Garuda Indonesia Is Considering Cutting Its Fleet To Save Money

Garuda Indonesia is buckling under a mountain of debt and struggling to keep up with payments to creditors. The airline’s executives told lawmakers yesterday that it was looking to return as many as 101 aircraft to lessors. Furthermore, according to a five-year business plan, Garuda is aiming for a fleet of only 66 planes from 2022 onwards.

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Garuda Indonesia could enter court-supervised restructuring. Photo: Getty Images

Looking to return 101 planes to lessors

Jakarta-based Garuda Indonesia is the latest in a long line of carriers to bend under the weight of the COVID-19 crisis. Last week, the airline failed on US$500 million Sukuk (Islamic financing similar to Western bonds) and is now considering a court-supervised debt restructuring process.

This could mean slashing its fleet to as few as the 41 planes that are currently active, compared to the overall number of 142 – an even grimmer outlook than previous suggestions that Garuda was looking to cut the fleet in half.

Garuda says it has already returned 20 jets to their lessors and negotiated the return of another seven. The five-year business plan the airline presented to Parliament starting in 2022 includes a fleet of 66 planes. However, in order to cut its massive lease costs, Garuda is first hoping to go significantly below that number.

“The negotiation process is not easy. We want to return 101 planes, but it will take time,” Dony Oskaria, Garuda’s Deputy CEO, told lawmakers in a hearing on Monday, as reported by Reuters.

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Ailing Garuda Indonesia wants to return over 100 planes to lessors. Photo: Getty Images

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Bleeding $100 million per month

Out of the 142 aircraft still in the airline’s fleet, as many as 128 are leased. Garuda also has orders for four Airbus A330-800, nine A330-900, five ATR72 turboprops, and a full 49 of the Boeing 737 MAX 8 to add to the one already in the fleet and currently parked.

Garuda’s total debt sits at about US$4.5 billion. The airline currently has a negative cash flow of around US$100 million per month. Mr Dony also said in the hearing that the company is currently in the process of negotiating early terminations, lease holidays, and pay-by-the-hour schemes. The airline has already let go of 2,300 of its 7,800 pre-pandemic employees.

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Garuda Indonesia has let go of a significant portion of its pre-crisis employees and is negotiating further cost-cutting measures such as early terminations. Photo: Getty Images

Could end with bankruptcy for Garuda

Garuda’s Chief Executive Officer, Irfan Setiaputra, told Parliament on Monday that the carrier was now considering negotiating its mounting debt in a commercial court. However, he expressed concern that if no solution could be reached with creditors, the court may end up declaring Garuda bankrupt.

“Garuda must have a solid plan because … creditors must be convinced that if they sacrifice their claims, they know that Garuda will sustain for a longer time,” Reuters quoted Mr Setiaputra.

What do you think Garuda’s fleet could look like on the other side of the crisis? Will the airline make it through, or will it be declared bankrupt? Leave a comment below and let us know.

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