Garuda Indonesia is in more financial trouble after defaulting on scheduled loan payments that were due at the end of 2005.
The state-owned carrier has admitted to being in severe financial difficulty, which it says has forced it to hold back on making debt payments in order to preserve badly needed cash. It was widely expected that Garuda would default on making principal payments of an unspecified amount that were due at the end of 2005, having several months earlier told creditors that it would have trouble meeting its financial obligations.
Early in December, the carrier said it had begun meeting creditors over its debts, which amount to more than $800 million, and appointed new financial advisers and lawyers to help it in discussions with creditors.
Garuda now says it deliberately missed making principal payments that were due at the end of December, although it stresses that it is continuing to pay interest and will meet all payments to aircraft lessors to ensure that it remains operational. It calls the move a “standstill on payments of principal” and says the Indonesian government is supporting its action.
“This decision has been discussed with and agreed by the government of Indonesia, Garuda’s shareholder. Garuda will continue to work with the government and its creditors to find the best solutions to the carrier and its stakeholders,” the airline says.
“While Garuda has made significant progress in developing the basis for presenting a restructuring plan to its stakeholders since commencing discussions in November 2005, additional work is required to reconcile complex inter-creditor and governmental issues before a restructuring plan can be presented to all stakeholders,” says the carrier. “In particular, the Bali bombing in October 2005 continues to have a significant impact on Garuda’s cash flows and makes predicting cash available for debt service a very challenging task over the short term.”
The airline adds: “The October bombing substantially impacted revenue generation in the last quarter of the year and is expected to continue to do so in the first half of 2006.”
Garuda’s total debt stands at $826.5 million, more than $500 million of which is owed to European export credit agencies. Chief executive Emirsyah Satar says that in addition to the fatal terrorist bombings on the resort island of Bali in October, issues affecting Garuda include high fuel prices, the weakening of the rupiah, higher interest rates and increased competition.
“Under the circumstances, Garuda must be pragmatic in how it uses available cash. We plan to pay our trade creditors, including aircraft lessors, so that operations can continue and revenue generation is maximised,” says Satar. ■
NICHOLAS IONIDES / SINGAPORE
Source: Airline Business
