Last week, Indonesian authorities detained former Garuda CEO, Emirsyah Satar, as part of a corruption investigation concerning the airline's aircraft procurement. The former head of the national airline is set to be detained, along with one other individual, for 20 days according to anti-corruption authorities. The arrest comes at a pressing time for the airline, which has not only been challenged by the 737 MAX groundings but has also faced regulatory scrutiny concerning its financial accounts.
The implicated entities
According to the Indonesian Corruption Eradication Commission (KPK), the arrests come as part of a two-year probe into the airline's procurement of aircraft and engines over the 2008 to 2013 period.
The purchases implicated have been identified by authorities as the Rolls-Royce Trent 700 engines, the manufacturer's total care program, and Airbus' A330 and A320 jets. Additionally, authorities have probed the airline's acquisition of ATR 72-600 aircraft, and Bombardier CRJ 1000 regional jets.
The authorities have involved three individuals; former airline CEO Emirsyah Satar who served the airline from 2005-2014, Indonesian businessman Soetikno Soedarjo who has also been detained, and the former technical director of the airline, Hadinoto Soedigno.
Allegations of bribery, money laundering
At the core of the probe is businessman Soetikno Soedarjo who authorities say was a business consultant for Rolls-Royce, Airbus and ATR. Mr. Soedarjo is also said to be linked to Bombardier's sale representative in Hong-Kong, Hollingsworth Management International.
Investigators claim that Mr. Soedarjo received commissions from the aerospace entities following his success in assisting the companies to obtain the airline's procurement contracts. As reported by the Strait Times, Mr. Soedarjo shared his various commissions with the airline's chief executive and technical director.
The Singaporean newspaper states that the former airline CEO received the equivalent of over $4m in various financial transfers. Allegedly, these funds were sent to Satar's personal accounts in Indonesia and Singapore, Satar's commercial entities, and towards his real-estate investments.
Garuda's former technical director, Mr. Hadinoto, also allegedly received upwards of $2.5m in various financial transfers as well.
Mr. Satar denies any allegations of money laundering; his lawyer told Bloomberg that "after the investigation started, he [Mr. Satar] realized that as a state employee he should not have received anything, so he returned the money".
Garuda finds itself between a rock and a hard place
The investigations into the airline's procurement of aircraft and the subsequent arrests of its former chief directors does nothing but add to the airline's existing challenges.
As reported by the Financial Times in July, the airline was forced to downgrade its 2018 profits from a marginal profit to a $175m loss. The 2018 fiscal year loss came as a consequence of errors in the carrier's accounting.
While the 2018 results were not directly related to KPK's probe, one unnamed government official told the Straight Times that more than ten of the airline's 22 A330s were bought at a $20m mark-up. Presumably, these charges have done nothing but put additional financial stress on the airline's precarious finances.
Garuda's finances aside, the airline has also been criticized by analysts and the public alike for attempting, and later capitalizing, on a ban on inflight photos. Moreover, the state-owned airline has undergone numerous rote changes while the government has initiated minimum prices for domestic airfares.
What do you think of the events happening at Garuda? Have you flown the airline recently, did your experiences match ours? Let us know in the comments.
Simple Flying was unable to reach a Garuda Indonesia spokesperson by the time of publication. An Airbus spokesperson told Bloomberg that the company is unable to comment on pending investigations. A Rolls-Royce spokesperson told Bloomberg that "we note the announcement from KPK about legal proceedings, in which we are not involved, against a number of individuals and will not be commenting further.”