Govt prepares options to help Garuda
Rendi A. Witular, The Jakarta Post/Jakarta
The government has prepared several options to help ease national flag carrier Garuda Indonesia's financial problems and boost its competitiveness in the cutthroat airline industry.
Ministry for State Enterprises official Ferdinand Nainggolan would not go into detail about all the options on Thursday but said one was to convert the airline's debts into equity.
He said the government had ruled out the option of refinancing Garuda's massive dollar-denominated debts because it feared that no financial institutions would be willing to lend to the airline or buy its bonds given its low investment rating.
"Are there any companies that want to buy Garuda debts? Debt refinancing would be the last option. There are actually other available options, including converting debt into equity," said Ferdinand after a hearing with the House of Representatives Commission XI for financial affairs.
The airline should seek approval from its creditors for a refinancing program, he said.
Garuda president director Indra Setiawan recently told the House Commission V for transportation and communication, that the airline had been left behind by its competitors in the region due to its inability to expand or rejuvenate its fleet because of a lack of funds and the limit on new borrowing set by its creditors. Creditors have only allowed the firm to borrow a total of US$25 million over 10 years.
Indra said one of the options to boost the airline's competitiveness and not repeat its financial difficulties as it experienced in 1998 was to refinance the airline's debts.
Garuda defaulted on more than $1.1 billion in debts to international creditors during the Asian financial crisis in late 1997. The government and creditors agreed to restructure the debts in 2001.
As of this year, the airline's debts stand at $850 million, of which some $650 million is owed to an international consortium consisting of creditors in the United Kingdom, Germany and France. The remaining $200 million is in the form of promissory notes, which are due in 2007.
This year, Garuda is scheduled to pay some $115 million of the debt, including interest.
Garuda operational revenue was estimated to reach Rp 10 trillion ($1.1 billion) this year, up from Rp 8.3 trillion last year. The airline's passengers were also projected to rise to about eight million from last year's seven million.
Elsewhere, State Minister of State Enterprises Sugiharto said most urgent problem that needed to be settled in the airline was the appointment of new management.
"There are two main problems in Garuda. The first is the management reshuffle and the second is its financial performance. We expect to settle these issues within the first 100 days of the new government," Sugiharto said without elaborating further.
The ministry is currently selecting executives to replace outgoing chief, Indra, whose term ended more than a year ago.
Meanwhile, Garuda's vice president for corporate communications Pujobroto insisted on Thursday that Garuda was committed to servicing its debt obligations.
Pujobroto said that by November 2004, the airline had paid $390.39 million to its creditors, comprising $256.78 million of the principle and $133.61 million in interest.
Garuda was also preparing to pay another $67.4 million to its creditors this month, comprising $61.05 million of the principle and $6.3 million in interest, Pujobroto said.
No decision had yet been made by Garuda's management about the refinancing and Pujobroto said the company had never discussed the options with the government.