UI Professor of Finance Budi Freensidy: Combination of 3 and 4 Could be Garuda's Choice
KONTAN.CO.ID -JAKARTA. (30/5/2021) The Ministry of State-Owned Enterprises (BUMN) has prepared four options in an effort to resolve the problems surrounding state-owned airlines: PT Garuda Indonesia Tbk (Garuda).
The four options are: One, the government will continue to support Garuda through lending or equity injections. This option is carried out such as Singapore Airlines, Chatay Pacific and Air China. This option has the potential to leave Garuda with a large legacy debt that will create a challenging situation in the future.
Second, using bankruptcy protection law in restructuring Garuda Indonesia. With this option, Garuda will use the legal bankruptcy process to restructure obligations such as debt, rent and employment contracts. In this option, the US Chapter 11 instrument which is the United States Bankruptcy Act, as well as the bankruptcy jurisdiction of other countries can be used. In addition, the government will also consider the option of submitting a postponement of debt payment obligations (PKPU).
The third option is to restructure Garuda and establish a new national airline company. For this option, Garuda is left to restructure. At the same time, starting to establish a new domestic airline company that will take over most of Garuda's domestic routes and become the national carrier in the domestic market. If this is an option, further exploration of the option is that Indonesia still has a national flag carrier but this option requires a capital of US$ 1.2 billion.
Fourth, Garuda was liquidated and the private sector was left to fill the void. In this option, the government encourages the private sector to improve air services, for example with lower airport taxes or route subsidies. If this option is used, Indonesia will no longer have a national flag carrier.
Prof. Dr. Budi Frensidy, Professor of Finance and Capital Markets at the University of Indonesia, told KONTAN, Sunday (30/5) that the government could take a combination of options 3 and 4 as an option.
According to him, the option to support Garuda by providing loans is difficult at present. "With the current conditions, even if given trillions of money, Garuda's problems will not be solved," said Budi.
Garuda is also difficult to restructure internally. If employees and unions reject the options, they can hold demonstrations every day. This condition will make it more difficult for Garuda.
According to Budi, a combination of options 3 and 4 can be done by Garuda. Garuda can still carry out debt restructuring. Moreover, "Currently , many lessors have reserved write-offs for the problems faced by airlines," he said.
Along with restructuring efforts, Garuda can establish a new entity. “Later, we can buy planes at low prices. If necessary, ask the private sector to buy it as the fire sale price," he said.
Budi said, the third option has also been quietly used by Lion Air, which established the Super Air Jet. As a new company, Garuda could use another name. "The private sector can run the new company efficiently," he said. The aviation business still promises opportunities, if the Covid-19 pandemic is over.
"There is an opportunity if Covid is finished because there is an Umrah business, Hajj pilgrimage and many more. For example, a new company can be given a five-year monopoly concession and can also be rented out to another airline so that this new company can get a margin commission ," he said.
Budi said, basically, "Investors do not care who the shareholders, which is important brand- it not be sold," said Budi.
Even so, Budi also gave a warning on the government's decision if it later decided on the preferred option, which involved other industries, for example banks that had bills to Garuda, both state-owned and private banks. "This must be taken seriously, so that the impact is not dire on the financial sector," he said.
Moreover, banks and multi-finance companies are currently taking on the restructuring of non-performing loans due to COVID-19, whose relaxation has been extended.
Just a reminder, Garuda's total debt in the third quarter reached US$ 10.36 billion or Rp 148.15 trillion at an exchange rate of Rp 14,300 per share.
These liabilities consist of long-term liabilities of US$5.65 billion (Rp 79.51 trillion) and short-term liabilities of US$ 4.69 billion or Rp 67.07 trillion at the same exchange rate.