Garuda for sale?

VP sees no pride in owning ailing Garuda

Saturday, December 31, 2005

Rendi A. Witular, The Jakarta Post, Jakarta

With ailing Garuda Indonesia unlikely to get back in the black anytime soon, Vice President Jusuf Kalla, in response to the airline's privatization plan, sees little pride in the state owning a national flag carrier that keeps suffering losses.

Kalla argued that a country, via its government, should not always own an airline as the image of an airline today was not like what it was in the 1950s, when such a company was seen as a matter of national pride that had to be maintained at all costs.

"Garuda should be healthy by commercial means ... A airline today is not everything for a country. If it makes profit, it will be good for the country, but if it always suffers losses, investors should be welcome to come in," said Kalla after Friday prayers.

"There is almost no country that has a state carrier today. For example, Qantas is not owned by the Australian government and KLM (Royal Dutch Airline) is currently owned by Air France. So it is not a big deal if we don't have a (state-owned) airline," he said.

However, Kalla said that the government would not sell off the airline entirely to investors.

Kalla was responding to the current problems faced by Garuda, which recently announced a failure to pay US$50 million of its floating-rate bonds due in December following cash flow problems resulting primarily from the second bomb attacks on the resort island of Bali on Oct. 1, which badly affected its revenue.

However, the airline reaffirmed that it would continue paying interest, and aircraft leasing fees.

While the airline has made significant progress in developing a basis for presenting another debt restructuring plan to its stakeholders since commencing discussions in November, additional work was required to reconcile complex inter-creditor and governmental issues.

The Bali bombings, which killed 23 people, significantly reduced foreign tourist arrivals not only on the island but also in other parts of the country.

This year's target of six million foreign tourists has been revised down to less than 4.5 million by the Ministry of Tourism and Culture, down from 5.3 million tourist arrivals in the archipelago last year.

Garuda, which controls more than 50 percent of the domestic airline market, said the bombings had substantially affected its fourth quarter revenue, and this situation was expected to continue during the first half of next year.

"In particular, the Bali bombings in October continues to have a significant impact on Garuda's cash flow and makes predicting cash available for servicing debts a very challenging task over the short term," said the airline in a press statement.

The airline also cited higher fuel prices, a weaker rupiah against the U.S. dollar, rising interest rates and increased competition as other major factors causing a further downturn in its business this year.

Due to the various problems, the airline is likely to book a widening loss of more than $70 million this year -- higher than its initial estimation of around $50 million. Last year, the company recorded a net loss of Rp 811.3 billion.

As of March, Garuda had debts amounting in total to $826 million, with the largest portion coming from the European Export Credit Agency, with the remainder in the form of promissory notes and bank loans.

At present, Garuda operates 57 aircraft serving 30 domestic routes and 20 international destinations.

************************************

This may not be a good new year present ......... It seems that Jusuf Kalla forgets that even Singapore Airlines -- which is the dream airlines for most Indonesian travellers -- is a profitable state-owned enterprise. So, if SQ can make profits, who to blame if Garuda keeps making losses?