Garuda’s Net Profit Surges 50.8% in 2009

National flag carrier PT Garuda Indonesia (Persero) posted net profit rise of 50.8% in 2009 to Rp 1.01 trillion compared to Rp 669 billion in previous year, partly due operational efficiency, the company’s president Garuda Emirsyah Satar said.

The surge in net profit came in despite a 6.7% revenue decline to Rp 16.7 trillion, against Rp 17.8 trillion in previous year. Emirsyah was quoted by Kontan online on Thursday as saying that the decline in revenues was attributable to falling ticket price in line with at 40-percent drop of the aviation fuel (avtur) in international market. Fuel contributed between 30% to 40% to the airline’s operational costs.

"Although the number of passengers edged up by 2% to 10.3 million from 10.1 million, with average load factor of 74%, revenues did not increase due to ticket price decline,” he said.

He added the company plans to allocate US$100 million in capital expenditure this year. Portion of this will be allocated to purchase 23 Boeing 737-800NG and one unit of Airbus 330-200. The purchase will be financed from internal cash-flow. (Roffie Kurniawan)

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Garuda auctions off 4 Boeing 737-400

Flag carrier Garuda Indonesia re-auctions four B737-400 aircrafts. The re-auction will be conducted separately for each of the aircraft on the same day through Kantor Pelayanan Kekayaan Negara dan Lelang (KPKNL) Jakarta V.

Kompas.com reported last month that Garuda would convert up to 3 B737-400 into cargo airplanes (freighter). Meanwhile the four B737-400 put on auction are registered under PK-GWK, PK-GWM, PK-GWO, and PK-GWP.

Garuda currently owns 67 aircrafts, consited of B737-300 (15 units), B737-400 (19 units), and B737-500 (5 units). Garuda plans to replace old Boeings with 90 units of B737-800 Next Generation (NG) until 2014.

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Joke of the day: City adm to acquire Garuda

When I read The Jakarta Post article; Jakarta legislative council is urging the city admnistration to purchase a stake in ailing flag carrier Garuda Indonesia, I can't help to raise a question: Why would the city invests Rp3.2 trillion in the airline business while the city needs to fix the poor public infrastructures or clean up the city's muddy-smelly rivers?

But even if the administration would invest in Garuda, I wouldn't be surprised. As the Post reported, since Sutiyoso first came to power in 1997, his administration has injected Rp2.7 trillion in 62 city-owned companies while these companies only contributed 1.5% of the city's total revenue last year.
Look at how the council's economic commission head Nurmansjah Lubis (Prosperous Justice Party/PKS) argued the rationale behind the Garuda move; "it would be a previlege for Jakartans to own the national airline an we are sure that it would make a great contribution to the city budget."
First of all, I doubt the councilor really read Garuda's financial statement. It would take years if not decade for the company to make profit.
Second, I think Jakartans would prefer to have subway train than own stakes in Garuda.
Mr Nurmansjah's concern on Garuda is legitimate. But I think that's not we, the Jakartans, need the most. It's like Jakarta 'senator' Marwan Batubara (also from PKS?) who actively waged nationalism sentiment in Cepu oil and gas block dispute. Marwan's concern on Cepu is also legitimate, but I don't think Jakartans elected him as their 'senator' to talk about Cepu in East Java while he said nothing of the current floods that punished Jakartans for almost a month.

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Garuda on the verge of default (again)

In Dec 2005, Garuda Indonesia defaulted USD55 million payment to creditors. In the next few days, the company should make payments, but the promised Rp500 billion state funds injected has not disbursed yet. With mounts of debts to suppliers (including Pertamina), the flag carrier is on the verge of default again.

Last year, government promised to inject fresh capital of Rp1 trillion (around USD110 million) to Garuda in two tranches Rp500 billion each. The first tranch should have been disbursed November 2006. "But ministry of finance postponed the disbursement upon completion of a new business plan," an internal source at Garuda said.
Garuda has outstanding loan of around USD800 million. Garuda has reportedly not paid fuel purchased from state-owned Pertamina for almost six months.
"Without state funds of Rp500 billion, Garuda is inevitably in trouble from cash flow point of view. I just can't imagine if Garuda defaulted on payments to creditors again and that will push Airbus to pull the leased aircrafts. While the aircrafts are not in operational due to high cost of operations, other leasing agencies would pull out their aircrafts as well," the executive said.
"This administration has a very poor capacity to execute," he described the situation at Garuda and Merpati Nusantara(another ailing state-owned airline).
On the other hand, Peter Sondakh from Rajawali Corporation is aggresively lobbying government officers including Privatization Committee led by Sahala Lumban Gaol to buy Garuda shares.
"We've sent the letter to Privatization Committee on Tuesday, but no answer yet," Rajawali managing director Darjoto Setiawan said to me over the weekend.
Rajawali's competitor is, among others, Texas Pacific Group. None of these investment companies disclosed their partners for the acquisition.

