Garuda Indonesia has been besieged by endless problems from widespread questionable deals to the government wanting to give up on the airline and appointing a lesser-known airline to be its national airline. Will it be able to pull through?
- Airline’s debt stood at U$9.78 billion
- Government wants to appoint Pelita Air to replace Garuda Indonesia as national airline
Garuda’s ever changing CEO
In the history of an airline, Garuda Indonesia has topped the list of the most number of CEO it had since the beginning, with most lasting only a few years before being replaced.
The most notable CEO was Emirsyah Satar, who catapulted the airline from 1-star to a 5-star airline on Skytrax, overhauling everything from the logo to the cabin attendant’s uniform. Unfortunately, in 2020, he was handed down an 8-year sentence for corruption and bribery relating to aircraft procurement from Airbus for its A320 and A330 aircraft for Garuda’s subsidiary, Citilink, and engine procurement from Rolls-Royce during his nine-year stint at the airline.
I Gusti Ngurah Askhara Danadiputra, also known as Ari Askhara, was caught in 2019 for smuggling a Harley Davidson bike and parts worth 800 million rupiah and Brompton bicycles onboard a brand new Airbus A330-900neo aircraft from Toulouse, France, trying to evade import tax and was terminated immediately.
Indonesia’s State-Owned Enterprises (SOE) determined that in 2018, Askhara had asked airline staff to find a classic bike, and had paid a staff based in Amsterdam for the purchase of the bike in 2019. The goods were presumed declared, which ended up not being declared to evade tax, costing the Indonesian government millions of dollars in potential tax loss.
Askhara was ordered to serve a one-year sentence and pay a 300 million rupiah fine after a court verdict in 2021.
The CRJ1000 questionable deal
During the Singapore Airshow in 2012, Garuda Indonesia signaled it is acquiring six Bombardier’s CRJ1000 and an additional 12 aircraft on lease for deliveries between 2012 and 2015. It is highly likely that Garuda did not do their homework with due diligence as it soon found out the CRJ1000 was unsuitable for the Indonesian market. Indonesians tend to carry a lot of luggage with them and the aircraft’s limited cargo capacity certainly did not help.
Each CRJ-1000 aircraft lease was at U$27 million per year, with losses amounting to U$30 million per year for the entire CRJ fleet that Garuda operated.
SOE decided to pull the plug on the entire Bombardier CRJ1000 fleet in 2020 after Garuda was being investigated by England’s Serious Fraud Office, indicating that there were signs of bribery during the deal.
Garuda was asked to terminate the aircraft leases early and return them back to Nordic Aviation Capital and Export Development Canada, with negotiations are still ongoing between both companies.
Failing international destinations and confusing fleet
Realizing that most of Garuda’s international destinations were bleeding a lot of money, coupled with the massive debt it has incurred and rising, the airline shifted its position from direct flying to forming codeshare agreement with airlines such as Singapore Airlines and Emirates to allow passengers from Indonesia to connect to international destinations via Singapore and Dubai respectively.
Garuda, on the other hand, will focus solely on Indonesia’s domestic destinations with limited profitable international destinations such as Singapore, Malaysia, and Japan, and ad-hoc haj pilgrimage to Jeddah.
The Boeing 737-800NG makes up the majority of Garuda Indonesia’s fleet, with the remainder of the fleet consisting of seven Airbus A330-200, 17 Airbus A330-300, three Airbus A330-900neo, 10 Boeing 777-300ER, one Boeing 737 MAX 8, and 13 ATR 72-600. With the COVID-19 pandemic, its current CEO, Irfan Setiapura, expects to operate no more than 70 aircraft, halving the fleet from the current 142.
Perhaps, Garuda should have acquired the Boeing 787 Dreamliner as it was more cost-effective than the Boeing 777-300ER and potentially replace the entire Airbus A330 fleet. One aircraft type to serve from high-capacity short-haul market to thin long-haul market saves on training and fleet commonality costs.
Garuda’s debt stands at 70 trillion rupiahs and is increasing about one trillion rupiahs every single month with its inability to repay creditors and lessors, who in turn are suing the airline to reclaim the losses. It is well-known that the aircraft leasing rate for Garuda is the highest in the world at 27% over the market rate and it’s questionable why would they still pay for that rate instead of renegotiating for a better rate until it is already too late.
One of SOE’s scenarios initially was to prepare for Pelita Air to take over Garuda Indonesia in the event the latter goes under. However, the enterprise wants all creditors to accept a restructuring plan to erase around U$6 billion of debt, therefore reducing it to a more manageable U$3.69 billion as it recognizes that ramping up Pelita Air to replicate Garuda Indonesia would take time.
Airline lessors are also being offered a debt for equity swap with Garuda Indonesia. However, it is certain that the airline will no longer be able to offer long-haul routes from Jakarta and Bali in the short-to-medium term.
It is saddening that such avoidable missteps were not flagged earlier before the pandemic hit. With the right aircraft and tightening of financial spendings, Garuda Indonesia will be able to soar high once again.