Virus impact adds to Garuda’s woes as US$500 mil payment is due

JAKARTA: The coronavirus outbreak couldn’t have come at a worse time for PT Garuda Indonesia, pummeling demand at the flag carrier just as it faces a debt bill for half-a-billion dollars.

Debt market concern about sagging travel demand and the impact of financial market turmoil has caused Garuda’s US$500 million notes due on June 3 to tumble to a record low of 55.3 cents on the dollar, according to Bloomberg-compiled prices.

The securities have dropped 5.9 cents this week after sinking 36 cents last week.

Garuda is discussing all available options on its outstanding debts and aiming for a solution before any of those liabilities mature, President Director Irfan Setiaputra said in a text message in response to queries from Bloomberg.

The virus epidemic is wreaking havoc on airlines across the globe, and the Indonesian state-owned carrier is no exception.

Garuda slashed its international capacity by 30% as of Feb 17 compared with what it offered four weeks earlier, resulting in a 12% decline in its total seats being offered, according to data from OAG Aviation Worldwide.

“Under a normal situation, the company’s debt issue should not have been a major problem,” said Fahressi Fahamlesta, a Jakarta-based analyst at PT Ciptadana Sekuritas Asia.

“But this outbreak of coronavirus has become a perfect storm for the company resulting in slumping travel demand and a crashing market which will make fundraising difficult.”

Garuda’s shares have dropped 44% this year after tumbling 38% in February alone, its biggest monthly retreat ever.

The airline has a history of defaults. It missed payments during the Asian financial crisis in the late-1990s, when the rupiah plunged.

It also restructured its international and local currency debt around 2010. Its total debt was US$1.5 billion, compared with cash and equivalents of US$345.8 million as of Sept 30, according to Bloomberg-compiled data.

Garuda will likely end up restructuring its debt for the third time and if that happens, recovery on its bonds will “in all probability be very low and involve meaningful haircuts,” Deutsche Bank said in a credit note sent on March 3.

Even without the maturing debt, the carrier’s new management might have to thoroughly restructure its operations to deal with the downturn from this coronavirus outbreak, according to aviation analyst Gerry Soejatman.

“Garuda would need drastic measures to get through this one, that includes fleet reduction and grounding of some aircraft.,” Soejatman said.

“Even they don’t have this pressure from the debt repayment, these drastic measures are still needed.”