Garuda's creditors agree to delay $515m payment

Garuda's creditors agree to delay $515m payment

Soraya Permatasari, Bloomberg/Jakarta

PT Garuda Indonesia, the nation's biggest airline, said it has obtained approval from European lenders to delay paying up to US$515 million debt to generate enough cash from its business to keep flying.

The government-owned carrier is waiting for approval from creditors to delay a $50 million principal payment of $150 million floating-rate notes due by the end of this month, Garuda President Emirsyah Satar told reporters here on Wednesday. European lenders under the European Credit Agency have agreed to let Garuda extend its annual principal payments, he said.

"They are okay with our proposal but as to how long the rescheduling will take, we don't know yet," he said. Creditors have agreed that "we are only paying the interest."

The bid to reschedule debt payments is a last-ditch effort by Garuda, which sacked its entire management board in March, to improve its management and be profitable. Garuda needs $115 million a year to repay more than $800 million of debt and about $1 billion more for wages, jet fuel, maintenance and cover costs, according to its annual report.

Airlines including Garuda, Thai Airways International Pcl and Cathay Pacific Airways Ltd. have struggled to contain costs after a 43 percent increase in jet fuel prices in the first half.

Garuda said it may report wider-than-expected loss this year after travelers from Japan and Australia dropped by 40 percent following the Oct. 1 terrorist bombing in Bali in October, Emirsyah said. The second terrorist attack on the island in three years killed 23 people, including three suicide bombers.

Garuda, which had Rp 811.3 billion loss in 2004 after a 2.81 billion profit in 2003, may report an operating loss estimated at between $10 million and $20 million this year because of rising jet fuel prices, the company said in May.

The airline said on Sept. 16 it plans to lease 28 aircraft valued at $2 billion from Boeing Co., the world's second-largest maker of commercial aircraft.

Garuda plans to fly to London and Amsterdam next year, Emirsyah said. It also plans to add routes in the Middle East, to Dubai and Istanbul, and start flying to Seoul in the first quarter next year, he said.

The airline also plans to add flights to Shanghai, Singapore, Kuala Lumpur, Manila, and Bangkok, starting next year.

Garuda faces increasing competition at home from Lion Air and overseas from Malaysian Airlines Systems Bhd., Singapore Airlines Ltd. and low-fare carriers such as AirAsia Bhd. and Tiger Airways Pte in Asia.