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Rescuing Garuda

Editorial: Following US$ 107 Bailout by Government of Indonesia's National Carrier, an Editorial in the Jakarta Post Asks Will this Be Sufficient to Save Garuda?

(9/25/2006) A recent editorial in the Jakarta Post praised the last-minute cash bailout of US$107 million (Rp. 1 trillion) provided by Indonesian legislators for Garuda Indonesia but posed the question if such help provides anything more than short-term superficial relief.

In the words of the Jakarta Post: "Without debt restructuring to reduce its debts to a sustainable level, without new strategic investor to bring in synergy and without significant progress in operational restructuring, Garuda will again suffer a liquidity crisis and could eventually go bankrupt. After all, Garuda is burdened with almost $1.2 billion in debts and an annual debt servicing burden of $110 million."

And, indeed, the government cash injection granted on Thursday, September 14, 2006, is little more than a short term palliative for what ails the Carrier. Considerably less than the US$230 million sought by Garuda to allow continuing operations while it negotiates "another" debt restructuring deal with it European creditors, the US$107 million given by the Government will keep the Airline in the air for now but leave it little room for seeking its second debt restructuring since 2001.

While crediting Garuda with successfully reducing its losses in 2005 to Rp. 675 billion from Rp. 875 billion suffered the previous year - lower demand for international flights to Indonesia dating from the 9-11 terrorist attack of 2001, escalating fuel prices and a highly competitive deregulated domestic airline environment have all taken their toll on the Indonesian carrier's bottom line.

Simply Not Enough

Mounting losses and persistent demands for repayment of debt, according to The Jakarta Post, could make "this latest financial assistance. . . meaningless within a few months if Garuda cannot conclude another debt restructuring deal with its domestic and foreign debtors to reduce its debts to a sustainable level."

The newspaper added: "But a sustainable debit level is not enough. Given the keener competition within the domestic and international markets, Garuda needs significant corporate restructuring and a new strategic investors to strengthen its competitiveness. Garuda requires a new strategic investor to strengthen its capital, improve its efficiency, modernize its jets and make its route network more efficient. We should not be such narrow-minded nationalists as to oppose a minority foreign shareholder in Garuda, despite its role as the national flag carrier. The other alternative is another bailout at the expense of taxpayers."

Urging more financial support The Jakarta Post is positive about Garuda's future saying "despite its current financial distress, (Garuda) has a promising future, providing it can strengthen its efficiency and improve its service to international standards. And, most importantly, it has a vital role to play in servicing the vast archipelago and the Asian region."