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Air Canada also vying for Garuda

There are at least four companies that will compete to be the strategic partner of ailing flag carrier PT Garuda Indonesia Airways. They are Texas Pacific Group (TPG)/Newbridge, Lufthansa, Air Canada and one name I don't know.

Other names have been mentioned before such as KLM, Thai Airways, Emirates, or Qantas. "There will no preferred bidder. Government want a competitive bidding," people close to Garuda said.
While state-owned enterprises ministry repeatedly expressed its preference for IPO of SOEs, in Garuda's case, strategic partner is the preferred choice because the company has yet to accomplish its restructuring. "IPO is not a choice. Garuda have to restructure its debts," he said.
But when I asked whether the cabinet is solid on the strategic partner option, he said, "so far, yes. But we're not sure."
MSOE Sugiharto had announced the plan to privatize Garuda Indonesia many times. In 2005, Sugiharto said Garuda to be privatized in 2006. We're in 2007 now. And I could imagine stiff competition and possible strong opposition from certain groups (management, workers union, political parties, pressure groups etc).

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SOE's bad loans could be written off 100%

Supreme Court had approved the separation of state assets and state-owned enterprises assets, government officers claimed. This would pave the way for SOE banks to write off up to 100% bad loans owed by SOEs, but only 5% write off for private companies.

Secretary to MSOE Muhammad Said Didu, as quoted by Tempointeraktif.com, said with the Supreme Court's decision, there would be no more excuses for SOE banks than to compete with private-owned banks.
"Let's say that SOEs bad loans could get write off up to 100%, but those of private companies up to 5% only," he said.
So, there will be different settlement for PT Garuda Indonesia (SOE) and PT Argo Pantes Tbk (listed-private company), both with bad loans at state-owned PT Bank Mandiri Tbk. Mandiri's bad loans reached Rp25.9 trillion (almost US$2.8 billion). Another state-owned bank PT BNI Tbk recorded Rp10.04 trillion (US$1.1 billion) bad loans.
What people need to watch is the implementation of this policy, especially to minimize moral hazard at state-owned banks.

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Govt to inject Garuda US$110 million to fly Red & White Flag

August 17, the country raise the Red & White Flag high. Zero cost? No. Government would inject US$110 million to have the flag carrier Garuda Indonesia fly the Red & White Flag to nowhere.

Isn't it too expensive? Well, some says no, especially those who claimed themselves the true nationalists. It's expensive for those who are skeptical that the US$110 million is never enough to have Garuda off the grounds again.
Read my previous posts on Garuda:
1) Garuda & The Ticket to Nowhere
2) Garuda to be privatized

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Garuda & The Ticket to Nowhere

Transportation Minister Hatta Radjasa disclosed government's plan to ask a debt haircut to the creditors of the-loss-making-flag-carrier Garuda Indonesia. The amount of the haircut would be substantial enough to make sure creditors will not approve that. And even if the creditors would be generous enough, such haircut is just a ticket to nowhere. Why?

