Mon, 23 Oct 2000

Service, efficiency and size key to Garuda privatization

By Berni K. Moestafa

JAKARTA (JP): Three more stages comprising better service, efficiency and bigger size await national airline PT Garuda Indonesia ahead of its privatization plans in 2003.

The airline's spokesman, Pujobroto, said the stages were necessary to build confidence before Garuda could claim itself fit for privatization.

"After we feel we're really ready, in our operation, our system, then we'll have the confidence to take on privatization," Pujobroto told The Jakarta Post last week.

He said the three stages were part of Garuda's recovery program that began in 1998 during the economic crisis.

"The year 1998 was for consolidation, 1999 for rehabilitation, the year 2000 is for service, 2001 for better efficiency and 2002 for expansions," he explained.

He said that while in 1998 the company managed to avert bankruptcy, in 1999 Garuda focused on improving its overall operation performance.

The steep fall of the rupiah during the crisis caused Garuda's dollar-based debt to soar and its passenger load factor to plunge.

Before the crisis, Garuda was also known as the cash cow for the family and cronies of former president Soeharto.

The subsequent inefficiencies combined with dropping revenue led the company to suffer a negative equity of Rp 1.92 trillion (about US$225 million at the current rate) at the end of 1998.

In that year, the state airline operator hired German flag carrier Lufthansa and the Deutsche Bank as consultants, and managed to resume normal operation by 1999.

Pujobroto said Garuda managed to bolster its passenger load factor to 69.1 percent in 1999 from a 54.4 percent the year before.

Garuda's yield or revenue rose to 5.1 U.S. cents per seat per kilometer in 1999, from 3.4 cents per seat per kilometer in 1998, he said.

Garuda is now in its fourth year of the program, which it calls the year of service and communication.

"This year we are revamping our entire service," Pujobroto explained.

Garuda said the program's goals were to raise service and reliability and improve Garuda's public image.

The restructuring of services would cover preflight, such as check-ins, in-flight and postflight services, such as during baggage claims, the company said.

Next year, Garuda plans to kick off its efficiency year.

"Efficiency here is not to be mistaken with cost reduction," Pujobroto said.

He said the efficiency year would focus on optimizing Garuda's existing resources to yield better productivity and higher profit margins.

"For instance, what once took people seven days to accomplish we try to narrow it down to only two days, thus saving us a lot of time," he explained.

Garuda further expects to implement good corporate governance to achieve the program's goals.

The efficiency program, Garuda said, would cover its administration, organization, operation, financing and purchasing.


As for the year 2002, Garuda plans to expand its routes, products, services and its fleet.

Pujobroto said the company would reopen several of its international routes that were closed.

In 1998, he said, Garuda suspended 17 international routes, including services to the United States, Taipei, Seoul, Paris, Rome, Zurich and Saigon, as part of its retrenchment program during the crisis.

This year alone, he said, Garuda planned to add more routes should the market and the company's resources permit it.

"On Oct. 29, we will reopen our Jakarta-Seoul route, which we will serve three times a week," he said, adding that by April 2001, Garuda would increase flights to four times a week.

Pujobroto further said the expansion program also called for Garuda to add more aircraft to its existing fleet of 42 planes.

Before the crisis, Garuda operated a fleet of 58 planes.

Albeit still heavily indebted, Garuda has secured a deal to lease seven Boeing 737s from GE Capital Aviation Services (GECAS) and the International Leasing Finance Company (ILFC).

Coming at a cost of between $200,000 to $250,000 a month, the company expects the seven Boeings to replace several old planes and serve new routes.

Pujobroto said by that year, Garuda hoped to become the leader in the domestic market.

A strong local market is necessary to support Garuda's international service as well as benefit from it, he said.

"Inbound passengers who want to continue their flights to other regions in Indonesia can fly Garuda's domestic fleet," he explained.

However, he added, Garuda did not aim to dominate the local market.

Pujobroto said Garuda's privatization target for 2003 was only the company's internal target, which was subject to government approval.

Thus far, the government has yet to announce plans on how it will divest Garuda and how much it expects in proceeds.

The government recently assigned independent auditor PricewaterhouseCoopers to audit the national airline as part of its agreement with the International Monetary Fund (IMF).

Garuda is in the middle of a debt restructuring process after it amassed debts totaling $1.8 billion, of which $610 million is owed to the European Credit Agency (ECA).

By the end of this year, Garuda expects to finalize a debt restructuring agreement.

The state company was in the red for over a decade, and only last year it returned to the black when it recorded a net profit of Rp 548 billion ($62 million).

Garuda's finance director Emirsyah Satar said earlier this month that he predicted the net profit to reach another Rp 500 billion this year.