Harry Suhartono and Tassia Sipahutar – PT 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 International Pcl, Latam Airlines Group SA and lessor AeroCentury Corp. to restructure or seek bankruptcy protection. In recent days, people familiar with the matter said Philippine Airlines Inc. is in talks to raise about $500 million as part of a Chapter 11 restructuring plan that it's considering to file in the U.S.
In the remarks, Setiaputra also said that Garuda has around 70 trillion rupiah ($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 $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.
The airline's Altman Z-score, a method developed by Edward Altman in the 1960s to gauge credit strength, was -0.9 at the end of the third quarter, the company's lowest reading in a decade of data recorded by Bloomberg.