Indonesian lawmakers are divided over whether to resort to folding flag carrier Garuda Indonesia should ongoing restructuring negotiations fall through.

Indonesia’s House of Representatives member Evita Nursanty voiced support for the Ministry of State Owned Enterprises’ proposed option to close Garuda should negotiations fail, while preparing Pelita Air Service or other airlines to replace it, according to a 26 October statement in Bahasa Indonesia on Indonesia’s parliamentary website.

Garuda 737-800

Source: Wikimedia Commons

A Garuda 737-800 taking off in September 2020

Nursanty states: “If the negotiations are tough… there is no other choice but [for] the Ministry of SOEs [to] prepare Pelita Air or other airlines as replacements.”

She said the move would be “in anticipation of the very serious situation.. [if Garuda] can no longer [negotiate] with lessors, lenders and global sukuk holders”.

Nursanty also said that the House of Representatives “had confirmed that other options that require state capital participation [via local financier Permodalan Nasional Madani] would not be possible”.

“I would certainly like… if Garuda Indonesia remained, but if… lessors and lenders still don’t want to negotiate, then just close it,” she added.

She highlights the USA as an example of a country in which commercial flights are “fully managed by the private sector”, adding that “a country can replace its national carrier and even eliminate it [and cooperate] with international airlines for international flight schedules”.

However, another House of Representatives member Herman Khaeron argued that there remains “still a glimmer of hope to save Garuda Indonesia… from the threat of bankruptcy”.

Khaeron urged the government to find the best solution to save the airline, such as providing capital injections and “helping [it] find a way out of a pile of debt”.

However, he acknowledged Garuda’s debts, exacerbated by the Covid-19 pandemic, are estimated at Rp70 trillion.

“The problem is that this pandemic is prolonged, debt is increasing, and negotiations with lessors are deadlocked,” he explains.

“We must continue to strive to produce the best agreement so [that] Garuda [can] continue its business and find the right way to fulfil its obligations to pay debts. We are determined in the [upcoming] commission meeting to encourage Garuda to remain the flag carrier of the country and be maintained as the pride of the Indonesian nation,” he says.

According to the 26 October parliamentary statement, the Ministry of State Owned Enterprises had confirmed a plan to prepare Pelita Air Service as the national scheduled airline to replace Garuda, in anticipation that its restructuring and negotiations fail.

On 19 October, Garuda said it remained focused on restructuring and had not received official information on other options like bankruptcy, as reported by local media.

Garuda confirmed that it had been in discussions with the Ministry of State Owned Enterprises regarding its restructuring plan and in talks with creditors to achieve the “best settlement and optimal restructuring” to improve its performance.

Cirium has contacted Garuda on 27 October for additional comment.