Beleaguered airline Garuda Indonesia is considering trimming its Airbus A330 orders and reducing the number of wide-body jets in its fleet, as it completely restructures its business to survive the pandemic.
The company is looking at canceling orders for the newest version of the Airbus jet – the A330neo – and has been talking to lessors about returning some of the A330s already in its fleet, people familiar with the matter said, asking not to be identified as the discussions were private.
One of them said the carrier is also considering halving its number of Boeing 777-300ER jets.
The move comes as the Indonesian flag carrier plans to seek a debt standstill with creditors to prevent the further depletion of its cash, Kartika Wirjoatmodjo, deputy minister at the state owned enterprises ministry, told parliament on Thursday.
He said Garuda may be forced into bankruptcy if creditors don’t approve a planned restructuring. “This is what we are trying to avoid as much as possible.”
Garuda has outstanding orders for nine A330-900s and four A330-800s, according to Airbus’s orders and deliveries list.
The state-owned carrier operates 10 Boeing 777-300ERs and 27 planes from the A330 family, which are mostly used for medium-haul routes.
Garuda didn’t immediately reply to requests for comment on the aircraft orders and fleet plans. An Airbus spokesperson declined to comment. Boeing didn’t immediately respond to an email request for comment.
Garuda President Director Irfan Setiaputra told staff on May 19 that the company needed to restructure, potentially more than halving its main fleet.
Before the pandemic, Garuda had the highest ratio of aircraft rental cost to revenue among airlines globally: 90% of the group’s fleet was leased in 2019, making the airline vulnerable with many planes grounded.
The carrier would typically use its wide-body jets to connect Indonesia with places such as Tokyo, Amsterdam, Melbourne and Sydney. The A330s also operate busy routes such as Jakarta to Singapore or Bali.
Airlines around the globe have been floored by the spread of Covid-19, with new variants adding more uncertainty on when international travel will return in earnest. Dozens have collapsed or been forced to restructure and adjust their fleets to ride out the crisis.
Among them in the Asia region, Philippine Airlines confirmed in mid-May it had held talks with lessors about shrinking its fleet and returning planes.
PREVIOUS [May 23, 2021] | Garuda Indonesia needs to completely restructure its business, potentially reducing the number of planes it operates to less than half its main fleet as it seeks to survive the crisis wrought by the pandemic, its president told staff this week.
“We have to go through a comprehensive restructuring, a total one,” President Director Irfan Setiaputra said in an address to staff on May 19, according to a recording heard by Bloomberg.
“We have 142 aircraft and our preliminary calculation on how we see this recovery has been going, we will operate with a number of aircraft no more than 70.”
The comments refer to the fleet of Garuda’s full-service airline excluding its low-cost carrier Citilink. Garuda is already operating at a reduced capacity of just 41 aircraft, and is unable to fly its other planes because it hasn’t made payments to the lessors for months, Setiaputra said.
The Covid-19 crisis has forced dozens of carriers and other aviation businesses including Thai Airways, Latam Airlines and lessor AeroCentury to restructure or seek bankruptcy protection.
In recent days, people familiar with the matter said Philippine Airlines is in talks to raise about US$500 million as part of a Chapter 11 restructuring plan that it’s considering to file in the U.S.
Garuda's debt at $5bn and growing
In the remarks, Setiaputra also said that Garuda has around 70 trillion rupiah (US$4.9 billion) of debt which increases by more than 1 trillion rupiah each month as it continues to delay payments to suppliers.
The company has negative cashflow and its equity is minus 41 trillion rupiah, according to Setiaputra. Failure to execute the restructuring program “could result in an abrupt end of the company,” he said.
Setiaputra declined to comment when contacted by Bloomberg regarding the address. There was no immediately reply over the weekend from Garuda’s corporate communications department to a request for comment.
While air travel within some countries is recovering as vaccination rollouts gather pace, a return to pre-pandemic levels of traffic could still take years as the virus mutates and governments take different approaches to opening borders.
The International Air Transport Association has warned carriers globally will lose about US$48 billion in 2021 amid setbacks in restarting travel.
Concerns that the effects of the pandemic may persist longer than initially expected have registered recently in trading of airline financial securities.
The price of Garuda’s $500 million sukuk – Islamic bonds – has declined about 7 cents over the past month to 81, around the lowest since January. The airline won approval from investors last June to extend repayment of that debt by three years.
In a separate statement sent Friday by text message, Setiaputra said that Garuda is in the initial stages of offering an early retirement program for employees as part of cost-cutting measures. The group had 15,368 employees and operated 210 aircraft as of September, according to the latest available reports.
Garuda’s group passenger volume plunged 66% last year on border curbs and limited domestic demand. In mid-2020, the carrier had furloughed around 825 staff after previously cutting salaries.
This article is published under license from Bloomberg Media: the original article can be viewed here