A court overseeing Garuda Indonesia’s debt restructuring negotiations has ratified a deal with creditors to repackage more than $9 billion of the carrier’s debt, a court administrator said. The deal, which the state-carrier secured after most creditors backed its restructuring proposal in mid-June, was due to be ratified last week, but was delayed after objections by two lessors on claims. Under the deal, most of the creditors will have to take a debt write-down, and have the remainder of their debt repackaged into new bonds and shares, while some others will see their loan tenure extended without any haircut.
The company has also renegotiated the terms of aircraft orders and leasing contracts. It was formerly paying abnormally high rents for aircraft. During restructuring, Garuda had managed to cut lease rates for wide-body aircraft by at least 65 percent and for narrow-body aircraft by 35 percent. Some lessors had also agreed until December 2023 to vary lease payments according to the amount of time aircraft were used.
The carrier would still face challenges in managing costs amid soaring fuel prices, but it expected to turn its operating income positive after reporting negative cashflow each month during the COVID-19 pandemic.
Government officials said Garuda’s plan is to focus on serving domestic routes and maintain only profitable international services. Including low-cost unit Citilink, the Garuda group would operate 120 aircraft, down from 210 in 2020. The government has said it will top up Garuda’s capital through a rights issue later this year and that the company will later make a second rights issue, inviting a strategic partner to invest in it.