Indonesian Government Eyes Garuda Indonesia Replacement

Simple Flying

By Andrew Curran

Published Nov 1, 2021

A Lion Air and Garuda Indonesia aircraft are seen at the Soekarno-Hatta airport in Tangerang near Jakarta on September 28, 2015 as Garuda Maintenance Facility Aeroasia, a subsidiary of national flag carrier Garuda Indonesia, inaugurated a new hangar. Garuda built the facility with the cost more than 400 billion rupiah (USD 27.15 million) as part of their expansion to keep up with the booming airline industry and modernization of aircraft maintenance service. The new hangar can accommodate eight aircraft and will be able to provide capacity of 16 narrow body aircraft when fully completed. AFP PHOTO / ROMEO GACAD (Photo credit should read ROMEO GACAD/AFP via Getty Images)

Trouble-plagued Garuda Indonesia continues to drift towards bankruptcy as the Indonesian Government eyes various contingency plans if the flag carrier fails. Among other things, little known Pelita Air Service is being prepped to step into the breach.

Long-running negotiations with creditors fail to gain results

Garuda's woes have been well-reported. Inadequate management, financial losses, and scandals were dragging the Jakarta-based airline down well before COVID-19 delivered its near-fatal blow.

For the last 18 months, Garuda Indonesia has investigated how to curb losses and cut costs, without much progress. The airline lost around US$900 million in the six months to June 30, 2022, and now faces a $5 billion pile of debt.

While the airline is listed on the Jakarta Stock Exchange, the majority of shares remain in Indonesian Government hands. The Government's messaging on the flag carrier has been inconsistent. At times, they say they will help the airline. At other times, they indicate they will cut it loose.

The State-Owned Enterprises Ministry says it is negotiating with long-suffering aircraft lessors and other creditors, some of whom have launched legal proceedings over unpaid debts.

The carrier is set to end its long-haul flights permanently, send back or retire around two-thirds of its 120 strong fleet, and focus on short-haul low-cost operations.

"We are struggling to negotiate with Garuda’s lessors and creditors," Indonesia-based Anatara News reported an Indonesia Government official saying last week. "This is important. This negotiation option is the first that we prioritize."

Indonesian House of Representatives member Herman Khaeron threw in his two cents' worth later in the week.

“If the situation returns to normal following the pandemic, then Garuda will be able to improve its performance and cover its liabilities," he said.

"We must continue to make endeavors to achieve the best agreement. Thus, Garuda still has an opportunity to continue its business and find an appropriate way to fulfill its obligation to repay its debts."

garuda-indonesia-replacement-pelita-getty — Garuda Indonesia will focus on short-haul domestic operations if it survives. Photo: Getty Images

Contingency planning within the Indonesian Government

But higher up the Indonesian Government food chain, officials are weighing up Garuda's future. If it does survive, the days of long-haul flying are over. So it's sayonara to Garuda's on again off again flights to far-flung destinations like Amsterdam and London.

If Garuda goes under - and that remains a live prospect - the Indonesian Government wants another airline to step into the breach. Top of the pile is Pelita Air Service. Pelita is a charter airline owned by state-owned oil giant Pertamina.

Pelita has a fleet of just seven planes, including six ATR 72s and a single BAe 146. However, they'd inevitably pick over the carcass of Garuda's fleet if that airline collapsed.

This will be Pelita's second scheduled service after launching Jakarta-Bali last month. Photo: Laurent ERRERA via Wikimedia

Pelita formerly operated passenger flights before focusing on charter operations. Reliable reports say the Indonesian Government will allow the airline to restart passenger operations. Pelita has also asked to change its air operator's certificate to allow it to operate passenger flights.

"If we reach a dead end, we will close Garuda because injecting more state money is impossible given the company’s huge debt burden,” said Deputy Minister of Public Enterprises Kartiko Wirjoatmodjo last week.

For its part, Garuda Indonesia says it remains committed to restructuring its debt and operations, stabilizing the airline, and providing some runway for future operations. It appears, not everyone in Indonesia is confident the airline can do that.