Garuda Indonesia Looks To Restructure Bonds Worth $500m

Garuda Indonesia has begun talks to restructure half a billion dollars’ worth of bonds as it fights for survival amid the coronavirus crisis. The airline is looking to defer or reduce payments on over $500m of Islamic bonds, or Sukuk. The airline has already begun some domestic flights but is not looking likely to get any sort of bailout from its government.

Garuda Indonesia
Garuda Indonesia is looking to restructure bonds to survive the coronavirus crisis. Photo: Getty Images

Restructuring half a billion dollars

Indonesia’s flag-carrying airline Garuda Indonesia is on course to raise funds to ensure its survival during the coronavirus crisis. The airline is reported today by Reuters to have engaged in dialogue to restructure half a billion dollars’ worth of Islamic bonds, which were due to mature next month.

The deputy of the enterprise ministry, Kartika Wirjoatmodjo, told Reuters that,

“We have engaged with an adviser, who has begun to communicate with bondholders.”

Garuda’s situation is no different from others in the industry now, with pressure on its finances due to the severe downturn in travel demand. Already in a somewhat precarious position, with management and liquidity problems before the COVID-19 crisis, the airline was in no position to settle these bonds at present.

Garuda A330-900neo
The airline is in no position to pay the bondholders right now. Photo: Getty Images

The Jakarta Post reports that Garuda’s president director Irfan Setiaputra was considering three options for dealing with the Sukuk due dates. These were full repayment, repayment with a discount, or an extension to the due date. He said,

“We offer three options and we have talked with our sukuk holders about how to deal with the situation. Hopefully, there will be a solution to this matter.”

The Sukuk in question is valued at $496.8 million and was issued on June 3rd, 2015. It had a five-year tenure and an annual return of 5.95%. Relief of this payment obligation is going to be critical to Garuda, as no bailout for the airline is forthcoming from its national government.

Resuming domestic flights

Despite its difficult position, Garuda has re-launched domestic flights this week, but with strict conditions attached. It officially resumed passenger flights on Thursday, with augmented health protocols in place. In a statement carried by Aerospace-Technology, Setiaputra said,

“Reservations for these flight services can be accessed starting yesterday afternoon through all Garuda Indonesia’s owned ticket channel sales channels. ​​

“The resumption of the domestic flights was based on intensive communication with the government and relevant authorities in ensuring the readiness of flight service needs is in line with the ongoing mission of preventing the spread of Covid-19 through the implementation of clear and measurable health protocols, particularly as implemented by the relevant authorities.”

The exemption flights are not intended for general use. Rather they are for state officials, workers in the private and public sector and private individuals with specific requirements. These are noted to be those working in key services such as healthcare or defense, and those requiring repartition or emergency medical care.

Garuda Indonesia, Lion Air,
Several Indonesian airlines are resuming domestic service this week. Photo: Getty Images

Social distancing on board

As well as Garuda, other Indonesian airlines are making preparations to launch domestic services. Lion Air, Wings Air and Batik Air all plan to resume flights on Sunday, according to the Jakarta Post. The publication notes that social distancing will be applied on all flights, with Danang Mandala Prihantoro, Lion Air Group corporate communications strategic officer stating,

“[We will apply] the physical distancing policy in the cabin by omitting middle seats in the three-seat configurations in economy class. The passengers will either be seated by the window or by the aisle.

“Meanwhile, in the business class with two-seat configurations, we will apply a zig-zag seating arrangement.”

Do you think Garuda can survive the aviation crisis in one piece? Are the social distancing measures enough to keep domestic fliers safe? Let us know your thoughts in the comments.