Clock Is Ticking for Garuda With Cash Pile Thinning Fast

(Bloomberg) -- Indonesia's flag carrier needs cash fast as losses soar past a half-billion dollars and unpaid bills pile up, yet negotiations for government aid move slowly and still may not yield enough to cover the shortfall.

A first-half loss of $713 million, announced last week, was just the latest piece of bad news for PT Garuda Indonesia. The airline already missed a payment on an asset-backed security in late July, shortly after extending the repayment of a $500 million sukuk -- an Islamic bond -- by three years because of its cash crunch. And it's facing a lawsuit in London over aircraft rental fees. One measure shows Garuda at risk of bankruptcy.

Some salvation could come from the government, which in May pledged to extend 8.5 trillion rupiah ($580 million) to the airline as part of a $10 billion package to a dozen state-owned companies. But it hasn't come yet. Garuda President Director Irfan Setiaputra said he was still in talks with authorities over the weekend, without giving any timing for the injection. Analysts warn it is unlikely to suffice anyway.

“It would be difficult for the company to stand on its own with only a 8.5 trillion rupiah bailout,” said Chandra Pasaribu, head of research at Yuanta Securities. “Without growth of its top line, it won't be enough.”

While passenger traffic improved slightly in June from May after the government eased some travel restrictions, the number of people flown by Garuda was still down 92% from a year earlier, the carrier said Tuesday.

Garuda's Z-score, a method developed by Edward Altman in the 1960s to predict bankruptcies, was -0.05 at the end of the first quarter, its lowest in at least a decade. The most recent figures on traffic show Garuda's passenger numbers plunged 98% in May from a year earlier, and by mid-July it had furloughed 825 staff after previously cutting salaries.

Indonesia remains in the grip of the pandemic with more than 113,000 confirmed cases. The International Air Transport Association doesn't expect the airline industry to fully recover before 2024, a bleak outlook that is reflected in Garuda's share price, which has slumped more than 50% this year.

Garuda said in Thursday's earnings statement that it's in talks with AerCap Holdings NV to restructure contracts after the Dublin-based firm filed a lawsuit on unpaid aircraft leases. Garuda said it has “negotiated with Aercap several times.” The airline also is in payment talks with Helice Leasing SAS.

Garuda and its low-cost unit, Citilink, lease most of their 210 aircraft. Rental costs were the equivalent of about 25% of the company's revenue last year, the most among nearly 60 carriers tracked by Bloomberg. Setiaputra, who took over Garuda in January, just as the virus was erupting in China, has said there would be a review of the airline's fleet and network.

At the end of 2019, Garuda had $299 million in cash and cash equivalents. That figure shrunk to just $165 million at the end of June. Operating expenses amounted to $1.6 billion in the first six months of this year, with about $700 million of that in cash expenses to suppliers and staff salaries.

“Garuda is clearly losing money real fast,” said Shukor Yusof, founder of aviation consulting firm Endau Analytics Pte in Malaysia. “I can't see how the government can evade bailing them out or not provide meaningful assistance any longer.”

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