Garuda Indonesia (GA, Jakarta Soekarno-Hatta) CEO said in a hearing before the Indonesian House of Representatives that the Ministry of State-Owned Enterprises (SOE) is moving forward with its plan to merge Garuda and Pelita Air (IP, Jakarta Soekarno-Hatta) into the state-owned tourism holding company PT Aviasi Pariwisata Indonesia, better known as InJourney. However, this will only happen when Garuda’s equity becomes positive.
“It was envisaged that Garuda would join InJourney once its equity is positive to avoid burdening InJourney,” CEO Irfan Setiaputra said at the hearing on July 3, 2024 in Jakarta. “Discussions are ongoing regarding the merger model, timing and how Garuda will be integrated into InJourney.”
The plan to integrate Garuda into InJourney is not new. But Garuda’s financial problems have prevented this transaction from coming to fruition. Garuda entered the local equivalent of Chapter 11, the Penundaan Kewajiban Pembayaran Utang (PKPU), in late 2021, with debts of around $9.8 billion. About twelve months later, the state-owned airline emerged from the PKPU process, having reached an agreement with creditors to reduce its debts to around $5.1 billion and undertaken a restructuring of its fleet, network and operations.
However, Garuda’s latest financial results show that the airline is still in a negative equity position. As of March 31, 2024, negative equity stood at USD 1.33 billion, slightly higher than the USD 1.24 billion as of March 31, 2023. However, the airline is optimistic about resolving this issue, with revenues up 40% in FY2023, while costs increased by only 4%.
Meanwhile, the Competition and Consumer Commission of Singapore has conditionally approved a commercial joint venture agreement between Garuda and Singapore Airlines (SQ, Singapore Changi), which will, among other things, allow for revenue sharing arrangements for flights between Indonesia and Singapore, and provide reciprocal benefits to frequent flyer programme members. The two airlines have agreed to maintain seat capacity on an aggregate basis on the Singapore-Jakarta and Singapore-Surabaya city pairs at levels that existed prior to the proposed joint venture, to appoint an independent auditor to monitor compliance and to report such compliance to the CCCS on an annual basis. The approval is conditional on the airline complying with the conditions.
“We are very pleased to have received this approval,” Setiaputra said. “Getting regulatory approval as a first step in a commercial deal will provide more opportunities to develop well-executed strategic ideas.”