To be honest, debt haircut is one of the best solutions to keep Garuda flying. The problem is how much haircut would be given. Minister Radjasa said Garuda's sustainable debt is US$270 million. That would translate to a demand of debt haircut up to US$520 million of its outstanding US$794.6 million. European Credit Agency (ECA) is the biggest creditor at US$501.6 million, followed by floating rate note (FRN) holders of US$130.6 million, a mandatory convertible bond (MCB) of US$136.8 million, and some banks.
In March, SOE Minister Sugiharto told parliament members that government need to inject US$250 million (from the state budget) to refinance Garuda's debt and establish a special purpose vehicle to buyback the debts. So it looks like Soeharto administration's bailout of aircraft manufacturer (IPTN) in 1990s. Billions of US dollar invested in IPTN (renamed Dirgantara Indonesia) only to end up as dishes manufacturer and the state still had to takeover its bad debt at IBRA few years ago.
I'm sure MOF Sri Mulyani, a fiscal conservative, would not give the money to Sugiharto. Even Prime Minister Abdullah Ahmad Badawi rejected to bailout Malaysia's flag carrier Malaysia Airlines.
Sugiharto then opened the new option, divestment of up to 49% shares of Garuda. Several big names in the airline business were tipped as parties that had expressed interest to be government's new partner in Garuda. But resistance quickly emerged, as always, in the name of nationalism. Parliament member Drajad Wibowo (a former economist)rejected the divestment to foreign parties, but it's ok through IPO or to local investors. Hatta, meanwhile, asked his colleague in cabinet to give priority to debt restructuring than the divestment.
Nationalism have prolonged the endgame of many flag carriers, including those in Europe. Europe's airlines long were considered extensions of foreign ministries, responsible for flying the flag, not running a business. During the first half of the 1990s, European governments handed out $9 billion to prop up money-losing carriers from Air France to Greece's Olympic Airways. Even private companies have not escaped political complications. BA's attempt to buy KLM Royal Dutch Airlines collapsed partly because of fear that if the Dutch airline came under British ownership, it would lose international treaty rights to fly to places outside of Europe such as Japan and the U.S. And European Union rules prohibited Swiss-air, based outside of the EU, from taking over Belgium's landing rights within the EU if it bought a controlling stake in Sabena. So Swissair settled on a 49.5% stake.
In that sense, nothing particularly wrong on nationalism over Garuda. But VP Jusuf Kalla actually had more liberal views on flag carriers. In December last year, Kalla was quoted by Tempointeraktif.com saying Garuda is no longer the flag carrier and that he welcome investors to buy the airline.
At the time all these leaders bussy to talk about how to save Garuda, for whatever reasons, Garuda defaulted MCB payment to a bank syndication led by Bank Mandiri as Garuda keep mounting losses. The airline booked net loss of Rp672 billion last year, reduced from net loss of Rp811 billion in 2004. Stiff competition pushed down Garuda's occupancy rate to 67% in 2005 with half million less passengers than the previous year. Garuda's market share has dropped from 70% (prior to the liberalization of airline industry) to the recent 30% (some says 25%). Garuda apparently had failed to cope with the changing environment.
I agree with Lin Che Wei (Danareksa's president director) who wrote in Kompas newspaper few months ago that Garuda need to seriously overhaul its operation, streamlining, downsizing etc.
I believe that people support the basic idea of keep the company alive because thousands of jobs are at stake. But people have different views on how to help the company improve. I prefer the company raise equity, either through capital market or private placement (I have no problem with domestic or foreign investors) than using state funds to inject new loans-to-equity type of bailout simply because it's a kind of return ticket to nowhere! Garuda will return to the same place, parliament and government for help, at the expense of ordinary people who deserved more the state funds for better education or healthcare infrastructures.

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Gov't want to buy, Cemex rejects

Indonesia government had decided to exercise its rights to acquire Cemex SA's 25.53% shares in state-owned cement maker PT Semen Gresik Tbk through a consortium of SOEs, but Cemex is most likely reject the offer.


SOE Minister Sugiharto told the press after a meeting with coordinating minister for the economy Dr Boediono that government had sent the letter of intent to Cemex.
"But it's up to Cemex to decide," he said.
Bisnis Indonesia reported that Sugiharto asked Cemex to give two months time to exercise the right.
"The problem, legally according CSPA between government and Cemex in 1998, government can't transfer the right to buy. The legal opinion is that government has no legal basis to assign rights and to seek extension," source at the ministry said.
So, it's a matter of interpretation of the CSPA. Sugiharto (and Vice President Jusuf Kalla) argued that government could buy the shares outside the budget mechanism deploying SOEs.
SOEs like Jamsostek, Taspen, and Danareksa---all fund management companies would act on behalf of the government to buy after government decided to use its first right of refusal. This is not a surprise. Jamsostek led by Iwan Pontjowinoto (Sugiharto's colleague at Sharia Economy Society) claimed financing support for government to rescue the ailing flagship carrier Garuda Indonesia just days after Sugiharto openly said about the option to divest up to 49% shares of Garuda.
Minister of Finance Sri Mulyani Indrawati had turned down Sugiharto's proposal on Cemex arguing no state budget allocated but she said that she could understand if Sugiharto take another options.
But even if these SOEs would be allowed to buy, it's not easy to raise equity or to rely on their own funding. Bisnis Indonesia reported that Sugiharto have approached international lenders such as Macquarie Bank, UOB (Singapore), West LB (Germany), and Presidio Advisors (in partnership with PT Andalas Tuah Sakato, a company owned by West Sumatra administration). These companies claimed US$400 million funding in hands.
Cemex, reportedly, rejects the offer and only want to sell the shares to Indonesian company Rajawali Corporation owned by Peter Sondakh at US$337 million. Cemex and Rajawali had signed the conditional sales and purchase agreement (CSPA)to bring an end to long legal dispute with government.
So, the card is in Cemex's hands now. If the company reject Sugiharto's proposal and go ahead with the deal with Rajawali, I think Rajawali would feel the heat. But definitely it's also depend on how Rajawali deal with the government officers like Kalla and Sugiharto at the national level and local leaders in West Sumatra, East Java, and South Sulawesi---the locations of Semen Gresik's operations.

