several similarities in the way both leaders handled it, which ended successfully, namely that the two “captains” of Garuda were figures with strong leadership.
Now at the end of 2021, Garuda has collapsed again. Deputy SOEs Minister Kartiko Wirjoatmodjo, said that technically Garuda was already bankrupt. Unmitigated, its condition is even worse than Jiwasraya. The September 2021 financial balance has a deficit of US$2.8 billion. The debt position is US$9.8 billion. Most of the debt owed to lessors for arrears in aircraft lease payments is US$6.3 billion.
Unlike previously, currently the problems faced by Garuda, apart from the previous reckless management of the company -- which resulted in inefficiency and inappropriate business plans resulting in oversupply -- are also exacerbated by the COVID-19 pandemic that has hit the world. This global pandemic has resulted in a drastic drop in the number of passengers, so airlines have had to reduce, or even stop, many flights. That's the situation now, it's like falling down and gets hit by the ladder.
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> Choosing Garuda Indonesia’s Fate
Facing the current situation, we can learn from success stories of the strategies taken in 1968 and 1998, plus some adjustments to the current situation and conditions. The important lesson to be learned is that Garuda must be led by someone who has strong leadership who is firm, intelligent, responsive and has the courage to be unpopular.
The Board of Directors must be able to control toxic employees, both the deadwood and the “powerful” group. The danger of this “power” group is that it always demands its rights regardless of the company's condition. They are very selfish, because it creates disharmony in the employee environment, so as a result it has a bad impact on the company's performance.
The main task of Garuda's current board of directors, apart from conducting financial restructuring by lobbying and negotiating with creditors, lessors or vendors, is to create solid, harmonious and productive teamwork. All employees must have a sense of crisis, all units must share the pain. No one feels more important. The Board of Directors must be straightforward in negotiating with the employees and what must be won is the interests of the company. After that there are no more compromises.
Didie SW
Rescue efforts
The current state of Garuda is not much different from the situation during the 1998 monetary crisis. Learning from Robby’s restructuring style, several lessons can be learned according to current conditions. Garuda's biggest burden is from aircraft rental arrears of US$6.3 billion (equivalent to Rp 90 trillion). This figure is the first to be reduced by the board of directors. Yes, the board of directors, because as a corporation, this is the task of the board of directors. It's not the shareholder's job. It is better for shareholders not to enter into a technical strategy, just provide support, guarantees and opportunities for the board of directors to take steps forward.
Ideally, the first thing to do is to restructure the routes and fleets. Both must be done simultaneously, cannot be separated. In the end, the plan is to return several aircraft that are not feasible with the market conditions and Garuda's capabilities. Garuda must be able to convince the lessor. It should be possible, because this situation is not only being experienced by Garuda, but all global airlines and lessors must look at the long term. Their interests will be resolved if they support the Garuda program.
They will also lose if Garuda is declared bankrupt. Let's see which routes are good to keep. First, the Middle East route, especially Jakarta-Jeddah. The direct flight route from Jakarta to Jeddah is only served by Garuda and Saudi Airlines. The seat occupancy for this flight is above 70 percent on average. Interestingly, the passengers on this route are generally umrah pilgrims and they buy umrah package products so that the price of the umrah package includes hotel prices, land transportation arrangements and of course the price of airline tickets.
If from this figure Garuda gets only 30 percent, which is about 36,000 pilgrims per year or 4,500 pilgrims per month and 150 pilgrims per day, that is more than enough.
The inclusion of ticket prices in umrah packages provides room for price, where airlines can provide good prices as long as the gap is not too far from competitors. The selling price of the package is competitive. This market segment is very large. The number of Indonesian umrah pilgrims in the last five years has continued to increase. According to the Religious Affairs Ministry, in 2014-2015 it reached 649,000 people, in 2015-2016 it increased to 677,509 and rose again in 2016-2017 to 876,246 and in 2017-2018 it reached 1,005,336, although then it decreased slightly in 2018-2019 to 974,650.
