Garuda’s Restructuring to Test Confidence in Aviation Recovery
(Bloomberg) -- A debt restructuring just getting underway at flag carrier PT Garuda Indonesia is forcing creditors to weigh short-term losses against the potential for gains further down the line in one of the fastest growing aviation markets in Asia.
The airline is entering a court-supervised debt restructuring process after a Jakarta court on Thursday accepted a debt petition filed against it. Garuda and its creditors have 45 days to complete negotiations, which can be extended to 270 days.
“There’s no doubt that creditors and lessors will have to take a haircut during this process,” said Mayur Patel, regional sales director for Japan and Asia Pacific at OAG, an aviation analytics firm. “Indonesia is a big market and creditors have to take that into account in the negotiations whether they want to take part in its future growth or not.”
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Air passenger traffic has rebounded in parts of the world since the early stages of the pandemic in 2020. Indonesia, an archipelago with over 17,000 islands, relies heavily on the sector which has strong growth prospects there. But uncertainty after the emergence of the omicron variant has complicated the shorter-term outlook.
Garuda joins a list of global airlines entering court-led debt restructuring as a result of the pandemic. Philippine Airlines Inc. filed Chapter 11 bankruptcy in New York in September, while Chile-based Latam Airlines, Aeromexico and Colombia’s Avianca Holdings sought court protection in 2020.
Garuda finalized a restructuring proposal last month and is in discussion with creditors and lessors to reduce its liabilities to $3.7 billion, from $9.8 billion, Kartika Wirjoatmodjo, a deputy at the country’s state-owned enterprises ministry, told a parliamentary hearing last month.
‘Technically Bankrupt’ Garuda Plans to Slash Debt 60% to Survive
The carrier said last week it must continue to defer periodic distribution payments on outstanding $500 million sukuk, according to a filing. The airline reported a record net loss of $2.4 billion in 2020 and its nine-month loss widened to $1.66 billion, from $1.08 billion in the same period a year ago.
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