PT Garuda Indonesia must completely restructure its business, potentially reducing the number of aircraft it operates to less than half of its main fleet as it seeks to survive the crisis brought on by the pandemic, its president told staff this week.
“We have to go through a complete restructuring, a total restructuring,” Chairman and CEO Irfan Setiaputra said in a staff address on May 19, according to a recording heard by Bloomberg. “We have 142 aircraft and our preliminary calculation of how we see this recovery has gone, we will be operating with a number of aircraft no more than 70.
Comments refer to Garuda’s full-service airline fleet excluding its low-cost carrier Citilink. Garuda is already operating at a reduced capacity of just 41 planes and is unable to fly his other planes because he hasn’t made donor payments for months, Setiaputra said.
The Covid-19 crisis has forced dozens of carriers and other aviation companies, including Thai Airways International Pcl, Latam Airlines Group SA and lessor AeroCentury Corp. to restructure or seek bankruptcy protection. In recent days, people familiar with the matter have said Philippine Airlines Inc. is in talks to raise around $ 500 million in a Chapter 11 restructuring plan he plans to file in the United States
In these remarks, Setiaputra also said that Garuda has around 70 trillion rupees ($ 4.9 billion) in debt which grows by over 1 trillion rupees each month as she continues to delay payments to suppliers.
The company has cash flow and its equity is minus Rs 41 trillion, according to Setiaputra. Failure to execute the restructuring program “could bring the business to an abrupt end,” he said.
Setiaputra declined to comment when contacted by Bloomberg regarding the address. There was no immediate response over the weekend from Garuda’s corporate communications department to a request for comment.
As air travel in some countries recovers as immunization deployments accelerate, the return to pre-pandemic trafficking levels could still take years as the virus mutates and governments take different approaches to open borders . The International Air Transport Association has warned that carriers around the world will lose an estimated $ 48 billion in 2021 due to setbacks in the resumption of travel.
Concerns that the effects of the pandemic could persist longer than initially anticipated have recently arisen in the trading of airline financial securities. The price of Garuda’s $ 500 million sukuk – Islamic bonds – fell about 7 cents in the past month to stand at 81, about the lowest since January. The airline obtained investor approval last June to extend the repayment of the three-year debt.
In a separate statement sent by text Friday, Setiaputra said Garuda was in the early stages of offering a early retirement program for employees as part of cost reduction measures. The group had 15,368 employees and operated 210 aircraft as of September, according to the latest available reports.
Garuda Group’s passenger volume fell 66% last year due to border curbs and limited domestic demand. By mid-2020, the carrier had laid off around 825 employees after reduce wages.
The airline company Altman Z-score, a method developed by Edward Altman in the 1960s to assess credit strength, was -0.9 at the end of the third quarter, the company’s lowest reading in a decade of recorded data by Bloomberg.