Garuda expects to post first profit in 10 years

JAKARTA (JP): Indonesia's flag carrier Garuda Indonesia expects to return to profitability this year after being in the red for at least 10 years.

Garuda's president Abdulgani said on Wednesday he was bullish the airline would be able book a net profit of US$34 million (about Rp 238 billion) this year, after sweeping cuts in its operating costs.

Abdulgani said that the airline's retrenchment program, which included closing down 17 nonprofitable international flights and returning dozens of its leased aircraft, had contributed to the turnaround of the airline's financial performance.

The airline's lower operating costs would result in a total operating revenue of about $687 million (about Rp 4.8 trillion) this year, he said.

"Garuda is seeing the turnaround point this year. Our operational performances are gradually improving," he said at a media briefing.

Abdulgani said Garuda booked an operating profit of Rp 507.6 billion in the first half of 1999, compared to an operating loss of Rp 924.1 billion in the same period last year.

The airline, which since 1990 has suffered losses, started a major restructuring program early last year in order to reduce its massive debts and cut its inefficient flights.

Garuda has not only cut 40 percent of its international flights and trimmed down its fleet capacity from 58 units in 1997 to 42 this year, but also clipped the frequency of some domestic flights, in the process reducing the number of employees from 14,000 in 1997 to only 9,764 as of June this year. At the same time it has sold some idle assets like old aircraft and simulators in order to cut costs and gain capital, he said.

The airline's load factors rose to an average of 73 percent in the first half of the year from an average 68 percent last year, as the result of the restructuring program.

Abdulgani admitted Garuda was still strained by its $1.8 billion debt, some $422 million of which were guaranteed by the government.

The government has agreed to pay for Garuda's purchase of 11 Boeing 737s at a cost of about $62 million annually for eight years.

"Garuda is still flying at present. But it's financially bankrupt because we are currently operating in a negative capital (of $234 million) condition," he said.

"It would be quite impossible for Garuda to sustain operations if there was no assistance from the government," he added.

Garuda started its debt restructuring program in early 1998, after sustaining record losses of $46.4 million that year, having been badly affected by the collapse of the rupiah against the dollar in mid 1997.

Abdulgani said the German airline Lufthansa AG and bank Deutsche Bank, which were hired in the middle of last year to help Garuda solve its debt problems, had continued negotiations with creditors on the debt restructuring program.

He said major creditors had so far been supportive over the restructuring program and business plan, especially after the Indonesian government pledged to guarantee them.

"We expect to finalize the entire restructuring agreement with our creditors in the first quarter next year," he said.

The business plan includes Garuda's ambition to form a strategic alliance with an overseas firm, details of which have not yet been disclosed, and become a public company through privatization in 2003.

Abdulgani said Deutsche Bank estimated that Garuda would have a net value of around $1.1 billion in 2003. (cst)