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Garuda defends treatment of IFEC deal in 2018 results

Garuda Indonesia has defended its decision to recognise $242 million of future revenue from an inflight wi-fi and entertainment deal with Mahata Aero Teknologi (MAT) as an operating item in its 2018 financial results.

In three separate stock exchange disclosures, the carrier explained that based on Indonesian accounting standards, it is able to book income from services should four specific conditions were fulfilled: ability to measure income gained from the sale and its associated cost of the transaction, economic benefits to be gained by the company, and the ability to track progress of a particular transaction at the end of the financial period.

As a result, it opted to book the $242 million income from the 15-year deal in 2018, which covers the installation of inflight wi-fi and entertainment content management on aircraft operated by Garuda Indonesia and Sriwijaya Air group carriers.

While Garuda has yet to receive payment from Mahata, the monies it was due to receive have become receivables owed to the airline. Based on its own internal projections, Garuda will gain from a net free cash flow from the deal between 2021 and 2033, after Mahata conducts initial investments in 2019 and 2020.

The accounting treatment of the deal has come under scrutiny from two of the airline's commissioners after it allowed it to report a $101 million full-year operating profit for 2018.

Garuda says that Mahata was selected to provide the fleet-wide IFEC systems as it offered a revenue-sharing proposal that required no investment by the airline.

Mahata has working agreements with companies such as Aeria Interactive, Inmarsat, Lufthansa Technik and Lufthansa Systems.

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