Garuda Indonesia's restructuring drags on after a court last week gave the airline another month's breathing space. For the third time, an Indonesian court has extended the deadline for administrators of the country's flag carrier to verify creditors' claims against it. While Garuda Indonesia hasn't said how many claims it is yet to verify, the airline has confirmed claims exceed the US$9.8 billion it has in its books.

Garuda's administrators face a September deadline to sort out creditor's claims

According to Reuters, one of the administrators shepherding Garuda Indonesia through the restructuring process confirmed the Central Jakarta Commercial Court had extended the deadline to verify claims by 30 days to June 20.

Majority state-owned Garuda Indonesia entered the restructuring process, known in Indonesia as Penundaan Kewajiban Pembayaran Utang (PKPU) proceedings in December 2021. Indonesian law gives firms entering PKPU up to 270 days to sort their issues out before being placed into bankruptcy. That means Garuda Indonesia has a September 2022 deadline to resolve its outstanding matters.

When the court greenlighted Garuda's PKPU proceeding, the airline's creditors filed US$13.8 billion in claims. But Garuda Indonesia was only carrying $9.8 billion in liabilities on its balance sheet. Partly that difference is due to some of Garuda's 30 odd aircraft lessors submitting the total and future liabilities the airline was up for and not discounting or calculating the present value of those debts.

Garuda's third extension in its third restructuring

While that is adding a layer of complexity to the administrator's work, as of mid-March, they'd made zero inroads into verifying any of the creditor's claims other than disputing $888.5 million worth of claims. In February, Garuda Indonesia's administrators obtained their first court extension; in March, they obtained their second extension; and last week, administrators obtained their third.

The current restructuring process is Garuda Indonesia's third in as many decades. The airline's first restructuring took place between 1998 and 2001 and wiped $2.4 billion in outstanding debts. The second restructuring took place in 2005 after Garuda defaulted on loan payments. The airline survived to fly another day after the then administrators organized a debt-buyback program.

Fast-forward to December 2021, and an Indonesian court accepted a trade creditor's petition for Garuda to enter into the PKPU process. That creditor was PT Mitra Buana Koorporindo, a local IT company which the airline owed $293,000. Garuda Indonesia has since said it wants to use the current restructuring to reduce its debt to $3.7 billion - a 60% discount on the $9.8 billion in liabilities Garuda acknowledges.

Historical structural problems dog Garuda Indonesia

While the pandemic tipped Indonesia's flag carrier over the financial edge, Garuda's problems predated the outbreak of COVID-19. Crippled by cronyism, corruption, high operating costs (including very high aircraft lease expenses), and ongoing issues meeting debt commitments, Garuda Indonesia was in no position to withstand the financial challenges the pandemic caused.

Since entering its third restructuring process, aside from cutting debt, Garuda's top management has indicated they'll downsize the airline to a regionally focused carrier - that means fewer planes, a smaller network, and a leaner operating model.

Meanwhile, Garuda's administrators have a June 20 date with the Central Jakarta Commercial Court. Despite the September deadline looming, there's a good chance they'll seek a further extension of time to verify creditors' claims.

Source: Reuters