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Government Prepares to Takeover Garuda Indonesia Routes if it Declares Bankruptcy
Indonesian national carrier Garuda Indonesia may be forced into bankruptcy as it faces growing debts after months of financial difficulties due to the impact of Covid-19. The Indonesian government in response has prepared Pelita Air Service, a subsidiary of Indonesia’s Pertamina, a state-owned oil giant, to take over domestic flights within Indonesia if Garuda Indonesia files for bankruptcy.
If Garuda Indonesia fails to renegotiate leases and restructure its nearly U.S. $5 billion debt, the government is prepared to turn Pelita Air into a full-service airline helping meet domestic flight demand once the government lifts travel restrictions in the country.
The charter airline once operated scheduled flights for five years between 2002 and 2007, and now focuses on its core business of charter flights.
Garuda Indonesia’s board of directors is now weighing options on how to deal with the debt-stricken airline, including reaching deals with creditors. In just the first half of this year, the airline’s net loss has risen to more than U.S. $900 million after extended mobility restrictions curbed air travel demand.
The Indonesian government, however, has recently reopened international flights to Bali, signaling the start of plans to recover air travel in Indonesia. Despite this reopening, even if the airline manages to stabilize its financial situation, the government rules out the airline operating long-haul flights in the future.
The reason for this is the national carrier already faces has a substantial debt, which grows by about U.S. $70 million per month due to the delay in payment of loans. The carrier would need to halve its fleet to keep the business afloat.
Garuda Indonesia’s insolvency also led to several lawsuits, including those from foreign and Indonesian aircraft lessors. The airline’s board is now considering a plan to massively reduce its fleet, especially wide-body jets like the Airbus A330 and Boeing 777-300ER. The plan would remove nearly 80 aircraft from its fleet and cancel pending orders. As part of this downsizing, Garuda Indonesia would instead focus on developing its low-cost subsidiary, Citilink.
“Going forward, Garuda will stay focused on efforts to restructure its obligations and operations, as well as guarantee that flight operations for passengers and cargo run normally,” the flag carrier said in a press statement.
Earlier this month, Pelita had filed an application to upgrade its permit to be able to offer scheduled flights, in addition to the chartered flights it currently offers. Pelita has six turboprop jets as of 2019, according to its latest annual report.
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