Clock is tick­ing for Garuda as losses mount

Ne­go­ti­a­tions for gov­ern­ment aid move slowly

The Star Malaysia - StarBiz - - Foreign News -

JAKARTA: In­done­sia’s flag car­rier needs cash fast as losses soar past a half-bil­lion dol­lars and un­paid bills pile up, yet ne­go­ti­a­tions for gov­ern­ment aid move slowly and still may not yield enough to cover the short­fall.

A first-half loss of Us$713mil, an­nounced last week, was just the lat­est piece of bad news for PT Garuda In­done­sia.

The air­line al­ready missed a pay­ment on an as­set-backed se­cu­rity in late July, shortly af­ter ex­tend­ing the re­pay­ment of a Us$500mil sukuk – an Is­lamic bond – by three years be­cause of its cash crunch.

And it’s fac­ing a law­suit in London over air­craft rental fees. One mea­sure shows Garuda at risk of bank­ruptcy.

Some sal­va­tion could come from the gov­ern­ment, which in May pledged to ex­tend 8.5 tril­lion ru­piah (Us$580mil) to the air­line as part of a Us$10bil pack­age to a dozen sta­te­owned com­pa­nies.

But it hasn’t come yet. Garuda pres­i­dent di­rec­tor Ir­fan Se­ti­a­pu­tra said he was still in talks with au­thor­i­ties over the week­end, with­out giv­ing any tim­ing for the in­jec­tion. An­a­lysts warn it is un­likely to suf­fice any­way.

“It would be dif­fi­cult for the com­pany to stand on its own with only a 8.5 tril­lion ru­piah bailout,” said Chan­dra Pasaribu, head of re­search at Yuanta Se­cu­ri­ties. “With­out growth of its top line, it won’t be enough.”

Garuda’s Z-score, a method de­vel­oped by Ed­ward Alt­man in the 1960s to pre­dict bank­rupt­cies, was -0.05 at the end of the first quar­ter, its low­est in at least a decade.

The most re­cent fig­ures on traf­fic show Garuda’s pas­sen­ger num­bers plunged 98% in May from a year ear­lier, and by mid-july it had fur­loughed 825 staff af­ter pre­vi­ously cut­ting salaries.

In­done­sia re­mains in the grip of the pan­demic with more than 113,000 con­firmed cases. The In­ter­na­tional Air Trans­port As­so­ci­a­tion doesn’t ex­pect the air­line in­dus­try to fully re­cover be­fore 2024, a bleak out­look that is re­flected in Garuda’s share price, which has slumped more than 50% this year.

Garuda said in last Thurs­day’s earn­ings state­ment that it’s in talks with Aer­cap Hold­ings NV to re­struc­ture con­tracts af­ter the Dublin-based firm filed a law­suit on un­paid air­craft leases.

Garuda said it has “ne­go­ti­ated with Aer­cap sev­eral times.” The air­line also is in pay­ment talks with Helice Leas­ing SAS.

Garuda and its low-cost unit, Ci­tilink, lease most of their 210 air­craft. Rental costs were the equiv­a­lent of about 25% of the com­pany’s rev­enue last year, the most among nearly 60 car­ri­ers tracked by Bloomberg.

Se­ti­a­pu­tra, who took over Garuda in Jan­uary, just as the virus was erupt­ing in China, has said there would be a re­view of the air­line’s fleet and net­work.

At the end of 2019, Garuda had Us$299mil in cash and cash equiv­a­lents. That fig­ure shrunk to just Us$165mil at the end of June.

Op­er­at­ing ex­penses amounted to Us$1.6bil in the first six months of this year, with about Us$700mil of that in cash ex­penses to sup­pli­ers and staff salaries.

“Garuda is clearly losing money real fast,” said Shukor Yu­sof, founder of aviation con­sult­ing firm En­dau An­a­lyt­ics Pte Ltd in Malaysia. — Bloomberg

“It would be dif­fi­cult for the com­pany to stand on its own with only a 8.5 tril­lion ru­piah bailout. With­out growth of its top line, it won’t be enough.” Chan­dra Pasaribu

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.