Domestic Bonds

Saved from bankruptcy – Editorial

Editorial Board (The Jakarta Post)

Jakarta ●
Wed 22 Jun 2022


The government is expected to accelerate the disbursement of its commitment of 7.5 trillion rupees ($500 million) in additional equity to Garuda Indonesia despite a court ruling on Monday to postpone its ratification of the restructuring agreement until next week. the debt between the airline and its creditors.

The national airline urgently needs additional working capital to immediately expand its passenger and cargo services and build credibility in leasing more aircraft to boost revenue to meet debt repayment schedules, starting next April.

The latest setback at Monday’s hearing, which resulted from objections from two creditors, will no longer affect the debt restructuring plan that was approved by more than 95% of Garuda’s creditors last week. Strong government support will also make Garuda more attractive to new investors and boost its competitiveness.

We should commend Garuda’s management for successfully reaching an agreement last week to restructure its $9.5 billion debt to so many foreign creditors consisting of aircraft manufacturers, lessors, maintenance contractors and Islamic bond investors, who hold most of the liabilities.

These foreign creditors agreed to undertake a significant debt write-down (known as a haircut), restructure $5.5 billion to $6 billion in debt, and exchange the remaining amount for $825 million. of nine-year bonds and $300 million in stocks. But debts to national banks and state-owned enterprises will be extended for 22 years without reduction.

We believe that foreign creditors made the right decision given the great prospects for air transport in the world’s largest archipelago and the Indonesian economy. The bankruptcy option would eliminate any chance for creditors to recover their loans, as income from the liquidation of assets would first be allocated to tax payments and employee severance packages.

The debt restructuring agreement comes at the right time for the national airline to benefit from the strong recovery in the airline sector. With a population of over 270 million and a growing middle class, the country certainly needs air travel. Its strategic location in the middle of the trade flow between Europe and Australia provides Garuda with a huge opportunity for expansion.

An airline, and national flag carrier for that matter, is an essential development entity in a vast archipelagic country like Indonesia, but the business must be anchored on good governance and operational excellence. And we strongly believe in the competence and integrity of the current management, which took over from the previously corrupt board in January 2020.

Now that foreign creditors themselves have shown confidence in Garuda’s business plans, the government should focus on the state airline and its low-cost carrier subsidiary Citilink to present a stronger competitor to the Lion Air group with its three air units which now dominate the provision of domestic flights. And in the interests of efficient resource allocation, Pelita Air, a subsidiary of state-owned Pertamina, is expected to postpone plans to expand its scheduled services.

Efficient air travel drives growth as travelers spend money with tourism service providers, such as hotels, restaurants and ground transportation companies, generating business throughout their own travel chains. supply. In addition, an active and efficient aviation industry stimulates competition and trade and facilitates business interactions.