Garuda needs 35 years to clear debts

JAKARTA (JP): Flag carrier Garuda Indonesia needs at least 35 years to fully repay all of its US$1.8 billion debts, the airline's president said on Thursday.

Speaking at a hearing with members of the House of Representatives (DPR), Abdulgani said the economic crisis, which peaked in late 1997 and early 1998, had caused the airline to suffer a negative equity of $310 million.

He acknowledged that the ongoing restructuring program for the airline's debts, finances and operations had resulted in some improvement on the balance sheets and this would result in a cash flow of $234 million between 1999 and 2004.

But with the cash flow level and the negative position of its equity, the airline would still need about 35 years to fully repay its huge debt, he said.

"Under the financial condition, Garuda has legally been categorized bankrupt, and as a consequence, the government should take over all of its obligations," he told the House Commission IV for infrastructure and transportation affairs in the hearing.

He said the government had agreed to guarantee some of the airline's debts and the commitment helped the process of debt negotiations with creditors.

Garuda's outstanding debts of $1.8 billion includes $610 million in airplane leasing fees to the European Credit Agency (ECA), a consortium of financing institutions from Britain, France and Germany, $601 million in commercial debts and $420 million in airplane leasing fees to U.S. Exim Bank.

Abdulgani said the government agreed last year to take over Garuda's obligations to pay the $420 million to Exim Bank.

Garuda is currently undertaking active negotiations with the consortium to reschedule some $610 million it owed to the agency for leasing six Airbus 330-300s.

"We expect to sign the agreement in April. ECA has principally agreed to reschedule the debt repayment term from 12 years to 16 years, but it demands the government provide a guarantee worth $100 million and to enhance Garuda's capital," he said.

He said the $100 million guarantee was currently being prepared by state-owned Bank Mandiri.

He said Garuda would also propose creditors to reschedule the coupon payment of its commercial papers to eight years and to allow the airline to buy back some of the notes at discounts.

"Under such a program, we hope to be able to reduce the $1.8 billion outstanding debt to $550 million in 2003," he added.

Abdulgani said the restructuring program made a positive result to the company's 1999 balance sheet, which showed a net profit of Rp 572 billion, the first since 1990.

Garuda suffered a net loss of Rp 2.33 trillion in 1998, which was worse than the Rp 1.28 trillion net loss it endured in 1997 and Rp 360 billion in 1996, he said.

"Last year definitely was a spectacular turnaround for Garuda, both in terms of financial and service operation," he said.

He said Garuda had also performed better in terms of load factor, revenue per seat per kilometer and on-time performance this year, due to the advice it received from its two consultants.

Abdulgani said Garuda had increased its operating revenue to Rp 7.12 trillion last year from Rp 4.51 trillion in 1998.

He also said that the airline, which used to be criticized for its delayed schedule, had improved its on-time performance to record an average of 88 percent in 1999, well above the required standard of 85 percent set by the Association of Asia Pacific Airlines.

Abdulgani said the improved operational and financial condition was expected to help spur the company's debt restructuring efforts.

He said the company's financial advisor, Deutsche Bank, had estimated that Garuda would have a net value of about $1.1 billion in 2003. (cst)'