Facing bankruptcy, Garuda weighs options

JAKARTA (The Jakarta Post/ANN): National flag carrier Garuda Indonesia is leaning toward two options to extricate itself from a debt crisis without placing additional burden on government finances.

Garuda president director Irfan Setiaputra said the airline's board was considering four major options in negotiations with creditors but was learning to the second or third.

The first option — a loan or capital injection from the government — was not preferred as it would weigh on the state budget. The second option would involve a debt postponement petition (​PKPU) to restructure Garuda’s liabilities, such as debt, owed lease and owed salaries.

Should Garuda choose that path, it would have 270 days under the Bankruptcy Law to reach agreements with lenders and lessors. Failing to do so, Garuda would automatically be declared bankrupt.

The third would require the government to establish a new national flag carrier, while Garuda would be left to restructure its debt.

The fourth option would be to liquidate Garuda without replacing it, rendering its market share to be taken over by private carriers.

“What are options two and three? Restructuring. It is impossible for the government to be the one bearing all these debts, ” Irfan told lawmakers during a meeting at the House of Representatives on Tuesday (June 22) to explain why the board disliked the first option.

On top of that, Garuda is keen on a fifth option but was hesitant to include it in its proposal to lenders, as that option would require approval from shareholders. It would see Garuda’s lenders convert their debt into equity, which means existing shareholders’ stakes would be diluted.

The government holds a stake of just over 60 per cent in Garuda, and CT Corp holds a little more than 28 per cent.

Garuda is devising its restructuring plan while its financial condition continues to worsen. The State-Owned Enterprises (SOEs) Ministry estimates the carrier’s debt at more than US$4.5 billion and monthly losses at more than $100 million.

Garuda’s third-quarter 2020 financial report showed $1.07 billion in net losses, a figure that was expected to grow to $2.5 billion for the full year. - The Jakarta Post/Asia News Network

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Indonesia , Garuda , bankruptcy


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