Indonesia's government has thrown troubled carrier Garuda Indonesia a lifeline by approving a 1 trillion rupiah ($109 million) cash injection.

Approval for the so-called "bridging finance" came in mid-September after much discussion in parliament. The government says a portion of the funds will be injected into the state-owned carrier this year and the remainder next year after certain conditions are met.

State-owned Garuda has admitted to being in severe financial difficulty and at the end of last year stopped making principal payments on its nearly $800 million debt. It has said it is continuing to make interest payments but cannot cover principal payments as it needs to preserve badly needed cash to ensure it can keep operating passenger services.

Approval for the urgently needed funds came as the airline negotiates sweeping financial restructuring that it hopes will include agreement from creditors on further restructuring of its debt.

Chief executive Emirsyah Satar said earlier this year that a new five-year restructuring plan was presented to creditors in May. Drawn up together with Lufthansa Consulting, it provides for immediate overall cost cuts of 5-10% as well as fleet and network changes.

Garuda has been hard hit by more intense competition at home as well as high fuel prices, the weakening of the local currency, increased interest rates and a drop in demand for travel to and from Indonesia following terrorist bombings on the resort island of Bali.

The carrier has said it hopes to reach agreement with creditors, the biggest group of which is the European export credit agencies, before the end of the year. The restructuring plan is widely expected to see the government taking on a large portion of the carrier's debt burden by converting debt into equity.

Garuda last restructured its debts in 2001 when it owed creditors $1.8 billion. That restructuring primarily covered an extension of the debt repayment period, as well as the conversion by the government of debt into additional equity. ■

Source: Airline Business