Govt prepares options to help Garuda

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.