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Garuda to Purchase Defunct Linus Airways?

Move Could Be Shortcut to Obtaining Operating Licenses for Subsidiary Citilink.

(6/8/2009) Garuda Indonesia is considering a possible purchase of defunct Linus Airway as a short-cut to obtaining the needed operational certificates for their subsidiary Citilink.

The Director General of Civil aviation, Herry Bakti S. Gumay, told Bisnis Indonesia that Garuda plans to buy the domestic carrier fotced by financial difficulties stopped flying on April 27, 2009. "I heard that Garuda intends to buy Linus who already hold an aviation business license (SIUP) and an air operators certificate (AOC) for the scheduled air services," Herry explained.

Herry said his office supported Garuda's plans to purchase the majority shares of Linus because foreign parties are not allowed to buy more than 49% of Linus' shares.

Herry admitted to the press that he did not know the latest developments in Garuda acquisition plans. Meanwhile, the CEO of the national carrier, Emirsyah Satar, refused to comment to the press regarding his plans for thhe acquisition of Linus.

Bisnis Indonesia quotes a government official close to Garuda as confirming that the state-owned airline's Board of Commissioners is in the process of exploring the feasibility of purchasing Linus as a means to obtain is operating licenses. In purchasing Linus the national airline would also acquire its operating licenses issued before February 2008, pre-dating new regulations that require Indonesian airlines to operate a fleet of at least 10 aircraft.

Meanwhile, the President Director of Linus Airways, Indra, said his company was prepared to entertain offers from strategic investors, both domestic and foreign. Indra explained: "we are flexible to acquisition, depending on the investor. If someone wants to buy 100% of the shares we can release our shares, but if someone wants take only a majority shareholding with us as a partner – we are also open." Indra that while Linus Airways would receive offers from Garuda, they were already in negotiations with other parties.

According to Indra, he had once held informal talks with Emirsyah Satar, but those discussions never touched upon acquisition. He also told the press that he was in discussions with a strategic investor with the aim of resuming flight operations.

Added Urgency

Bisnis Indonesia reported on Saturday, June 6, 2009, that the Indonesian Department of Civil Aviation has formally stripped Linus Airways of all its route permits in accordance with rules mandating that any airline failing to fly for more than 30 days lose its route rights.

The routes formerly operated by Linus Airways and now up for grabs by Indonesia’s operating airlines are:

• Batam - Palembang

• Batam – Pangkalpinang

• Batam – Pekanbaru

• Jakarta – Palembang

• Jakarta – Pangkalan Bun

• Jakarta – Semarang

• Semarang – Pangkalan Bun

• Jakarta – Tanjungpandan

• Medan – Pekanbaru

• Pankalpinang – Tenjungpandan

In quick response to the government’s route suspension, two airlines - Riau Airlines and Kartika Airlines have forwarded application seeking assume operational rights on the dormant routes.

The Director of Civil Aviation, Tri S. Sunoko, told the press that the withdrawal of route permits is a preliminary to the formal suspension of the defunct airlines' air operating certificate.

Loan Restructuring for Garuda

The financial director of Garuda, Eddy Purwanto, told the press that his airline had successfully restructured US$650 million in loans, reducing that amount to US$450 million with repayment extended until 2015.

Garuda has appointed Rothschild’s as their international financial advisors to assist in restructuring it debts.

Emirsyah Satar has confirmed that the airline is completing negotiations with Bank Mandiri regarding the loans owed to the Indonesian bank by Garuda.