An Indonesian judge has approved Garuda Indonesia's restructuring plan, giving the beleaguered airline the green light to rid itself of billions of dollars worth of debt and reorganize its fleet and operations. In a filing lodged with the Indonesian Stock Exchange on Monday, Garuda Indonesia confirmed that a Jakarta Commercial Court judge had accepted the restructuring plan and that the airline was preparing to "accelerate its performance recovery."

Third time lucky for Garuda Indonesia

The judge's approval means this restructuring is the airline's third in three decades. The deal also sees creditors lose billions. Garuda's executives bowed to the inevitable in 2020 when COVID-19 paralyzed the already struggling airline. However, it wasn't until late 2021 that the Commercial Court accepted a creditor's bankruptcy petition, and Garuda Indonesia went into a formal court-supervised restructuring process.

Since then, it's been a high-stakes drama of delays, disgruntled creditors, mixed messages, and politicians freelancing as airline restructuring advisors (Garuda Indonesia is 60.5% owned by the Indonesia Government). As recently as last week, two creditors continued to object to the restructuring plan put forward by Garuda's administrators.

Following Monday's court decision, Garuda Indonesia lives to fly another day. Photo: Airbus

Garuda Indonesia successfully wipes billions in debt

The precise details of the final restructuring plan remain sketchy, but in the final tally, administrators accepted and put forward over US$9 billion worth of debt to the court. The debt holders are aircraft lessors, aircraft manufacturers (Airbus is owed more than $537 million), bondholders, suppliers, and long-suffering Garuda Indonesia employees. Earlier this year, Garuda's administrators indicated creditors would lose 81 cents for every dollar owed. The administrators went to court on Monday with the backing of 97% of the creditors.

That backing came at a cost. Garuda Indonesia was looking to wipe up to $6 billion in debt and restructure the remainder into a series of bond and share packages that would see the airline hold onto what slender reserves of capital it had and creditors rely on a promise they might recoup some money years down the track.

But the alternative was bankruptcy and liquidating the airline's assets, which would see most creditors recoup even less money. Approving the restructuring plan shaped up as the lessor of the two evils. Monday's decision in Garuda's favor also means the airline will receive a promised cash injection of $500 million from the Indonesian Government via a first rights issue that was contingent on the court approving the restructuring plan.

Garuda Indonesia may have dodged bankruptcy, but in the future, it will be a smaller and leaner airline. Photo: Getty Images

A fall from grace for Garuda Indonesia

It's been a significant fall from grace for what was once Indonesia's number one airline. In June, the Garuda Group's share of Indonesia's domestic airline market was 18%, and its share of Indonesia's international airline market was 5%. The Garuda Group includes Garuda Indonesia and its low-cost subsidiary Citilink. Take out Citilink and Garuda Indonesia's domestic market share this month is just 5%.

When COVID-19 started, Indonesia closed its borders, effectively destroying the inbound and outbound markets. Passenger traffic within Indonesia, usually one of the world's top domestic aviation markets, also collapsed. Today, Indonesia's borders are open again, and travelers can enter and leave the country with minimal fuss. According to IBS Statistics data, international seat capacity in and out of Indonesia this month is running at around 32% of June 2019 levels, and domestic seat capacity is running at about 80% of June 2019 levels.

Garuda's third lease of life coincides with Indonesia's aviation market recovery, something that should help the airline's stated goal of accelerating its performance recovery.

Garuda's stated aim following Monday's court decision is to "accelerate its performance recovery." Photo: Airbus

Depleted market share and a depleted fleet

Indonesian aviation market specialist Brendan Sobie of Sobie Aviation says after the restructuring process, Garuda Indonesia will end up with around 70 aircraft - half of their pre-pandemic fleet number. He says the airline is flying around 40 aircraft now, leaving 30 to be reactivated. Among the leftovers will be some planes destined for the scrap heap, given their age and condition. Garuda Indonesia is, or was, slightly unusual given its fleet's high number of leased aircraft. Part of the reason Monday's green light was so long coming was the complex negotiations with 30 odd aircraft lessors, most of whom had substantial skin in the game and were likely a little weary of yet another failed airline trying to dodge its leasing liabilities.

Every indication suggests a restructured Garuda Indonesia will curtail its ambitions and network to Southeast Asia and abandon its former long-haul routes. The airline is down to around ten international destinations, with the only ports beyond Asia being Amsterdam (AMS), Jeddah (JED), and Sydney (SYD).

Citilink the future for the Garuda Group

Beyond the immediate post-restructuring period, Citilink will become the focus of the Garuda Group. The low-cost airline is a better match for the Indonesian domestic market and its particular demographics. Unlike its parent airline, Citilink's fleet is not being reduced, and nearly all of its planes are back in the air. Citilink has a far larger slice of the domestic market than Garuda Indonesia, and Brendan Sobie expects that to continue.

On Monday, following the Commercial Court hearing, Indonesian State Owned Enterprises Minister Erick Thohir fronted the media to confirm the Government would honor its $500 million funding promise. He also added that Garuda Indonesia would stick close to home in the future.

"What's sure is that Garuda in the future will focus on domestic and not international flights. The latter saw 70% losses," he said. "It's better to improve our domestic potential with less focus on overseas."

Another corruption investigation to haunt Garuda Indonesia

Meanwhile, no Garuda Indonesia news is complete without some drama. Unrelated to the restructuring process but garnering more attention in Indonesian media today is news former Garuda Chief Executive Officer Emirsyah Satar is facing another corruption investigation. On Monday, Indonesia's Attorney General's Office confirmed the investigation was underway regarding planes purchased between 2011 and 2021.

The unfortunate Mr Satar was Garuda's CEO between 2005 and 2014 and was pinged in 2020 on corruption charges relating to Airbus aircraft and Rolls-Royce jet engines. Mr Satar was sentenced to eight years in jail - which perhaps explains why Indonesian media reported he was unavailable to comment on the latest investigation.