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The end of Garuda Indonesia

Tempo - June 12, 2021

Jakarta – Garuda Indonesia's financial problems must be resolved based on careful commercial considerations. Liquidation of the state-owned airline would not be the end of the world.

The government needs to announce soon which option has been chosen to resolve the financial crisis at Garuda Indonesia. The strategy for Garuda must use business calculations, not considerations of politics, yet alone pseudo-nationalism. The majority shareholder, the ministry of state owned enterprises (SOEs), has announced four options to put Garuda Indonesia's affairs in order. Each option has its own risks. What is needed now is resolve from the government to immediately choose the most rational option, with the smallest impact on state finances.

The option of injecting new capital or providing a loan from the government must be completely discounte because of the serious risk of a drain on state funds. On top of this, it is by no means certain that in injection of funds would allow Garuda to escape from its debt problems.

The other three options are all difficult, but are more rational. The option of restructuring debt with a loan repayment rescheduling scheme, for example, is not certain to succeed. The Garuda management would have to deal with overseas creditors and regulations that may not be compatible with the restructuring efforts. Meanwhile the third and fourth options, namely establishing a new national airline or liquidating Garuda, would need a thorough market analysis. And even these options would also cost at least US$1.2 billion.

Clearly this is not an easy decision. It is here that the credibility of the Garuda directors and commissioners is on trial: will they be able to make the right decision, or will they make matters worse for the airline? In the middle of this protracted Covid-19 pandemic, it is difficult to be certain when Garuda, and other airlines, will see their business recover. In this kind of crisis situation, business analysis affected by political considerations could adversely affect decision-making.

And neither would delaying this decision be a good strategy. Repayment installments of Garuda' debt will continue pile up if shareholders do not immediately choose one option.

Efficiency improvements must continue. Reductions in the number of employees, directors and commissioners must continue with a win-win solution. This should be in parallel with the removal of non-productive routes and an end to spending on non-urgent items.

Also important is the revamping of Garuda's business mode, which is no longer effective during this pandemic. If after all the options have been examined, the decision made is for liquidation, this should not be a source of regret. Many countries with healthy economies do not have a state-owned airline.

Read the Complete Story in Tempo English Magazine: https://magz.tempo.co/read/37979/the-end-for-garuda

Source: https://en.tempo.co/read/1471752/the-end-of-garuda-indonesi