Garuda Indonesia plans to issue $800 million in new debt and raise $330 in fresh equity. This is part of the restructuring plan that has been presented to a court in Jakarta on June 9. Creditors of the troubled airline will vote on the plan on June 15. Garuda plans to issue new debt and raise fresh equity.
For over seven months now, Garuda is working on a restructuring plan to restructure its debts, with the court extending the deadline for the plan three times since December. Garuda submitted the first proposal to lessors and creditors in November. In December, Bloomberg reported that the carrier had $9.8 billion in debt, but on Tuesday, administrators confirmed that debts currently total $8.3 billion. The airline proposed repaying its debt over a 22-year period, but this was deemed too long by some creditors, which includes aircraft manufacturers but also fuel supplier Pertamina.
In the restructuring plan, Garuda plans to reduce its debt to $3.7 billion. Indonesian media report that the carrier is offering lessors and aircraft manufacturers new bonds and equity against a 6.5 percent return in cash per year for the first two of a ten-year period. Holders of Sukuks or Islamic bonds are offered the same 6.5 percent per year when they accept new Sukuks or equity. Banks are invited to issue new loans at 0.1 percent per year for a 22-year period.
Support from Airbus and Boeing is crucial
Getting support from Airbus and Boeing is crucial. Garuda has unfilled orders for four A330-800s, which is about one-third of the entire order book of eleven for the troubled version of the A330neo. Another nine out of twelve -900s are also still in the backlog. The cancelation of the A330neo’s would be another blow to Airbus, which already lost 63 -900s when AirAsia X canceled them in March. Boeing’s backlog shows 49 MAX for the Indonesian airline.
Approval from creditors is key if Garuda wants to be eligible for a two-step rights issue of a combined $714 million by the Indonesian government, with the aim of securing the state’s current 51 percent share in the airline. The first rights issue would include $520 million, with the second not expected before the fourth quarter.
Having suffered massively from the effects of lockdowns and travel restrictions during the pandemic, Garuda suffered significant losses in 2020 and 2021. The full-service carrier is expected to cut its (international) network and reduce its fleet by some forty percent to seventy aircraft. It currently operates 37 aircraft, including 23 Boeing 737-800s, eight Airbus A330s, five Boeing 777s, and one ATR 72. Already last year, Garuda said it would cut its fleet by half.
