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Garuda's practical Arif makes quick turn

Having put Garuda Indonesia back in the black, CEO Arif Wibowo is now eyeing international growth.

JAKARTA -- When it comes to business, Indonesia is known for its slow way of doing things. But Arif Wibowo, Garuda Indonesia's chief executive, had no time to mess around. Less than a year since he took over the helm, the flag carrier is starting to show positive signs toward recovery. Now he is taking further steps to pursue growth and global expansion.

     Last December, when he took over the CEO post of the flag carrier, Garuda was under pressure from a tumbling rupiah, aggressive budget carriers and a sluggish economy. The airline suffered a disastrous $373 million loss in 2014. Arif's predecessor Emirsyah Satar resigned before ending his 10-year career at the top.

     With a series of restructuring measures, as well as the strong tailwind of falling oil prices, Arif brought Garuda back to profit for the first half of 2015. Now, investors are closely watching whether he can help the airline continue to both grow and remain profitable in one of the world's fastest moving aviation markets.

     On the morning of Sept. 28, Arif was at the opening ceremony of Garuda's new aircraft maintenance facility at Soekarno-Hatta International Airport, in the western outskirts of Jakarta. In a speech, he declared, "Garuda Indonesia is expected to be competitive globally." Arif later took State-Owned Enterprises Minister Rini Soemarno on a lengthy tour through the 67,000-sq.-meter facility. Garuda claims it is the largest narrow-body hangar in the world.

     Immediately after taking the top post last December, Arif launched a series of measures to bring the state-owned flag carrier from a loss in 2014 that wiped out all of its profits since it went public in 2011. The plan, which involved restructuring routes, costs and debt, was dubbed "Quick Wins." 

     Garuda was facing a wave of problems. One was the plunge in the rupiah against the dollar since the second half of 2013. While Garuda generates the majority of its revenue in rupiah, about 70% of its costs, such as buying aircraft and jet fuel, are in dollars. Its rapidly growing fleet, which had jumped from 87 aircraft at the end of 2011 to 169 by 2014, quickly became a financial burden.

     Another was the decline in Indonesia's economic growth, which cooled the robust demand for air travel and intensified price competition.

     Arif started out by cutting loss-making routes to Australia and suspending the opening of a new route to Japan. Until then, both countries were considered among the most strategic markets in boosting Garuda's brand image. He allocated the aircraft simply to where demand was growing, such as Saudi Arabia, where millions of Muslims go on pilgrimages every year, and China's second tier cities.

     To deal with ballooning interest expenses, he also flew to the Middle East to sell Islamic bonds, known as sukuk, to investors. After tough negotiations, the airline managed to issue $500 million in sukuk in May.

Cabin cuts

Costs were cut inside the cabin as well. First-class seats, which featured lavish services but were taking up space, were scrapped in some of its aircraft. New ones with all-economy configurations were introduced.

     For some, Arif's practical and quick approach may seem as an unlikely fit for a state-owned company that has been trying to establish Indonesia's presence in the world. But he reiterated, "If we are not making money, it will be difficult for the government."

     Arif started out as an engineer and worked his way up, becoming a senior manager who oversaw Garuda's operations in Asia and the U.S. But his real challenge came when he was tapped in 2012 to head Citilink, Garuda's low-cost carrier brand. It was spun off from an internal division to compete with LCC rivals such as Lion Air and Malaysia's AirAsia, which were quickly gaining traction in the market. 

     Compared to its big rivals, Citilink had a much smaller fleet and budget. To survive, Arif relied heavily on data analytics to make swift changes on routes based on market demand. According to one executive who worked closely with him, he had an application developed which sent real time flight data to his smartphone.

     In March 2014, Citilink entered the regional market by opening a route between Surabaya and Malaysia's Johor Bahru. Quickly seeing the weak demand, it scrapped the route within two months. Instead, it focused on increasing the number of flights connecting major domestic cities such Jakarta, Surabaya and Medan.

     Citilink has since emerged as one of the group's few bright spots. Passengers surged from 2.8 million in 2012 to 7.5 million in 2014 and market share doubled to nearly 13%. It is on track for its first annual profit this year.

Climbing numbers

After 10 months since taking over the helm of Garuda, Arif's moves have started to bear fruit. In the first half of 2015, Garuda's load factor -- a measure of how full its aircraft are -- increased by 7 percentage points year on year to 76%, while passenger numbers surged 19% to 15.9 million, making up for the double digit decline in passenger yield. Helped by a plunge in oil prices, Garuda logged a $27 million profit for the same period.

     With some good numbers under his belt, Arif has also resumed Garuda's pursuit of global expansion. In June, he was in Paris to sign intents with Airbus and Boeing for aircraft worth nearly $20 billion at catalog prices.

     Meanwhile, other flag carriers have been less upbeat. Thailand's Thai Airways International posted a net loss of 12.75 billion baht ($382 million) in the second quarter due to restructuring costs. Singapore Airlines, the biggest flag carrier in the region, has doubled its net profit to 91.2 million Singapore dollars ($67 million) year on year due to lower fuel costs, but revenue growth has remained sluggish.

     But investors remain skeptical. Garuda's share price has almost halved since the end of 2014, underperforming the broader stock index. With the rupiah continuing to plunge, a small profit has not been enough to restore confidence over the airline's financial health. Garuda's debt has been rolled over but nevertheless piled up to $1.3 billion as of June, almost three times the amount it had at the end of 2011.

Garuda CEO Arif Wibowo, right, stands beside State-Owned Enterprises Minister Rini Soemarno at Indonesia's Soekarno-Hatta International Airport in September.

     Another lingering question is the role of the government, which owns 60.5% of the shares. Some analysts say government support for the aviation industry, such as its recent intention to lower jet fuel tariffs, is essential for Garuda's growth. Others are concerned over transparency. Before going public in 2011, it made a big revision in its profit-and-loss statement, which scared off some investors.

Shadows of a billionaire

The intentions of billionaire businessman Chairul Tanjung, who has emerged as the second largest shareholder recently with a 25% stake through an investment vehicle, also remain uncertain. Two executives at Chairul's CT Corp, including his younger brother Chairal, joined Garuda's board of commissioners in December.

     Arif says his practical approach will suit all shareholders. "As long as we run [the company] as professionally as possible, it will really support the government," he said. "And that is what we are going to do."

Arif Wibowo (49) was born in Banyumas, Central Java. After graduating from the Surabaya Institute of Technology in 1989, he joined Garuda Indonesia as an engineer. He was appointed president and CEO in December 2014. He also serves as chairman of the Indonesia National Air Carriers Association.

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