Garuda Indonesia is studying its options about a 51% stake in Sriwijaya Air through low-cost unit Citilink.
In response to a stock exchange query, Garuda says options under consideration include a debt-to-equity swap, which would see Sriwijaya Air's debts owed to the Garuda Indonesia Group converted into shares.
"The study is being made so that [any] transaction would be conducted in accordance with the applicable regulations, and that it provides an optimal result for the company," says Garuda.
The SkyTeam carrier's response was made after its commercial director Pikri Ilham Kurniansyah was quoted in a 23 January Tempo newspaper report that Garuda is set to take a 51% stake in Sriwijaya Air over the next four months.
Garuda's chief executive Ari Askhara was quoted in the same report as saying that a debt-to-equity conversion will be made. He also quoted a figure of Rp1.5 trillion ($106 million), but did not clarify if the amount refers to Sriwijaya's debt to Garuda as a whole, or Sriwijaya's overall value.
The Tempo report goes on to indicate that some of Sriwijaya's debts to the Garuda group include an outstanding payment worth $9.33 million for the overhaul of 10 CFM International CFM56-3 powerplants used on its Boeing 737 fleet. Both parties have since agreed on an installment payment plan, to be made over a three year period.
Adding on to Sriwijaya's short-term pressure are $4.32 million worth of debts due for repayment in the coming months, the report adds.
Talk of Garuda group potentially taking a majority stake in Sriwijaya first surfaced in November 2018, after Citilink entered into an "operational cooperation agreement" with Sriwijaya Air and Nam Air. This saw Citilink assume management control of the two Sriwijaya Air Group airlines as well as their financials.
At that time, Garuda indicated Citilink could eventually own shares of Sriwijaya Air Group. When contacted by FlightGlobal, Garuda was unable to provide information on the financial aspects of the agreement, other than to say that Sriwijaya and Nam will continue to operate under their own air operator's certificates.