Indonesia's Minister of Transportation, M. Hatta Rajasa, has stated that the Government will soon propose a debt rescheduling to the European Credit Agency (ECA) - the consortium that holds the bulk of Airlines estimated US$794 million debt.
Fundamental to any rescheduling that may be finally agreed is an agreement by Garuda's creditors to a haircut or basic reduction in the outstanding principal and interest owed them.
The Government has established a steering committee consisting of representatives from the Ministry of State-Owned Enterprises, the Finance Ministry, and the Department of Transportation to guide a Government team attempting to renegotiate its debts with the ECA.
Minister Hatta, quoted in the Indonesian-language Bisnis Indonesia, complained that the 6 Airbus A330 aircraft, purchased via ECA loans by Garuda Indonesia in 1996, appeared to be over-priced for the actual market value of the aircraft at that time.
In desperate need to improve the condition of its balance sheet, Garuda is exploring a whole range of options - including a business-to-business renegotiation of its debt burden, a conversion of debt to equity and a rescheduling of its outstanding debt burden. Meanwhile, the Indonesian National Carrier is undertaking dramatic steps to enhance its operational efficiency by cutting operational costs by 10% system-wide, rationalizing its international and domestic route system, and reducing the types of aircraft it flies.
Pending finally coming to an agreement with ECA on its debt total, Garuda has ceased from late 2005 to make payments on its principal debt of US$794 million.
According to local press report, Garuda is seeking to reduce its debt burden from US$794 million to US$274 via the combination an agreed haircut with ECA and a conversion of outstanding debt to equity.
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