Back On The Rise

Posted on August 23rd, 2009 at 3:12 am by Akhyari


While most Asian carriers are reducing capacity in the face of the downturn, Garuda Indonesia has been expanding and posting profits.

Garuda made a net profit of 669 billion rupiah ($67 million) last year and for the first half of this year the numbers are higher. This profitability to the Indonesian economy which, unlike many other Asian economies, has avoided recession. But citing fuel price volatility, he stops short of saying full-year profits will be higher.

Garuda plans to roughly double its fleet to 20 Airbus A330s,90 Boeing 737s and up to six Boeing 777-300ERs by 2014. It has been able to easily add leased aircraft. This is in sharp contrast to a few years ago when it struggled to convince lessors to place their aircraft with the carrier. Garuda previously had difficulties with European export credit agencies over the financing for six A330-300s it bought in the 1990s. Garuda reached a preliminary agreement whereby it will pay some money and extend the loan period.

Garuda also owes $100 million to Indonesia’s Bank Mandiri in the form of mandatory convertible bonds. The bank says it wants cash. Satar says Garuda is speaking to Mandiri to see if the loan can be extended or whether Mandiri can exercise the bonds and cash out when Garuda carries out an IPO, planned for the middle of next year. While the government plans to retain a majority stake, the IPO means it should no longer have to rely on government financial assistance.

The carrier is also working on repositioning itself in its international markets. it is believed that Garuda performs well in the domestic market because it is preferred by business travelers. But on international routes it faces strong foreign competitors and in the past has tried to win passengers with low fares.

It is now working to reposition itself higher up the value chain. Passengers will still pay less on Garuda than on other full-service airlines but they will also get a good product. To deliver on its promise, Garuda’s new aircraft include audio/video on demand in-flight entertainment systems.

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