Garuda takes off on course for change

Garuda takes off on course for change

By Devi M. Asmarani

JAKARTA (JP): At a recent celebration of Garuda Indonesia's
golden anniversary in Bali, a minister summed up hopes for the
national flag carrier in a sentence: "If life begins at 40 for
men, than life begins at 50 for airlines."

State Minister of the Empowerment of State Enterprises Tanri
Abeng was not merely spouting diplomatic words of solace for the
financially hobbled company put under his supervision almost a
year ago.

His comments echo Garuda's own resolution to resurrect itself
after it embarked on a massive restructuring program in mid-1998.

Garuda is shedding its skin, long blemished by political
intervention, the presence of a complacent bureaucratic culture,
inefficient management and a poor public image.

As so often, a sudden reversal in circumstances shoved Garuda
on the path to change.

Ironically, it was the country's worst economic crisis in
recent memory and the fall of Soeharto last May which started the
momentum for Garuda's take off.

It began in June, when Tanri replaced the carrier's president
Soepandi with veteran banker Robby Djohan, only a few days after
the airline's workers staged massive protests demanding
Soepandi's resignation because of alleged collusion.

Robby was a newcomer to the airline business, but he knew
Garuda would soar in competitiveness if freed from government
intervention.

"Garuda had too many bosses before," Robby acknowledged.

His arrival breathed new life into the company, altering an
entrenched bureaucratic culture into an actual corporate culture.

A company executive admitted it was hard for Garuda to improve
efficiency before because of a gaggle of officials meddling in
operations.

"Decisions were often too politicized, there was too much
intervention from people outside Garuda," he said.

Robby also knew that Garuda would have to make hard
sacrifices.

He cut several domestic and prestigious international routes,
including Europe-bound flights, a move which would have been
assured in the past to kick up a kerfuffle among officials.

Aware that the carrier was burdened by unstrategic alliances
with the wrong people, he severed links with several companies.

Since last year, Garuda has ended its association with Angkasa
Bina Wisesa, owned by Soeharto's brother-in-law Tubagus Sulaiman,
which managed its cargo warehouse facility at the Soekarno-Hatta
International Airport.

It also stopped a lucrative deal with PT Bimantara Insurance,
owned by Soeharto's son Bambang Trihatmodjo, Bali-based PT
Ototrans, and ticketing agents Kibeka in Japan and Antarini in
Los Angeles.

Robby then turned his attention to perhaps the unkindest cut
of all -- a massive program of layoffs.

By December, 1,596 had entered Garuda's "early retirement
program", costing the company Rp 110 billion in benefits and
compensation.

Each received from Rp 38 million to Rp 170 million. Garuda's
staff now totals 10,953.

Late last year, Garuda moved most of its staff from the Medan
Merdeka headquarters in the heart of Jakarta's old diplomatic and
commercial hub to its maintenance facility building in the
Soekarno-Hatta compound. The headquarters will be leased.

Robby also pleaded with European debtors to restructure
Garuda's foreign debt. It owes US$390 million in offshore debt
and Rp 290 billion to local creditors.

On a mission to streamline fleets, he returned five of the 24
leased aircraft to Boeing in August.

Along the way to a fitter, healthier company, the moves and
maneuvers became a bit confusing.

In August, Robby said Garuda was suffering an operating loss
of at least Rp 3 billion daily due to artificially low fares and
sluggish domestic sales.

But a month later, Tanri countered that Garuda booked Rp 200
billion in profits as of August, a turnaround he attributed to
its massive restructuring.

When it seemed Robby could do no wrong, Tanri's decision to
replace him with Abdulgani, also a banker, left many perplexed.

Robby was named president of the new state bank Mandiri, and
Garuda employees learned to adjust to Abdulgani's less aggressive
-- but "equally professional" -- management style.

Image enhancement

While continuing to slash costs, Garuda worked diligently and
actually opened its coffers in an attempt to polish up its
somewhat tattered image.

In September, it launched a new program called the "GA
Express" on the Jakarta-Surabaya route, a daily roster of flights
departing every two hours.

As part of this year's anniversary celebration, it introduced
a new set of uniforms for air and ground crews.

In early February, it invited about 200 foreign tour companies
and domestic sellers to attend a travel dialog and travel mart in
Bali in its crusade to woo tourists back to Indonesia, rocked by
social unrest since 1998.

The company also used the event to gain insight into foreign
perceptions of its operations.

"The problem with Garuda is the perception it is unsafe," an
Australian tour operator said at the travel dialog in Nusa Dua.

"When I offer my customers the opportunity to fly Garuda, they
immediately say 'oh no, not Garuda'."

Garuda's most recent major fatal crash killed 234 passengers
and crew in Medan, North Sumatra, in September 1997.

At the peak of the crisis last year, when operating costs were
multiplied by meager revenue from domestic routes, local carriers
reportedly practiced "cannibalism", taking components from
another aircraft to solve maintenance problems.

But the airline's technical director, Richard Budihadianto,
said flight delays were the biggest part of Garuda's image
problem.

Richard said most delays were caused by tight scheduling which
led to problems when maintenance problems occurred.

"Once our airplane breaks down, the whole schedule is ruined,"
he said.

Garuda's strategy now is to increase on-time performance
(OTP) by relaxing scheduling to allow a window of time if
maintenance problems occur, he said.

For maintenance assistance, Garuda has signed a $3 million
pooling contract with Swiss Technic of Swiss Air to provide spare
parts for its six Airbus-330s.

It is a much more economical route than having to establish
its own maintenance facility for about $15 million, Richard said.

The carrier also has a similar contract with Dutch airline KLM
for its B-747s.

For Boeing 737s used on its domestic routes, Garuda has its
own Garuda Maintenance Facility (GMF).

Garuda now operates 40 planes, down from last year's 52,
serving 20 domestic and 21 international destinations. Half of
the planes are leased and the rest belong to the airline.

It uses B747-400s for domestic routes, 330s to serve regional
destinations, and B747-400 and DC10s for the Middle East.

Its eight Airbus 334 and five B747-200 have been put up for
sale to help repay the debts.

Divestment program

The carrier is zeroing in on the air transportation business,
abandoning dusty ambitions to diversify into other industries.

It plans to divest from its four subsidiaries of GMF, Garuda
Medical Center, Garuda Aviation Training and Garuda Information
System by the end of the year.

It will also divest from Gapura, a joint venture ground
handling company with state-owned airport operators Angkasa Pura
I and Angkasa Pura II.

"In the end we just want to run the airplanes," spokesman
Pudjobroto said.

It also continues to put feelers out for new allies.

German's Lufthansa has agreed to provide commercial and
operational assistance.

Early this month, Abdulgani went to Sydney for "friendly
talks" with Qantas over a possible alliance.

Garuda expects to book Rp 280 billion in profit this year from
Rp 7 trillion in revenue.

Last year's net loss from Rp 10 trillion in revenue has yet to
be disclosed, but Tanri estimated it could reach about Rp 400
billion.

The bottom line may be profits, but Tanri seems pleased
enough.

"Garuda has been reborn, and I'm probably the happiest to see
that," he said.