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 on 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 the 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.