Setiaputra set the bar high after Garuda got far more than the two-thirds support it needed, saying the result shows the “high trust” investors have in the company and vowing a fast return to profitability.
Analysts, however, say that a bloated workforce, high fuel prices and increasing competition as the pandemic wanes will continue to plague Setiaputra and other executives.
“The approval can also be seen as a ‘statement of bankability’ of Garuda’s business plan, which will give (a) boost to Garuda’s immediate financing needs as it is still very much struggling to keep its operations afloat,” Gerry Soejatman, an aviation analyst and head of think tank Indonesian Aviation Network, told Nikkei Asia.
But Soejatman added that streamlining into a stable business will not be easy.
“Going from a big elephant into a lean and mean machine still needs a reduction in human resources and a change in how it does business,” Soejatman said, adding that reducing “headcount into the right number of employees per aircraft” is a key task.
Garuda received more than 90% support from creditors with voting rights who participated in the vote.
The plan includes issuing US$825 million in new bonds as well as raising US$330 million by offering equity to non-shareholding creditors under a court-led process that began in December.
The court put the debt figure at 142.41 trillion rupiahs. Some creditors will have to take a discount on what they are owed.
The Indonesian government was clearly relieved at the result.
“This positive development came in a timely manner when the world is adjusting to the pandemic, the economy is recovering, and people start travelling,” state-owned enterprises minister Erick Thohir told reporters on Friday.
Garuda’s financial troubles had been brewing for some time but intensified after the pandemic emerged, which slammed the travel industry.
But even as Covid began to wane, the legacy airline was seeing increased competition with low-cost carriers in Southeast Asia.
Setiaputra told reporters late Friday after the approval that the company plans to focus on profitable domestic routes as well as continuing to emphasise cargo ones, while maintaining international flights, including umrah and hajj flights for Muslims going on their pilgrimage to Mecca. He also vowed to make international routes profitable.
But he indicated that choices will have to be made.
“We want to ensure Garuda will be profitable going forward and not simply flying everywhere with all kinds of aircraft, but (also) a business that will inspire pride and consistently turn profits,” he said.
Asked if profitability could come by the end of the year, or would take two to three years, Setiaputra was noncommittal but replied: “Definitely we can be profitable as soon as possible.”
Garuda’s financial statement for the nine months ended in September last year – the most recent period it has reported – showed a net loss of US$1.6 billion, worse than the US$1 billion loss it posted in the same period in 2020.
Trading in Garuda shares has been suspended since June 2021 after the airline defaulted on coupon payments for a US$500 million Islamic bond.
Hajime Tozaki, a professor at JF Oberlin University in Japan and an aviation industry expert, warned that the airline needs to raise competitiveness amid a still uncertain environment surrounding the pandemic.
The key to recovery, Tozaki said, will be how a traditional airline like Garuda can attract wealthier flyers and business travellers, even as the outlook for such demand is far from guaranteed.
“In addition to the uncertainty of the pandemic situation, there are concerns such as route changes due to the war in Ukraine and rising oil prices.” And if the global health crisis continues to improve, low-cost carriers “would enter the market”.
Garuda is not the only Asian airline hit by the pandemic. That and subsequent global travel restrictions undermined Thai Airways International’s already shaky financial position, forcing it to file for rehabilitation in May 2020. AirAsia Japan filed for bankruptcy in 2020.
Aviation analyst Shukor Yusof of Endau Analytics says that Garuda faces the same kind of turbulence as other airlines.
“Problems will reemerge in the near term with higher interest rates and oil prices,” Shukor said.
“Like many national airlines in Southeast Asia, the problems are much deeper,” he said. “Governments are not fixing the fundamental issues, rather extending the life of a company by supporting it.”