A fall in revenue from the passenger and other segments were the primary cause of a widening loss at the financially troubled Garuda Indonesia for the nine-month period to 30 September 2021. Operating loss came in at $1.67 billion, a 52.7% year-on-year rise as compared to the $1.09 billion loss for the same period in 2020.
Total revenue amounted to $939 million, down from the $1.14 billion figure in the previous year. Attributable net loss was at $1.66 billion, an increase of 54.7% from last year’s $1.07 billion net loss.
As of 30 September 2021, Garuda’s cash and cash equivalents amounted to $41.7 million, down from the $170 million figure on the same date in 2020. The decline in cash and its equivalents was due to a higher payment to suppliers, aircraft maintenance reserve fund, and other aircraft-related expenditure.
Within the group company’s consolidated financial statement, Garuda confirmed its current liabilities had exceeded the current assets, leaving it with a negative equity of around $2.84 billion. The COVID-19 pandemic and travel restrictions imposed to stem a spread of the virus has caused a significant reduction in air travel and “a major adverse impact” on its operations and liquidity.
This has resulted in Garuda being unable to meet its financial obligations to banks, significant vendors such as state-owned oil and gas company Pertamina for fuel supply, airport operators, and aircraft lessors. In addition, certain leased aircraft had to be grounded due to non-payment of lease.
To manage liquidity pressures, Garuda is seeking to relax debt payments, negotiate with lessors on better aircraft lease rates and changing the lease to a “power by the hour” arrangement, rationalise its headcount, delay the payment of its tax obligations, and asking the Indonesian government to distribute funds from a mandatory convertible bond facility that was agreed in December 2020.
Garuda also warns: “Should the Group fail to realise the above-mentioned plans and measures, it might not be able to continue to operate as a going concern.”
Looking ahead, the Indonesian carrier says challenges from the COVID-19 pandemic and the related travel restrictions, intense domestic competition, volatility in fuel prices and the exchange rate between the Indonesian rupiah and US dollar, as well as the Indonesian government’s policy on domestic airfare, “may adversely affect” its financial performance and ability to continue as a going concern.
Garuda submits restructuring proposal
Prior to the earnings results release, Garuda issued a press release through the Indonesia Stock Exchange on 16 November stating that it had submitted a restructuring proposal to lessors and creditors, urging them to review the proposal “as a basis for considering the restructuring process that will be carried out.”
“This proposal outlines Garuda’s long-term business plans as well as a number of offers in managing our business obligations with lessors, creditors and key suppliers,” says Garuda’s chief executive Irfan Setiaputra. “Submission of this restructuring proposal scheme is the first step of the entire restructuring process and is an important momentum in our efforts to transform into a more adaptive, efficient, and profitable business entity.”
The proposal can be viewed from a digital data room which can be accessed in real time by parties who have signed a non-disclosure agreement with Garuda.
Garuda states the restructuring proposal will “also be aligned with the momentum for the submission of the Suspension of Debt Payment Obligation (PKPU) at the Jakarta Commercial Court by one of Garuda’s business partners.”
“The support of lessors and creditors is particularly important because Garuda wants to transform our operations and work culture that will make Garuda even more adaptive and resilient in responding to future industry challenges,” adds Setiaputra.
