Suspension of flights renews concern over Garuda's health
Suspension of flights renews concern over Garuda's health
Tony Hotland
The Jakarta Post/Jakarta
When Garuda Indonesia recently halted its Jakarta-Amsterdam
flights and cut back on the number of flights to Guangzhou, it
raised questions about the health of the national flag carrier.
Service to Amsterdam has sentimental and historic value for
the airline, as the Dutch city was one of Garuda's earliest
overseas destinations.
Guangzhou is a potentially lucrative market given that it is
one of China's most dynamic industrial centers and many wealthy
Chinese-Indonesians who trace their family roots back to the area
have returned there as investors.
Given the current tough competition in the airline sector,
Garuda's troubles can most likely be traced back to the airline's
declining attractiveness and cash flow difficulties.
The settlement of Garuda's some US$800 million in debt will be
one of the main focuses of a new management group at the airline
expected to be installed by the government this week.
Garuda embarked on a massive debt restructuring program in
2001 in an effort to escape a debt trap resulting from years of
inefficient operations and the impact of the regional economic
crisis in the late 1990s.
Add to that the outbreak of Severe Acute Respiratory Syndrome
(SARS), the war in Iraq and terrorism fears, and Garuda was left
struggling beneath a heavy debt load.
Another factor affecting the airline's cash flow is the
payment of debts under its debt restructuring program, slated for
completion in 2010, which seems to be out of balance with
Garuda's profit.
The company posted Rp 238.7 billion ($26.23 million) in pretax
profit last year, a sharp drop from the Rp 1 trillion it booked
the previous year.
Its debt repayment schedule means the company needs to spend
about $110 million per year to service its obligations.
Garuda spokesman Pujobroto insisted that the move to suspend
some overseas flights was not unusual, but was part of a regular
schedule rotation.
"We have two types of schedules: the summer (March-October)
and winter (October-March) schedules. For winter 2004/2005, we
will drop Amsterdam and several other cities and decrease some
flights because it is the low season for those cities," Pujobroto
said.
Besides suffering cash flow problems, the country's flagship
carrier is also lagging behind other national carriers in the
region in terms of forming alliances with other airlines.
"We are still preparing to improve our performance and apply
some aspects required to form an alliance," Pujobroto said
without elaborating.
Airline industry observer Dudi Sudibyo said Garuda needed a
strong, well-consolidated management team led by a fully
supported leader.
"Furthermore, Garuda's new leader needs to come up with some
bright ideas that could lift its name again in the international
market. Take a look at Singapore Airline, which grabbed media
headlines again when it launched its Singapore-New York direct
flight," Dudi said.
The government is expected to install a new board of directors
at Garuda on Wednesday, according to media reports.
Two names have been circulating as possibilities to replace
current president Indra Setiawan. They are Gunarni Suworo (a
commissioner at Garuda) and Samudra Sukardi (president of Garuda
subsidiary PT Abacus).
Dudi also sees the possibility of a divestment to help Garuda
get fresh funds to expand and pay off its debts, a move Merpati
Nusantara Airlines is currently attempting.
"Singapore Airline went public and now it dominates the
airline sector in the region. Why doesn't Garuda do the same?" he
asked.