Nicholas Ionides / Paris
hopes to finalise a sweeping financial restructuring by the end of the year that it expects will include a recapitalisation by the Indonesian Government and agreement with key creditors on debt repayment changes.
CEO Emirsyah Satar said in an interview at the IATA annual general meeting in Paris that a new five-year restructuring plan was completed in April and presented two weeks ago to creditors at meetings in the UK and Singapore.
He says it was drawn up together with Lufthansa
Consulting and provides for immediate overall cost-cuts of 5-10%, and fleet and network changes, among other initiatives.
State-owned Garuda has admitted to being in severe financial difficulty and stopped making principal payments on its $794 million debt at the end of last year. Satar says it continues to make interest payments but has chosen not to make principal payments to preserve badly needed cash and ensure that it can keep operating passenger services.
The airline has been suffering as a result of intense competition at home, high fuel prices, the weakening of the local currency, higher interest rates and a drop in demand following the October terrorist bombings on the resort island of Bali. Satar says it lost $68 million in 2005.
“A year ago we were doing a new business plan but practically we had to redo everything again after the Bali bombing,” he says.
“The market has changed so much for us. We have had to reduce capacity, as the Japanese and Australian markets have come down dramatically, so we had to start again on the business plan.”
Satar adds of the key elements of the restructuring plan that has been presented to creditors: “In essence 2006/7 will be a consolidation year for us. We plan to cut our costs by 5-10% and we will be starting this during this semester.”
He says Garuda hopes to secure agreement from creditors on debt restructuring “by December”. He will not say what proposals have been presented to creditors, the biggest group of which is the European export credit agencies, saying only that “we have several options”.
Satar says, however, that the Government has promised to assist the airline and there will be a recapitalisation.
“The Government has just set up a team, from the State Owned Enterprises, Finance Ministry and Transport Ministry, and with Garuda they will be negotiating with the creditors,” says Satar.
“My timetable is we should come to an agreement on everything by December.”
The state-run Antara news agency said recently that the national carrier’s restructuring plan foresees its debt being reduced to $274 million from $794 million, in part through the conversion of debt into equity.
Garuda last restructured its debts in 2001, when it owed creditors a total of $1.8 billion. That debt restructuring mainly covered an extension of the repayment period and the conversion by the Indonesian Government of debt into additional equity.