Garuda Indonesia creditors set to lose billions following bankruptcy court ruling


An Indonesian judge has approved Garuda Indonesia’s restructuring plan, giving the beleaguered airline the green light to rid itself of billions of dollars in debt and revamp its fleet and operations. In a filing Monday at the Indonesian Stock Exchange, Garuda Indonesia confirmed that a judge at the Jakarta Commercial Court had accepted the restructuring plan and that the airline was preparing to “accelerate the recovery of its performance”.


Third chance for Garuda Indonesia

The judge’s approval means the restructuring is the airline’s third in three decades. The deal also sees creditors losing billions. Garuda executives bowed to the inevitable in 2020 when COVID-19 crippled the already struggling airline. However, it was not until the end of 2021 that the commercial court accepted a creditor’s petition for bankruptcy, and Garuda Indonesia began a formal court-supervised restructuring process.

Since then, it’s been a high-stakes drama of delays, disgruntled creditors, mixed messages and independent politicians as airline restructuring advisers (Garuda Indonesia is 60.5% owned by the Indonesian government). As recently as last week, two creditors continued to oppose the restructuring plan proposed by the administrators of Garuda.

Following Monday’s court ruling, Garuda Indonesia lives to fly another day. Photo: Airbus

The precise details of the final restructuring plan remain unclear, but in the final tally the administrators agreed and presented a debt of more than $9 billion to the court. The creditors are long-suffering aircraft lessors, aircraft manufacturers (Airbus owes more than $537 million), bondholders, suppliers and employees of Garuda Indonesia. Earlier this year, Garuda administrators said creditors would lose 81 cents for every dollar owed. The administrators went to court on Monday with the support of 97% of creditors.

This support came at a cost. Garuda Indonesia was seeking to write off up to $6 billion in debt and restructure the rest into a series of bonds and shares that would allow the airline to retain the meager capital reserves it had and creditors were counting on the promise that they could recoup a few years of money down the trail.

But the alternative was bankruptcy and the liquidation of the airline’s assets, which would allow most creditors to recover even less money. Approval of the restructuring plan shaped as the lessor of the two evils. Monday’s ruling in favor of Garuda also means the airline will receive a promised cash injection of $500 million from the Indonesian government via an initial rights issue that was dependent on court approval of the restructuring plan.

Garuda Indonesia may have avoided bankruptcy, but in the future it will be a smaller, leaner airline. Photo: Getty Images

Fall from grace for Garuda Indonesia

It was a significant fall from grace for what was once Indonesia’s premier airline. In June, the Garuda Group’s share of the domestic air transport market in Indonesia was 18% and its share of the international air transport market in Indonesia was 5%. The Garuda Group includes Garuda Indonesia and its low-cost subsidiary Citilink. Take out Citilink and Garuda Indonesia’s domestic market share this month is only 5%.

When COVID-19 started, Indonesia closed its borders, destroying inbound and outbound markets. Passenger traffic in Indonesia, usually one of the world’s biggest domestic aviation markets, also slumped. Today, Indonesia’s borders are open again and travelers can enter and exit the country with minimal hassle. According to data from IBS Statistics, international seat capacity to and from Indonesia this month is around 32% of June 2019 levels, and domestic seat capacity is around 80%. June 2019 levels.

Garuda’s third lease of life coincides with the recovery of the aviation market in Indonesia, which should contribute to the airline’s stated goal of accelerating its performance recovery.

Garuda’s stated goal following Monday’s court ruling is to “accelerate his performance recovery.” Photo: Airbus

Depleted market share and depleted fleet

Indonesian aviation market specialist Brendan Sobie of Sobie Aviation said that after the restructuring process, Garuda Indonesia would be left with around 70 aircraft, half of its pre-pandemic fleet. He says the airline is currently flying around 40 planes, leaving 30 to be reactivated. Among the remains will be planes destined for scrap, given their age and condition. Garuda Indonesia is, or was, slightly unusual given the high number of leased aircraft in its fleet. Part of the reason Monday’s green light took so long to come was the complex negotiations with 30 odd plane lessors, most of whom had substantial skin in the game and were probably a little weary of another bankrupt airline trying to dodge its lease debts.

Everything indicates that a restructured Garuda Indonesia will reduce its ambitions and network to Southeast Asia and abandon its old long-haul routes. The airline is reduced to a dozen international destinations, the only ports beyond Asia being Amsterdam (AMS), Jeddah (JED) and Sydney (SYD).

Beyond the immediate post-restructuring period, Citilink will become the focus of the Garuda Group. The low-cost airline better matches the Indonesian domestic market and its particular demographics. Unlike its parent airline, Citilink’s fleet is not downsized and almost all of its planes are back in the air. Citilink has a much larger domestic market share than Garuda Indonesia, and Brendan Sobie expects that to continue.

On Monday, following the commercial court hearing, Indonesia’s Minister of Public Enterprises, Erick Thohir, spoke to the media to confirm that the government would honor its pledge of $500 million in funding. He also added that Garuda Indonesia will stay close to home in the future.

“What is certain is that Garuda will focus in the future on domestic and non-international flights. The latter have recorded 70% losses.,” he said. “It is better to improve our domestic potential by focusing less on foreign countries.”

The Garuda Group will focus on low-cost carrier Citilink in the future. Photo: Airbus

Another corruption investigation will haunt Garuda Indonesia

Meanwhile, no Garuda Indonesia news is complete without some drama. Unrelated to the restructuring process, but garnering more Indonesian media attention today, former Garuda CEO Emirsyah Satar is facing another corruption investigation. On Monday, Indonesia’s attorney general’s office confirmed that an investigation was underway into planes purchased between 2011 and 2021.

The hapless Mr Satar was the CEO of Garuda between 2005 and 2014 and was hacked in 2020 on corruption charges relating to Airbus planes and Rolls-Royce jet engines. Mr Satar was sentenced to eight years in prison – which may explain why Indonesian media reported that he was unavailable to comment on the latest investigation.


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