The Covid-19 pandemic has been going on for more than a year in Indonesia. The negative effects are not only on health problems but also extend to social and economic problems. From the economic side, many sectors experienced a decrease in performance and even had to close. Based on data from the Statistics Indonesia (BPS), Transportation and Warehousing Services became the sector that experienced the largest contraction at -15.04% in 2020 (YoY), while in Q1/2021 its performance was also recorded to be still stagnant at -13.12%.  In detail, air transportation recorded the worst performance from this sector, namely -53.01% in 2020 (YoY) and -52.45% in Q1/2021, followed by Rail Transport -42.34% in 2020 (YoY) and -45.04% in Q1/2021.

The limited mobility of the community during the pandemic made the performance of this sector fall freely because many modes of transportation had to stop their operations in an effort to suppress the transmission of the corona virus. In the Air Transport sub-sector, pressure is felt by all parties, from airlines to various supporting services, both small, large, private companies and even government-owned companies. The perceived impact starts from a decrease in revenue, termination of employment to other financial problems and even bankruptcy.

One that is being talked about lately is PT. Garuda Indonesia (Persero) Tbk (GIAA/Garuda Indonesia). The state-owned company has a debt of USD 12.73 billion or around IDR 184 trillion as of December 2020. This value is up 240% compared to the same period in 2019 of USD 3.7 billion or around IDR 52 trillion. Until Q2/2021, Garuda Indonesia has not issued its latest financial report, but it is predicted that the value of its debt will continue to increase by IDR 1 trillion every month.

With this debt burden, Garuda Indonesia’s losses reached USD 2.4 billion or IDR 35 trillion at the end of December 2020. According to the Ministry of SOEs (State Owned Enterprises), the root of the problem is domestic flight routes that make a major contribution to the Company, namely about 78% has not been managed optimally. So far, Garuda Indonesia has focused more on international flight routes, which apparently did not have a significant impact on revenue, which was only around 22%. Especially in the current state of the pandemic where many countries have implemented lockdowns and closed flight routes from other countries, of course choosing international flight routes as the main focus is not a wise choice.

In addition, the decrease in revenue also significantly affected the Company’s ability to meet its financial obligations to lenders and vendors. Such as fuel providers, airport operators and aircraft lessors. Not long ago, Garuda Indonesia was sued at the trial for the Suspension of Debt Payment Obligations (PKPU) proposed by PT. My Indo Airlines (MYIA). The submission of the PKPU application is in connection with the existence of Garuda Indonesia’s business obligations to MYIA that have not been resolved, in connection with the cooperation in cargo flight services carried out by both parties. Currently, the Company is conducting intensive coordination with the board of commissioners, shareholders and relevant authorities regarding the follow-up and steps to be taken by the Company regarding the submission of this PKPU application.

Meanwhile, to overcome this problem, various options emerged, ranging from maintaining the existence of the airline to closing it. The first option is the provision of loans or capital injections by the government. However, this option has consequences, namely that Garuda has the potential to have a fairly large debt legacy in the future.

The second option is to restructure through several bankruptcy protection jurisdictions. With this option, Garuda Indonesia will use a 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 consider the option of submitting a postponement of debt payment obligations (PKPU). However, the note is that it is not clear whether Indonesia’s bankruptcy laws allow for restructuring.

The third option is for the government to restructure Garuda Indonesia and establish a new national airline company. In this option, the government will allow Garuda Indonesia to restructure. At the same time, the government is starting to establish a new domestic airline company that will take over most of the Company’s domestic routes. The new Company will also become a national carrier in the domestic market.

The fourth option, the government will liquidate Garuda Indonesia and the private sector can fill the void. With this option, the government encourages the private sector to improve air services, for example by lowering airport taxes or route subsidies.

Until now, the government and management of Garuda Indonesia are still discussing and considering the steps to be taken to save the company. In addition, the Ministry of SOEs is also coordinating with a number of related parties, especially with the Ministry of Transportation to synchronize Indonesia’s aviation business, including Garuda Indonesia and a number of managed infrastructures. Because Indonesia as an archipelagic country is an opportunity for the aviation industry that should be optimized.