Indonesian flag carrier Garuda Indonesia has reached an agreement that will see it return nine Boeing 737-800s to leasing company AerCap. The aircraft are being returned ahead of schedule due to financial difficulties. Previously AerCap threatened the airline with legal action after it failed to pay for the planes.
On June 4th AerCap filed a bankruptcy lawsuit against Garuda Indonesia, claiming they had failed to pay for the lease of several aircraft. The airline agreed to enter negotiations outside of the courtroom in an attempt to solve the issues separately. It seems as if an agreement was reached on July 28th, when the two companies signed a deal to stop legal proceedings.
The agreement includes the return on nine Boeing 737-800s on lease to the airline from AerCap. Although the finer details are still being ironed out, the aircraft will fly to an “approved location,” according to the legal filing. The airline operates 72 leased 737-800s as part of its fleet of 136 aircraft. However, this number is shrinking fast due to financial difficulties. The airline already agreed to send two 737-800s back to lessors in June.
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A shrinking fleet
In all likelihood, the airlines’ fleet will continue to shrink. The airline currently leases 117 aircraft and has failed to pay lessors multiple times before. The airline previously grounded some planes due to a lack of payments. Of course, with so much of its fleet parked due to the ongoing pandemic, this is less of an inconvenience now than in other years.
As well as shrinking its current fleet, the airline is looking to renegotiate orders for new aircraft. The airline said it would order some Dreamliners back in 2015 but has failed to do so. Then it sent a letter to Boeing saying it wanted to cancel its order for the 737 MAX. Later, it claimed it would replace the order but has yet to do so.
Garuda Indonesia also modified an order for 14 AirbusA330-900neos down to just 12. With fewer new aircraft joining the fleet and many leased aircraft leaving, the airline looks set to become a smaller operation in the coming years.
A future for Garuda
In a recording of an address to staff heard by Bloomberg, President Director of Garuda Indonesia Irfan Setiaputra confirmed, “We have 142 aircraft and our preliminary calculation on how we see this recovery has been going, we will operate with a number of aircraft no more than 70.”
This means the airline will effectively halve its fleet. With this, could come some significant staff cut as well. Fewer aircraft require fewer people to operate them. This would be a major restructuring for the airline, which many agree is necessary to avoid bankruptcy.
Although Garuda has settled its current issues with AerCap, it is facing other legal challenges, which could spell the end of the airline. According to ch-aviation.com, the airline has aircraft on lease from 34 different lessors, all of which will undoubtedly be desperate to secure payments from the cash-strapped airline.
What do you think of the situation with Garuda Indonesia? We’d love to hear your thoughts in the comments.