Garuda may book first losses since '98

Garuda may book first losses since '98

Rendi A. Witular, The Jakarta Post, Jakarta

For the first time since the crisis, national flag-carrier Garuda
Indonesia may have suffered losses as a result of higher fuel
prices and stiffer industry competition in 2004.

Garuda strategic, planning and finance director Wiradharma B.
Oka said on Wednesday the airline's 2004 revenue -- projected to
be higher than in 2003 -- would be insufficient to cover the
soaring price of fuel.

"Like most airlines in the domestic and regional markets,
Garuda is likely to record losses in 2004 ... We are not able to
announce the exact figure yet, but it is estimated to reach
billions of rupiah," said Oka.

He added that the official figure would be released sometime
next month.

Garuda recorded a projected 2004 revenue of about Rp 10
trillion (US$1.1 billion), a 20 percent increase from Rp 8.3
trillion in 2003. The rise was attributed mostly to a higher
passenger load of about eight million, up from seven million in
2003.

However, with the airline having to spend an additional Rp 700
billion or so on fuel costs last year, its financial balance
would likely head into the red, Oka said.

Garuda had set a fuel price ceiling of about $35 per barrel
for 2004, below the actual average of $38 per barrel. The price
had risen to as high as $54 a barrel during the year.

Fuel makes up about 30 percent of the airline's operational
costs.

Another cause of losses was tougher competition in the
industry, with a surge in new airlines that has driven down
ticket prices. Many of the upstart carriers are offering local
and international routes at lower prices than Garuda.

"We have had to lower our ticket prices to compete with them,
which has pushed back our profit margin even further," said Oka.

Despite the loss in revenue, Oka was upbeat over Garuda's
prospects for 2005 due to a speedier pace of economic recovery:
The airline projects a 15 percent growth in revenue and 10
percent increase in passenger load.

With regard to repaying Rp. 1.3 trillion in mandatory
convertible bonds (MCB), which will mature in 2006, Oka said
there was a possibility that bond holders would convert the MCB
into equity.

The bond holders are state-owned Bank Mandiri and airport
operators PT Angkasa Pura I and PT Angkasa Pura II.

Garuda nearly went bankrupt in 1998 because of the Asian
financial crisis, which caused the rupiah to depreciate steeply,
and a massive debt accumulated from years of inefficiency and
internal corruption.

During Soeharto's New Order regime, many government officials
had allegedly used state companies as their personal cash cow.

In 2001, the company underwent debt restructuring, with
creditors agreeing to extend the payment period by five years
until 2010.