The Ministry of SOEs explained the serious problem experienced by state-owned airline PT Garuda Indonesia (Persero) Tbk (GIAA) in the midst of jumbo debt pressure, namely about routes that were not hockey or not profitable.
“Indeed, the main problem for Garuda in the past, because leasing (leasing aircraft) exceeded a reasonable cost and there were too many types of aircraft, for example there were Boeing 737, Boeing 777, Airbus A320, A330, ATR, and Bombardier. The route that is flown a lot is not profitable. The Minister (Minister of SOEs) said that the domestic route before COVID was profitable but abroad was losing, it’s an old disease,” said Deputy Minister of BUMN Kartiko Wirjoatmodjo in a hearing meeting with Commission VI DPR.
In addition to the unfavorable route, Garuda also encountered a new problem after the COVID pandemic, namely a change in the recognition of obligations that must be submitted in financial statements in accordance with the Financial Accounting Standards Guidelines (PSAK) where liabilities must be recorded as debt, from the previous provision as operating costs or operating expenses. operational expenditure (opex).
Thus, he said, Garuda’s debt, which was originally around Rp. 20 trillion, has swelled to Rp. 70 trillion. “What is actually registered according to PSAK, is required to be recorded as a liability, this creates a balance sheet position of insolvency (unable to pay obligations on time), because the debt and equity are not sufficient to support the balance sheet,” said the former president director of PT Bank Mandiri (Persero) Tbk. (BMRI) as quoted from CNBC Indonesia.
Therefore, said Tiko, to carry out a fundamental restructuring, Garuda’s debt which reached USD 4.5 billion had to be reduced in the range of USD 1-1.5 billion.
“Simply put, Garuda’s EBITDA (earnings before interest, tax, depreciation, and amortization) is around USD 200-250 million, under normal financial conditions, the maximum (debt) ratio is 6 times (from EBITDA), so USD 250 times 6, then around USD 1.5 billion, if it is above that (debt) then Garuda will not be able to going concern because they will not be able to pay their debts,” explained the former Managing Director of PT Mandiri Sekuritas.
Therefore, the Ministry of SOEs is intensively talking to management, including minority shareholders, as well as the Ministry of Finance about how the restructuring process for Garuda in the future should be able to reduce its debts.
“We are currently processing the pattern and the legal process, because it involves lessors (aircraft charter companies), there are also borrowers in the form of global sukuk bonds owned by sukuk holders from the middle east (Middle East). International negotiations must go through international law, because it can’t just be Indonesia, because the majority of Garuda’s debt is to lessors and international sukuk holders,” he said.
He revealed that the Ministry of SOEs had appointed a legal and financial consultant to start the restructuring process for Garuda. In addition, a debt moratorium or standstill agreement (temporary suspension of interest payments) will be carried out in the near future.
“Because without a moratorium, Garuda’s cash will run out in a very short time, we will deal with this immediately,” he said.
“If Garuda can carry out a mass restructuring with all global lenders, lessors and sukuk holders, and also carry out cost reductions (cost reductions), it is hoped that costs can decrease by 50% or more, then Garuda can survive post-restructuring. However, this restructuring requires negotiations and The legal process is tough because it involves many parties, and of course the expectation is that costs will decrease, therefore, inevitably the cost structure will be cut lower. For your information, Garuda costs USD 150 million a month, while revenue is USD 50 million, so every month it loses USD 100 million, so it is no longer possible to continue under the current conditions,” said Tiko.
“So we hope for the support of Mr. Mrs. Commission VI, because we are entering a heavy restructuring, and the legal process is quite complex,” he said.
He said it is hoped that within 270 days after the debt moratorium is implemented, restructuring can be carried out.
But he warned that this process has risks. “There is indeed a risk, if in the restructuring the creditors do not agree, or there are many legal demands, it can happen, and if it does not reach the quorum then it could lead to bankruptcy, now this is what we avoid as much as possible in the legal process, hopefully there will be a restructuring agreement for Garuda,” ” he closed.
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