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Jamsostek Airways

As a worker, the company I work for normally cut few dollars from my already small monthly salary for the workers social security. Payments made to PT Jaminan Sosial Tenaga Kerja (Jamsostek).
Total funds under its management currently reached Rp40 trillion, almost US$4.4 billion. What Jamsostek do with the workers money? Buy stocks, bonds, or other financial instruments. Sometimes they give loans to companies, became bad debts, workers simply can't protest. And just recently Jamsostek planned to invest US$63 million in the technically bankrupt airline PT Garuda Indonesia.
If Jamsostek materialize the plan, and approved by government, we might consider to rename Garuda Indonesia Airways into Jamsostek Airways. Fellow workers, fasten your seat belt, because your pension funds might crash accordingly.

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Garuda Indonesia to be privatized next year

The flag carrier Garuda Indonesia is scheduled to be privatized next year in a bid to revive the debt-ridden airline.
Minister of State-Owned Enterprises (MSOE) Sugiharto surprised investors today with his statement that government would sell some of its shares in Garuda Indonesia to make it more competitive. He made the statement after an inter-ministerial meeting on Garuda today.
Government decided to postpone privatization of SOEs and failed to achieve the target of Rp3.5 trillion (US$350 million) for the budget year 2005. MSOE tend to completely scrap the policy with zero income target from privatization to the 2006 state budget and set the higher dividend payment instead.
The previous economic team led by Aburizal Bakrie (currently coordinating minister for people's welfare) actually demanded the privatization should be conducted this year. Then minister of finance Jusuf Anwar (sacked early this month) also supported Aburizal. But Sugiharto rejected the privatization arguing dividend payment from SOEs already far above target for the state budget and there was no need for selling government shares. Further privatization of listed-SOEs have been postponed accordingly.
But that might not be the case of Garuda. The company has been forced to restructure its huge debts for a second time few months ago. In 2001, the airline signed a US$1.5 billion debt restructuring with European Credit Agencies (ECA) and other creditors such as state-owned Bank Mandiri to extend the payment period to 16 years from 12.
Garuda's annual principal and interest payments amount to some US$110 million . But rising fuel costs and tighter competition have made it difficult for the carrier to comply with the repayment schedule.
As a result, Garuda would suffer financial losses for 2005 but the management claimed it would be less than last year's loss of 811 billion rupiah (US$80.6 million ). The company largely blamed the impact of the October 1 triple suicide bombing on the resort island of Indonesia, which killed 20 bystanders. Foreign tourist arrivals to Bali, Indonesia's top destination, fell 48.4% in October 2005 compared to a month earlier.
So, what's the privatization plan?
First of all, government should ask the House of Representative's approval. Maximum amount of shares to be sold would be 49%. There are several options. First, selling the shares to strategic investors, either financial institutions or airline companies. "We open the opportunity to financial investors or airline companies. But we prefer airline companies to bring in new culture," Sugiharto said.
Other option is initial public offering (IPO), selling the shares in stock market. Under the 2001 debt restructuring, Garuda was supposedly commence the IPO in 2003.
What's wrong with Garuda?
Garuda used to be the monopolist, which control the market. Garuda, named of Hindu God, is depicted as an immensely big and strong bird of golden or sometimes white colour who can take any shape he pleases.
But, following the deregulation in the aviation business, the competition among airlines has become even stiffer. There are around 27 Indonesian carriers compete against Garuda in local market.
Consumers seems to get benefit of the competition with step increase in number of passengers from 12.5 million in 2002 to almost 25 million this year. But those 27 airlines are in big trouble due to cut-throat price war. Most of them are undercapitalized. On top of that, regional carriers such as Malaysia's Air Asia, Singapore's Tiger Airways, and Australia's Virgin Blue, have gained access to Indonesia market.
Combined with poor management and cultural problem, Garuda has continually shrinked into smaller and weaker bird like Merpati, also an ailing state-owned airline. It's market share drops to below 25%.
Surprisingly in early October 2005, Garuda signed an agreement to buy 28 airplanes from Boeing (10 of Dream Liner and 18 New Generation) with total cost of US$2 billion, during a visit of President Susilo Bambang Yudhoyono to New York.

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