Troubled Garuda Indonesia In The Midst Of Debt Of IDR 70 Trillion, How To Save It?

Garuda Indonesia aircraft. (Photo: Doc. Garuda Indonesia)

JAKARTA - The national airline PT Garuda Indonesia (Persero) Tbk is being hit by a huge debt problem. Management is struggling so that the company coded GIAA shares is not bankrupt. Garuda Indonesia (GIAA) does have a red report card in financial aspects, including the value of debt in 2021 which will reach IDR 70 trillion.

How to save Garuda?

President Director of PT Garuda Indonesia Irfan Setiaputra spoke about this. Irfan said one way to save Garuda was through the latest program offered, namely early retirement.

"Of course, everything is possible to fix. But we focus on retiring first," he told VOI, Monday, May 31.

As is known, Garuda Indonesia is reportedly offering an early retirement program which will be effective starting July 1, 2021. This offer is payable in the electronic mail received by employees. Irfan said this program was carried out as an effort to restore business performance in the new normal era.

"Management is in the early stages of offering an accelerated pension program for Garuda Indonesia employees who meet the criteria and requirements for participating in the program," he said in a text message received by VOI, Friday, May 21.

Furthermore, Irfan said that the pandemic situation, which is still ongoing today, requires companies to take steps to adjust supply and demand aspects amidst declining operating performance due to the significant decline in flight traffic.

"We need to convey that this accelerated retirement program is offered voluntarily to employees who have met the criteria. This policy is the best offer we can make to employees in the midst of the current pandemic situation, which of course always prioritizes the common interests of all parties, in this case, employees and companies," he said.

Garuda Indonesia, said Irfan, ensures that all rights of employees who will take the program will be fulfilled in accordance with the provisions of the applicable laws and policies on work agreements agreed between employees and the Company.

"Through the accelerated retirement program, we strive to provide opportunities for employees who want to plan their retirement as well as possible. Especially for those who have other priorities outside of work, as well as other career opportunities outside the company," he said.

Irfan did not deny that this early retirement program is a tough step that must be taken by the company. Even so, he said this step must be done.

"However, this option must be taken to survive in the midst of the uncertainty of the recovery situation in the aviation industry, which has not yet shown a bright spot during the COVID-19 pandemic," he explained

Four options for the Ministry of SOEs to solve the Garuda problem

The Ministry of State-Owned Enterprises (BUMN) has prepared four options in an effort to resolve the problems that entangle Garuda Indonesia.

The four options are:

First, the government will continue to support Garuda through lending or equity injections. This option has the potential to leave Garuda with a large legacy debt that will create a challenging situation in the future. This option is exercised by both Singapore Airlines and Cathay Pacific.

Second, using the bankruptcy protection law in the restructuring of Garuda Indonesia. With this option, Garuda will use the legal bankruptcy process to restructure obligations such as debt, rent, and employment contracts.

Third, restructuring Garuda and establishing a new national airline company. In this option, Garuda is allowed to restructure. At the same time, starting to establish a new domestic airline company that will take over most of Garuda's domestic routes and becomes the national carrier in the domestic market.

If this option is an option, further exploration of the option is that Indonesia still has a national flag carrier but this option requires a capital of 1.2 billion US dollars.

Finally, Garuda was liquidated and the private sector was left to fill the void. The government encourages the private sector to improve air services, for example by lowering airport taxes or route subsidies. If this option is used, Indonesia will no longer have a national flag carrier.

Professor of Finance and Capital Markets at the University of Indonesia, Budi Frensidy, said the government could take a combination of options 3 and 4 as an option. The option of supporting Garuda by providing loans is difficult at present.

"With the current conditions, even when given trillions of money, Garuda's problems will not be solved," he said, as quoted from Kontan, Monday, May 31.

Furthermore, Budi said that it was also difficult for Garuda to carry out internal restructuring. If employees and unions reject the options, they can hold demonstrations every day. This condition will make it more difficult for Garuda. According to him, a combination of options 3 and 4 can be done by Garuda. Garuda can still carry out debt restructuring. Moreover

"Currently, many lessors have reserved write-offs for the problems faced by airlines," he said.

Along with restructuring efforts, according to Budi, Garuda could establish a new entity.

"Later, you can buy another plane at a low price. If necessary, ask the private sector to buy it as a fire sale price," he said.

According to Budi, the third option has also been secretly used by Lion Air, which established the Super Air Jet. As a new company, Garuda could use another name.

"The private sector can run new companies efficiently," he said.

Furthermore, Budi said the aviation business still promises opportunities, if the COVID-19 pandemic is over.

"There is an opportunity if COVID is finished because there are Umrah businesses, Hajj pilgrimages, and many more. New companies, for example, can be given a five-year concession monopoly and can also be rented out to other airlines so that this new company can get a margin commission," he said.

Budi said, basically, investors don't care who the shareholders are, the important thing is that the brand is not sold.