Garuda Indonesia ran up $9.8B of debt — and its leases were 'beyond reasonable'

Garuda Indonesia is the flag carrier of Indonesia. Long before the pandemic it was carrying a heavy cost base: the Indonesian government itself had described the airline's aircraft leasing costs as 'beyond reasonable'. Its liabilities had built up to about $9.8 billion, and it was struggling to meet its obligations to banks, vendors and aircraft lessors.

The pandemic turned strain into crisis. For the nine months ended 30 September 2021 Garuda reported a net loss of $1.7 billion, wider than the $1.1 billion it lost in all of 2020, as air travel collapsed. Unable to meet its financial obligations, the airline could no longer keep its creditors at bay.

In December 2021 a creditor — the information-technology company PT Mitra Buana Koorporindo — filed a petition, and the Central Jakarta District Court placed Garuda into PKPU, Indonesia's court-supervised suspension of debt-payment obligations. The ruling gave Garuda and its creditors 45 days, extendable to 270, to agree a restructuring plan. Garuda had finalised a restructuring proposal the previous month and was negotiating to cut its liabilities from about $9.8 billion to roughly $3.7 billion.

Garuda's restructuring is a case about a cost base that was fixed long before the shock that broke it. The leases were signed in good times at prices even the owner called unreasonable; when the pandemic removed the revenue, the debt did the rest, and a national carrier had to ask a court to force its creditors to the table.