JAKARTA: The State-Owned Enterprises (SOEs) Ministry has announced a new plan to save Garuda Indonesia, as the debt-laden national air carrier teeters on the edge of bankruptcy.

       The proposal, unveiled by deputy SOEs minister Kartika Wirjoatmodjo, entails pressing creditors – including aircraft lessors, banks and business partners – to accept either a haircut or a debt-for-equity swap.

       Garuda would issue zero coupon bonds to repay state-owned companies Pertamina, Airnav, Gapura, Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia and would conduct a debt-for-equity swap to repay state-owned airport operators AP I and AP II.

       The two options are also on the table for aircraft lessors, which account for two-thirds of the air carrier’s total US$9.8bil (RM40.70bil) of debt.

       Kartika said the plan was expected to cut Garuda’s debt by US$6.09bil (RM25.29bil) to US$3.69bil (RM15.33bil), a 62% reduction.

       “If there is no debt reduction on its balance sheet, (Garuda) will not be able to survive,” Kartika said during a hearing at the House of Representatives. Garuda shareholders were previously weighing several options to save the company, including bailing it out, restructuring its debt or establishing a new national air carrier.

       The new plan would also involve downsizing operations and renegotiating aircraft leases to pull Garuda’s equity out of the red.

       Under the proposal, Garuda’s fleet is to be cut from 202 to 134 planes by next year, halving the types of aircraft the carrier uses to seven, reducing its routes and decreasing its flight frequency.

       Negotiators would seek to change existing leases from a fixed rate to an hourly rate, among other alterations that would attempt to reduce leasing fees.

       Overall, the new plan would seek to slash Garuda’s liabilities by 74% to US$2.57bil (RM10.67bil) and its assets by 60% to US$2.75bil (RM11.42bil), giving the company US$181mil (RM751.78mil) in equity.

       Garuda’s equity was at negative US$2.82bil (RM11.71bil) as of September this year, the lowest in the company’s 72-year history and lower than that of state-owned insurer PT Jiwasraya, which was the subject of a major embezzlement scandal last year.

       Garuda was “technically bankrupt”, said Kartika.

       Garuda plans to put the debt restructuring plan into effect by filing for a suspension of debt payment obligation (PKPU) at a commercial court in Indonesia.

       Garuda president director Irfan Setiaputra said that settling the matter in court would be faster than out of court, a process that would take more than two years as the company would have to talk to creditors one by one.

       He said Garuda did not have that much time, as lessors would likely demand that the company ground its leased planes, which make up the majority of its fleet, within three to six months.

       “An out-of-court settlement would be too long. Garuda’s fleet is mostly leased, so when (lessors) are tired of negotiating and international air traffic recovers, they could move their aircraft elsewhere and we would be done for,” he said.

       The SOEs Ministry estimated that there was a 30% chance that Garuda would go bankrupt, in which case state-owned charter airline Pelita Air would take over its operations.

       Pelita, a subsidiary of Pertamina, operated scheduled flights between 2002 and 2007 but afterwards chose to focus on its core business of charter flights.

       The ministry estimated that Garuda could break even by June 2022, assuming that the court settlement finished by the second quarter of next year and the company’s revenue returned to pre-pandemic levels by 2023.

       Aviation expert Gerry Soedjatman said the decision to settle the matter in court was “inevitable” considering the company owed money to between 400 and 800 creditors, including 32 lessors, which meant normal negotiations would be too difficult and time-consuming.

       “There is no guarantee that it will work, but the chance of success is higher with a PKPU,” he told The Jakarta Post.

       He urged Garuda to file for the PKPU this year, as creditors were becoming impatient and it would likely be harder to approach them next year. “If it’s (filed) later than the first quarter of next year, Garuda will be like a dying patient in the emergency room,” he said.

       Centre of Economic and Law Studies Bhima Yudhistira said it would be too costly to save the flag carrier, as the airline was in a huge amount debt that was continuing to climb, so it would be more economical to establish a new national carrier. ― The Jakarta Post/ANN