Tom Ballantyne

Reeling from a freefall in its local currency which has blown up debt, Jakarta's state-owned flag carrier Garuda Indonesia may face bankruptcy unless it auctions off assets.

The country's economic collapse, coupled with a string of accidents including a major crash last September in which 300 died, has clearly destroyed Garuda's recovery plans, which included massive staff cuts as well as operational and route restructuring.

In an unprecedented attack on the loss-making carrier, Jakarta's transport minister Haryanto Dhanutirto told 400 senior Garuda personnel they would 'all be finished' if the airline's economic woes continued.

Dhanutirto has warned the airline's managers to sell off US$230 million in assets to avoid bankruptcy. 'If they are slow in selling off their assets, they will endanger the company. The company's performance must be enhanced in a single package. If not overcome, the company will collapse,' he says.

Garuda is now desperately looking for the means to raise some cash. In January, the carrier was planning to sell its ground handling business for some $26 million but the minister said that would hardly dent debt. Dhanutirto wants Garuda to sell its hotel chain quickly, to appease the mounting debt level.

Dhanutirto's dressing down came just weeks after he publicly accused the airline of being a 'parasite living off the ministry of transport's profits', disclosing it lost more than $45 million in the first six months of 1997. Garuda received a $630 million capital injection from government coffers last year and promised to commit another $370 million from its own funds.

The government funds reduced debt from 3.1 trillion rupiah ($1.2 billion) to 1.4 trillion rupiah ($518 million). But the rupiah was then valued at 2,700 to the dollar. By mid-January, the currency had crashed to 8,300 to the dollar, meaning the $518 million in debt had erupted to 4.3 trillion rupiah.

The carrier is already failing to meet its debt obligations. Garuda allegedly defaulted on two payments worth $8 million last December, owed to banks which are financing orders for Airbus aircraft. Garuda has purchased six aircraft from Airbus at a cost of $630 million, of which it has so far only paid 20 per cent. The financing for the deal was provided by a consortium of European banks led by Crédit Lyonnais, Paribas and Deutsche Morgan Grenfell.

The airline's finances look dire. Garuda's net profit reached $46 million in 1996, mostly the result of aircraft and spare parts sales. The previous year, the airline lost more than $125 million and results for 1997 are expected to be disastrous. Plans for the airline to float, originally scheduled for 1996, have been indefinitely postponed.

Source: Airline Business