Garuda Indonesia Defers Aircraft Deliveries

Garuda Indonesia is deferring aircraft deliveries, renegotiating leases, and asking staff to take early retirement to conserve cash. The Jakarta-based airline has taken a big financial hit this year. In an effort to get back on track, the airline is buckling down to ride out the downturn. Garuda Indonesia wants to be in the best position possible when travelers start flying again.

Garuda Indonesia is deferring deliveries, renegotiating leases, and cutting staff in an effort to conserve cash. Photo: Getty Images

Optimism tempered as Garuda Indonesia moves to cut spending

Last year, Indonesia was one of the world’s busiest aviation markets. Before the travel downturn, it was also growing fast. Around 120 million people took a flight in Indonesia in 2019. It was estimated that this would increase to about 240 million by the middle of the next decade. The buoyant forecasts offered a lot of opportunities for Garuda Indonesia and other Indonesia carriers.

But events of 2020 have since tempered these optimistic forecasts. Right now, more than half of Garuda Indonesia’s 142 planes sit idle on airport tarmacs. In an interview with The Jakarta Post, Garuda Indonesia’s CEO, Irfan Setiaputra, said passenger traffic was well down, and the airline remained in a precarious position. Mr Setiaputra wants to put the brakes on spending. He’s flagged aircraft deliveries, lease renegotiations, and employee retirements as the way to do this.

There will be no aircraft deliveries in 2020, says Mr Setiaputra. Garuda Indonesia has nine A330-900 aircraft outstanding from Airbus. Boeing is still officially on the hook to deliver 49 737 MAXs. Given the state of the MAX program, the Garuda CEO is eyeing delaying the A330-900s.

Garuda’s wholly-owned low-cost subsidiary, Citilink, also has several planes due from Airbus. They include 15 A320neos and a pair of A330-900s.

“What is the world going to say if we have a new aircraft while there are many aircraft parked on the ground?” Mr Setiaputra asked.

Garuda Indonesia lost US$712 million in the first half of 2020. Photo: Getty Images

Lease terms renegotiated and payments deferred

At the same time, the airline wants to talk to its aircraft lessors. Garuda Indonesia appears to be taking a two-pronged approach here. Not only does it want to renegotiate leases, but it also wants to defer payments.

The Jakarta Post reports Garuda Indonesia has deferred payment on 40 aircraft in the second quarter of 2020. That saved the airline US$100 million in the short term. The airline has also renegotiated prices and terms with 12 lessors, saving a further US$30 million annually.

FlightGlobal reports 120 of Garuda Indonesia’s 142 aircraft come on leases from some 30 lessors. The vast majority of Citilink’s 62 planes also show up as leased. Industry experts suggest that in the current environment, most airlines are in a strong position to renegotiate terms with aircraft lessors.

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Citilink is Garuda’s low-cost subsidiary. Photo: Getty Images

Early retirement packages on offer

Irfan Setiaputra is also eyeing downsizing Garuda’s workforce of approximately 20,000 people. The airline has an early retirement package on offer. Employees over the age of 45 are entitled to a pension and are in line for additional undisclosed benefits.

“We will comply with all the rights, and we will give additions because this helps the company for the long term,” Mr Setiaputra said.

So far, 500 Garuda employees have put their hand up and accepted early retirement offers. But senior management may need to further ice the cake to encourage more employees to accept the offer.

In the meantime, fresh off the back of a US$712 million loss over the first half of 2020, Irfan Setiaputra is tempering expectations. He says Garuda Indonesia will likely need more government assistance. Given restrictions on movement and people congregating, load factors across Garuda Indonesia will run at around 40% for the remainder of 2020. According to Mr Setiaputra, Garuda Indonesia has a long road ahead of it out of the present crisis.