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Can We Pay You Later, Please?

Garuda Gets a Repayment Holiday of Two Months While Negotiations Continue on Debt Restructuring. Questions Still Linger on Why Garuda Paid So Much for Six A330-300s Between 1988-1992.

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Garuda Indonesia's major creditors in Europe have agreed to allow the national air carrier to miss 2 months of payments on its outstanding debt of US$794 million.

Quoted in the Indonesian language Bisnis Indonesia, the Minister for State-Owned Enterprises, Sofyan A. Djalil defended the Airline's improving operations and profitability. The Minister also confirmed that meetings have been held with European creditors in France, Germany and the U.K. to discuss a restructuring of the Company's debt, securing a repayment holiday of two months while negotiations continue.

The creditors – all members of the European Credit Agency (ECA), have received a detailed proposal from Garuda for a restructuring of debt that will allow the purchase of new Airbus aircraft.

The medium term plans for Garuda call for debt relief, improved operational efficiencies and plans to take the Airline public in 2009.

Dirty Debt?

Much of Garuda's current financial difficulties trace to the purchase of six Airbus A330-300 aircraft between 1988 – 1992 at a per unit cost of US$214 million. Industry observers, however, point to indications of a substantial "mark-up" in the market price of a new Airbus A330-300 - thought to be closer to US$140 million per plane. The US$74 million "overpayment" for the six aircraft, if substantiated, represents an unnecessary additional initial principal debt burden of US$444 million for the airline.

Results of an internal audit launched in mid-2006 by Garuda Indonesia to investigate the "mark up" allegations in the purchase of the six Airbus A330-300 have yet to be made public.

Garuda's failure to be completely transparent in the details of the purchase and alleged "mark-ups" and move against those responsible for inflating their debt is seen by many as one of the major stumbling block in please by the Airline for a reduction or "haircut" in the debt owed to the Europeans.

Rajawali No Longer Courting Garuda?

Meanwhile, Bisnis Indonesia reports that the Rajawali Group has decided to disband a consortium prepared to spend between US$300-US$400 million for share in Garuda Indonesia. Delays in disinvestment plans by the Government for the national carrier have caused the group to divert the funds earmarked for the Airline to more immediate mining and plantation projects.

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