At the end of last week, the national carrier Garuda Indonesia said it had once again to deferred payment of a $500 million sukuk (a sukuk is a bond that complies with Islamic rules and is interest-free). Garuda Indonesia explains that it is defaulting because it continues to be heavily affected by the coronavirus pandemic.
A third wave of coronavirus is affecting Indonesia. And it is proving to be more virulent than the two previous waves. Between 1 May and 22 June, the number of positive cases rose from 1.67 to 2.20 million while more than 10,000 additional deaths were recorded. Indonesia is currently the country most affected by Covid-19 in South-East Asia..
a difficult but inevitable stage
As a result, the finances of Indonesia's national carrier are still severely affected. " In these circumstances, and in order to ensure that the company emerges from the pandemic as a strong and healthy airline, the company has today reluctantly concluded that it must continue to defer payments." explains a press release.
Irfan Setiaputra, Chief Executive Officer of Garuda, said the decision to defer payments was "a major step forward. a difficult but inevitable stage "At the same time, the company is focusing on improving its performance. In the first nine months of 2020, the company posted losses of 1.1 billion dollars. It is estimated that the carrier's debt is now close to five billion dollars.. Each month, Garuda takes in an average of 69 million. The main reason for this is the rental of its equipment.
A future Garuda cut in half?
At its peak, the Indonesian carrier operated a fleet of 142 aircraft. At the beginning of the year, this figure had fallen to 124. But more than a hundred of these aircraft do not belong to Garuda, as they are leased.
In the context of the crisis, only 53 aircraft are currently in service. They serve some thirty domestic routes and a dozen cities abroad, of which Amsterdam in Europe.
The international network will be further reduced in July. According to Irfan Setiaputra, "it is impossible to be profitable under current conditions" . The airline is therefore considering suspending services to Melbourne, Perth and Osaka.. And to reduce frequencies to Amsterdam and Kuala Lumpur, Singapore and Sydney.
The company is therefore seeking to return its aircraft to its lessors in order to stem its losses. In an internal report, Garuda's management estimates that its future fleet requirements should not exceed 70 devices - half its pre-crisis size. If it continues to exist...
Garuda is now seeking a suspension of debt payments to creditors and lenders as part of a "standstill agreement" to avoid bankruptcy. The solution was openly mooted by the Indonesian government, which owns more than 60% in the company. But since then it has faced vehement opposition from parliament and local politicians.. The disappearance of Garuda would be a disaster for the egos (and often the wallets) of politicians.
