Indonesia's government is hoping to bring a strategic equity partner into Garuda Indonesia as part of its effort to save the ailing national carrier.

Garuda is in financial trouble and trying again to win relief from its hundreds of millions of dollars in debt obligations. At the end of 2005 it stopped making principal payments on its debt and has since been negotiating a wide-ranging restructuring with creditors.

Airline president Emirsyah Satar says the government is now interested in bringing in a stake-holding partner, either in the form of another airline directly or an investor with existing airline interests.

"Right now the government has already agreed that they will invite a strategic partner to come in and this is a milestone for Garuda," says Satar.

"Some interested parties are already in discussions with the government. There is a team now working on this process. The idea is to bring in someone who can add value to Garuda."

Satar says the hope is a strategic partner will be brought in by the end of the first quarter of 2007. He adds that the percentage stake on offer has not been determined, but "the existing shareholder, the Indonesian government, will keep a majority stake".

Garuda has been suffering as a result of intense competition at home, high fuel prices, higher interest rates and a drop in demand following terrorist bombings on the resort island of Bali.

Satar says talks are ongoing with key creditors on a hoped-for debt restructuring and bringing in a strategic partner "is part of the discussions". European export credit agencies are the biggest creditors and are collectively owed around $570 million, says Satar.

Garuda last restructured its debts in 2001, when it owed creditors $1.8 billion. That restructuring mainly covered an extension of the repayment period and the conversion of debt into additional equity.

The Indonesian government has promised to inject additional funds into the airline to help Garuda through its current crisis. Satar expects Garuda to report a 400 billion ($44 million) rupiah loss for 2006. It incurred a 688 billion rupiah loss in 2005.

"The idea is to bring in someone who can add value to Garuda."

Emirsyah Satar, president, Garuda Indonesia

Source: Airline Business