Garuda’s fleet growth at risk as Danantara trims funding

[JAKARTA] Indonesia’s sovereign wealth fund Danantara is reducing its financial support for flag carrier Garuda Indonesia, putting in doubt the distressed airline’s ability to refresh its fleet.

Garuda will now receive 23.7 trillion rupiah (S$1.9 billion) from Danantara Asset Management, an arm of the wealth fund, through a private placement, which comprises a cash injection and a loan conversion, according to an exchange filing. The airline was supposed to obtain US$1.8 billion under a plan drawn up last month.

In addition to covering finance expenses and providing working capital, Danantara Asset would have helped with fleet expansion. However, Danantara Asset notified Garuda that “there is also an adjustment to the planned use of funds, which no longer includes fleet expansion”, the airline said in a separate statement.

The carrier has struggled financially since the Covid-19 pandemic and has grounded an increasing number of planes because of difficulties making maintenance payments. The number of idled jets operated by the company and subsidiary low-cost carrier Citilink Indonesia rose to 51 as at June, nearly 40 per cent of the group’s total fleet, and up from 33 a year earlier. 

Leasing new planes comes with high price tags amid a dearth of available aircraft and a global surge in travel. The carrier earlier this year paid twice as much to lease a Boeing 737 Max jet than it does for older 737 jets.

Garuda should focus on getting some of its grounded planes flying again, said Gerry Soejatman, a Jakarta-based independent aviation analyst.

SEE ALSO

Garuda Indonesia appoints new CEO Glenny Kairupan

Distressed Garuda to tap Indonesian state fund for US$1.4 billion

“Ordering new planes for early delivery is going to be very expensive, and probably less prudent financially,” he said.

“It is better to see the grounded jets being put back into service or returned to lessors before Garuda place big aircraft orders.” BLOOMBERG