When referring to the achievement of the number of pilgrims in 2018-2019, the average umrah congregation from Indonesia per month is around 122,000 people. The umrah period lasts eight months each year. This means that the average number of umrah pilgrims per day is around 4,000. This is no small number, the equivalent of 10-13 flights per day. If from this figure Garuda gets only 30 percent, which is about 36,000 pilgrims per year or 4,500 pilgrims per month and 150 pilgrims per day, that is more than enough.
The aircraft choice for this route is the Boeing 777-ER300 with a capacity of 314 seats. This number of seats can be increased if reconfiguration is carried out by removing first class and adding economy class, up to 400 seats are available.
Other long-distance flight routes that can be maintained are to Japan, South Korea, China and Australia. The route to Japan, to Tokyo, is Garuda's golden route. In addition to passengers consisting of businessmen and tourists, cargo transportation is also high. For this route, we recommend using the Boeing 777-ER300 fleet.
Didie SW
Business class and economy class seat configurations are in great demand. The best route is Jakarta-Denpasar-Tokyo. Apart from Tokyo, Japan has other destinations that have a lot of demand, such as to/from Osaka or Nagoya. However, for the time being, it is best not to fly this route, just wait until the pandemic situation really subsides and the economy recovers, Garuda recovers.
The routes to South Korea, China and Australia are actually still very difficult in the current situation where tourist destinations, both in Indonesia and in those countries, still have many restrictions. The market segments for routes to these three countries are mostly tourists. Australian tourists, especially from Sydney and Perth, love to come to Bali. Likewise from Seoul, South Korea.
For the China route, Garuda needs to pay special attention. It would be even better if within Garuda's organizational structure there is a special section dealing with the Chinese market, as there is a special organization that handles the current umrah market. The Chinese market is very large and China has made Indonesia the third tourist destination after Thailand and Japan. In 2019, no less than 3 million tourists from China visited Indonesia, especially Bali. They came from several cities, such as Shanghai, Beijing, Guangzhou, Shenzhen, Hangzhou, Chengdu, Hong Kong, Nanjing, Xi'an and Tianjin.
There are many opportunities to restore Garuda, because apart from historical value.
Seeing this great potential, Garuda does not have to carry out regular flights, but can use a charter plane pattern and dedicate several planes to work on this market.
Another foreign route that must be maintained is the regional route, Jakarta-Singapore. Apart from the above routes, it is not a priority to fly, it should be stopped until Garuda's financial health condition recovers and Garuda focuses on domestic flights.
For domestic routes, Garuda must stop using the Bombardier CRJ1000 aircraft, which are inefficient and unattractive to the market. Then hand over the ATR plane to Citilink.
From the analysis above, the company should reduce the fleet. The first priority to be removed from Garuda's fleet was 18 Bombardier CRJ1000 aircraft, then some wide body aircraft such as the Boeing 777-300, Airbus 330 and some narrow body aircraft such as the Boeing 737-300 should be returned to the lessor. The ATR aircraft were handed over to Citilink. Thus, Garuda's fleet is getting smaller and only has two manufacturers, Boeing and Airbus, to be more efficient and effective.
After reducing routes and fleets, the next step is human resource reduction. The consequence of reducing production equipment is reducing production operators, air crews and ground crews. Other efficiency measures include streamlining the organization, reducing meal on board and optimizing IT.
Yona Mardiona
The government as the shareholder is expected to make various regulations that can support Garuda's performance. Starting from air agreements with other countries that can provide a strong role for Garuda, aircraft spare parts tax exemptions, aviation fuel price discounts, route charge discounts, to tourism marketing programs. In order to recover the tourism sector, the Visit Indonesia program can be made. There are many opportunities to restore Garuda, because apart from historical value, Garuda's economic value is still good. It is difficult to set up another flight as a replacement. Garuda's wealth is still the highest among other airlines in Indonesia, in terms of human resources, infrastructure and market share.
Yona Mardiona, Practitioner and Observer on Aviation and Tourism Management
This article was translated by Kurniawan Siswoko
