Indonesia and the Philippines are heading in opposite directions on state ownership of flag carriers, but neither is making progress. Jakarta cannot find a buyer for Garuda Indonesia and Manila is still waiting for a ruling as to whether it can reassert control over Philippine Airlines.
On-again off-again plans for Garuda's privatisation are in limbo after KLM Royal Dutch Airlines tactfully announced that it has no current interest in an equity stake, despite a recent agreement for closer cooperation with Garuda. 'We might make an investment if it helped our growth, but it's more a matter of continuing and intensifying cooperation,' says Gerard de Wit, KLM's Asia manager. 'Whether that will eventually result in an equity stake, I don't know.'
Government strategists planned for Garuda's privatisation late last year after rejecting the carrier's request for $275 million in added capitalisation. Because Garuda needs such a boost before any public offering, they decided the first step should be an offering to an external carrier. Indonesian finance minister Mar'ie Muhammed told a parliamentary committee that President Suharto shared his view that Garuda first needed a foreign airline with 'a good reputation internationally' to inject the required equity.
Now that KLM has said no, privatisation planners are unsure of the next step. Lufthansa is the only other foreign airline with anything approaching comprehensive ties, offering Garuda technical support. Garuda's other alliances are all the route-specific deals common among Asian carriers. There is no hint that Lufthansa is interested in any equity stake.
Even if Garuda could muster a public float without a capital injection first, Indonesia is already awash in IPOs.
Analysts have estimated that Indonesian companies will seek $4-5 billion in new equity this year, which is roughly one eighth of the Jakarta stock exchange's total capitalisation. As an informed source noted, 1994 was Indonesia's Year of the Cash Call, but 1995 will be The Year of Privatisation. Timing for a public float could hardly be worse for an airline with a shaky balance sheet.
Garuda will still proceed with preparations even if the plans remain hazy, and the company's new chief executive officer Supandi has imposed a hiring freeze as part of a general belt tightening. The flag carrier is expected to hive off domestic subsidiary Merpati Nusantara later this year. Merpati itself 'does not have a plan to become a private company' declares its spokesman, but it will sever all ties to Garuda.
In Manila all the shareholders of Philippine Airlines are waiting for a decision from the Securities and Exchange Commission. It is still considering whether government shareholders can force Lucio Tan to honour an agreement allowing them to convert their shares in PR Holdings into shares in the airline. If allowed to do that, they could outvote Tan and take over PAL. The holding company owns 67 per cent of PAL.
In the meantime, Tan complains that a temporary injunction banning his injection of more capital is hurting the airline's efforts to finance several new aircraft. Government shareholders sought the injunction out of fear that Tan would pump capital into PAL as a ploy to boost his equity stake and force them into a permanent minority position even before the commission rules on their stock conversion request.
Source: Airline Business
