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Garuda Grows Increasingly Strapped for Cash

Airline's Massive Debt Further Plagued by Tight Credit and Intense Fare Competition.


Bali News:
Click Image to Enlarge

(12/18/2004)

The authoratative Indonesia Digest - an Internet newsletter published by Jakarta-based Ibu Wuryastuti Sunaryo, reports that "Deputy Minister for Logistics and Tourism of the Ministry for State-owned enterprises, Ferdinand Nainggolan, recently confirmed that Garuda Indonesia is in financial straits."

According to Ms. Sunaryo, the Airline has requested government refinancing in order to stave off a portfolio of debt totaling US$ 850 million, - significantly reduced from the US$ 1.1.billion owed in 1997. Of that total, US$ 650 million is owed to foreign creditors and falls due in 2010. The remaining US$200 million is in promissory notes that are due in 2007.

Garuda must find US$ 115 million in principal and interest that must be paid in the current year.

Pleas to the Government for assistance to be extended to Garuda are extremely problematic. With the majority of loans held by foreign creditors and Garuda's ability to borrow additional funds restricted under the terms of existing loan agreements, it's difficult to see where the airline will find the cash injection that it need. Legislators, meanwhile, will find it hard to come to Garuda's rescue given the similar financial circumstances of a number of other state-owned enterprises, including Merpati Nusantara Airlines.

And, as if all this were not enough, Ms. Sunaryo correctly underlines that Garuda now faces tough competition with other domestic, low-cost airlines, who have created a price war. Internationally the picture is equally grim with regional budget carriers also giving the National Carrier a run for its money.


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