Garuda in a bind over debts

JAKARTA, 22 May 2020: Garuda Indonesia is counting on a USD1 billion rescue package dropping from the sky to meet mounting debts. Some of the debts fall dues this according to Bloomberg report earlier this week.

The Bloomberg report noted that the acute need for bailout funds predated the Covid-19 pandemic outbreak that struck Asia in late January and continues to ground airline fleets worldwide.  The airline is unlikely to resume all of its international services until July at the earliest. It is currently scheduling daily flights to Singapore, South Korea, Japan, Australia and the Netherlands.

Garuda Indonesia needs to pay debts of USD500 million in June 2020 while the remaining USD500 million will act as bridging finance to serve as working capital over three to six months.

Garuda Indonesia is now in meetings with creditors to seek a rescheduling over three years on security falling due in 2020. It is asking for leniency from creditors noting that 61% of the airline is owned by the Indonesian government which is seen as a last resort guarantee that debts would be paid. The generally accepted view is that in a worst-case scenario, the government would come to the rescue of the national flag carrier.

To its credit, the airline has renegotiated aircraft lease agreements and has embarked on a comprehensive cost reduction programme that shaved the payroll bill.

According to Bloomberg, Garuda’s USD500 million bond notes that fall due 3 June plummeted to 42.492 cents on the dollar from 98.72 cents at the end of January. The low price reflects growing concern over whether Garuda can meet its obligations.

Meanwhile, Wirjoatmodjo, the deputy-minister of the BUMN Ministry “that owns” Garuda has said the government would not provide a direct capital injection to keep the airline afloat financially.

Similarly, Bharat Joshi, of PT Aberdeen Standard Investments Indonesia, said: “The government needs to seriously reconsider the competitiveness of Garuda and manage its cost structure post-Covid-19 before considering any capital injection. The aviation landscape will continue to evolve, and the glory days of travel won’t return anytime soon.”

(Source: Bloomberg and Discover Bali News)

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