Keeping Garuda in the Skies

KOMPAS/AGUS SUSANTO

Wakil Menteri BUMN Kartika Wirjoatmodjo

JAKARTA, KOMPAS — The government and the management of state-owned PT Garuda Indonesia (Persero) Tbk are committed to saving the national flag carrier so that it can keep flying. A business plan has even been prepared in case the debt restructuring is successful.

On the other hand, a number of steps have prepared in the event that Garuda is suddenly declared bankrupt amid the process of postponing its debt repayment obligation (PKPU).

Deputy State-Owned Enterprises (BUMN) Minister Kartika Wirjoatmodjo said the PKPU is expected to commence in January 2022. The process is to take 270 days and is estimated to take shape in March or April 2022.

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He is optimistic that restructuring through the court had a 70 percent chance of resulting in homologation.

"It seems impossible that the creditors will want to declare it bankrupt. They will seek a solution to keep the business going. If it is declared bankrupt, they will most likely get a recovery rate, the debt repayment is only 3 percent, it could even be 0 percent. Furthermore, the priority will be paying tax debts and workers' wages," Kartika said in a Kompas interview early this month.

According to Kartika, Garuda has also submitted a debt restructuring proposal as well as a business plan to its creditors. With regard to aircraft leasing companies, the government and Garuda are trying to reduce the number of leased aircraft and reduce the tariffs to 40-50 percent of the current rates.

Continuing, Kartika said that for state-owned banks, Pertamina, Airnav and Gapura Angkasa, Garuda would offer zero-coupon bonds.

This means that Garuda's debt will be converted into bonds until the nominal value equals the value of its current debt.

KOMPAS/FERGANATA INDRA RIATMOKO

A Garuda Indonesia aircraft with flight number GA-6201 carrying pilgrims landed at Adisoemarmo Airport, Boyolali, Central Java, Sunday (18/8/2019).

For global sukuk holders, Angkasa Pura I and II, as well as private banks, the Garuda management planned to issue new low-coupon debt securities for about 20 percent of the total debt, with the rest to be converted into equity. Meanwhile, Garuda will maintain tax payables, employees and mandatory convertible bonds as full debt, with no write-offs or deductions.

"Through the restructuring, the target is to reduce Garuda's debt from US$9.75 billion to $3.68 billion," said Kartika.

Garuda Indonesia president director Irfan Setiaputra admitted that negotiations with creditors, especially lessors, were ongoing. The proposed restructuring plan had been submitted.

"We are still waiting for a reply from each creditor. This debt restructuring will take a long time because there are 800 creditors. The most complicated and difficult issue is dealing with the lessors,” said Irfan.

He also believed that Garuda would recover, and that the spirit during the many discussions showed this.

He added that the most important thing was to build good communication with creditors. He also believed that Garuda would recover, and that the spirit during the many discussions showed this.

Under the new business plan, Garuda would focus simply on being a commercial airline. No more renting aircraft.

"Garuda will ask for rent according to market prices. We are not asking for a massive reduction, so that all parties can benefit,” he said.

Post-restructuring

If the debt restructuring is successful, Garuda will need funding of between $700 million and $1.5 billion to implement its new business plan. Shareholders, including the government, are expected to raise funds.

BIRO PERS SEKRETARIAT PRESIDEN/LAILY RACHEV

President Joko Widodo arrived at Fiumicino Airport, Rome, Italy on Friday (29/10/2021) local time. The Garuda Indonesia plane with the code GIA-1 carrying President Jokowi and his entourage landed after traveling for about 13 hours.

Kartika admitted that he still did not know the amount of funds that the government would contribute.

The political process was certainly a challenge, but the SOEs Ministry was still seeking funds from the State Budget (APBN). One option was to obtain funding through the $527 million (Rp 7.5 trillion) Government Investment for National Economic Recovery (IP-PEN) program, of which only Rp 1 trillion had been disbursed.

"Of the total funds, $90 million will be used by Garuda for operational costs during the restructuring process. The goal is to convince creditors that the government is committed to keeping Garuda in business. Then the remaining $437 million will be sought after the restructuring is complete to support Garuda's future business,” said Kartika.

They were now in discussion with Emirates and Singapore Airlines.

However, if the government funds were insufficient, Kartika continued, the SOEs Ministry and Garuda would seek third-party funds or investors, even though this would mean diluting the government's shares ownership. They were now in discussion with Emirates and Singapore Airlines.

"We have opened up to them. If they want to invest in Garuda, we will welcome it," said Kartika.

Mufti Anam, a House of Representatives (DPR) Commission VI member from the PDI-P faction, believed that Garuda should be seen as not just a business entity, but also as part of the nation’s history. History must not record that Garuda went bankrupt and was “euthanized” under the current SOEs Ministry.

KOMPAS/FRANSISKUS PATI HERIN

The atmosphere in the cabin of a Garuda Indonesia plane that was flying from Ternate-Ambon in May 2019.

Meanwhile, aviation observer Gerry Soejatman said, “As for a bailout, I don't think the government wants this. The Finance Ministry seems to be avoiding a pure bailout, just giving out money. However, the lessors hope that Garuda will receive an injection of funds.”

In addition, Garuda needed to boost its cargo business, especially domestic cargo. Garuda also needed incentives and transactional support from the central government, even regional administrations. It was not always a matter of funding through the APBN, but also cooperation in aviation services. (HEN/OSA/RYO)

(This article was translated by Kurniawan Siswoko).