👟 Walk the Talk: Garuda Indonesia’s Recapitalization
Acrostics Asia is consistently ahead of the curve on Indonesian sovereign fund Danantara’s capital injection into the flag carrier.
Acrostics Asia connects the dots to anticipate what’s next for Indonesian flag airline Garuda Indonesia after its recapitalization.
The proof is in the file.
Key Timeline
Two months before Garuda’s announcement, Acrostics Asia reported that officials were discussing a potential capital infusion for the airline via sovereign fund Danantara.
Acrostics Asia also flagged that the carrier was struggling to meet the required aircraft maintenance expenses and had to ground some planes due to a shortage of components.
Renegotiating Garuda’s costly leases would have been a logical move to reduce its burden, but the airline is likely hamstrung by its local in-court restructuring (PKPU) agreement.
Acrostics Asia wrote that PKPU is like a last chance saloon where borrowers have one shot at an in-court restructuring and risk being filed into bankruptcy if they re-default.
Acrostics Asia unpacked Garuda’s results to show that it was squeezed from all sides by aircraft leases and maintenance. Negative equity also expanded to USD 1.5 billion as of end-June.
Acrostics Asia wrote that the driver for a potential merger between Garuda and Pelita Air, the airline unit of state-owned energy company Pertamina, was likely to consolidate their resources, as the aircraft supply chain lagged behind the post-pandemic travel boom.
Acrostics Asia noted that Danantara had downsized its planned capital injection by USD 400 million to USD 1.4 billion.
The use of proceeds also shifted from a fleet expansion towards paying the fuel debt owed by Garuda’s budget unit Citilink to Pertamina.
Acrostics Asia wrote that Garuda was handing out stakes in return for the support from Danantara and its fellow SOEs, but this may limit the room for the airline and its subsidiaries to obtain equity financing from third parties.
Acrostics Asia also flagged that while Danantara’s funds should help to turn Garuda’s equity positive, the airline may continue being weighed down by costly leases.
A senior Danantara official said that Indonesia is forming an aviation holding company to get “extra income without adding planes”.
Garuda, Citilink and Pelita Air will combine their fleet to serve the same routes or travel bookings.
Garuda’s latest results showed that the recapitalization improved its balance sheet, but has not turned around its operations.
After its equity injection, Danantara became Garuda’s biggest shareholder with a 91.11% stake.