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Corrected results see Garuda Indonesia fall back to net loss for 2018

Forced amendment comes as airline faces stiff regional competition

Garuda was ordered in June to 'fix and restate' its 2018 results after an accounting error relating to an inflight Wi-Fi contract was discovered.   © Reuters

JAKARTA -- Indonesian flagship carrier Garuda Indonesia has fallen back into a net loss for 2018 after it was instructed by the country's financial authorities to correct its financial results.

The company's revised financial statement, released on Friday, showed it ended the year with a net loss of $179.2 million, reversing the previously stated net profit of $809,846.

The airline's second straight year of net losses is a worrying sign for a company that is facing stiff regional competition from other international carriers, as well as domestic allegations of ticket price fixing. This is the first time Garuda, which is majority owned by the government, has registered two consecutive annual net losses since listing on the Indonesian stock exchange in 2011, according to data from FactSet.

Garuda was ordered by Indonesia's financial services authority in late June to "fix and restate" its 2018 results, due to an accounting error relating to the carrier's contract with local company Mahata Aero Teknologi for a Wi-Fi service on its aircraft. Garuda booked all of the expected revenue of $240 million in its 2018 accounts, which initially gave the airline a meager net profit for 2018, after ending 2017 with a $216 million net loss. In its amended results, the revenue from the Mahata deal has been removed.

Garuda's share price fell 1.5% on Friday, after being down as much as 2% following the release of the corrected results.

"Investors still believe, and have confidence in Garuda," said Fuad Rizal, the company's director of finance and risk management, "because this is a one-time [problem]." He added that the airline was optimistic about bouncing back to a net profit of around $70 million in 2019.

The issue first came to light in April when it was revealed at Garuda's shareholders meeting that two members of the carrier's board of commissioners had declined to sign off the 2018 results. The two board members had been appointed by CT Corp, a local conglomerate which holds the second largest stake in the air carrier.

Although the stated policy of the Indonesian government -- Garuda's largest shareholder -- is only to hold shares in the company, in reality it is deeply involved in management personnel decisions. According to a government official, the current president of Garuda, Ari Ashkara, was ordered to return the company to profit within a year of taking up his post in September 2018.

The amended loss-making results further add to Garuda's woes in recent months. It suffered public ridicule earlier this month when an Indonesian video blogger posted a photo on social media taken during his business class flight from Sydney to Bali, which showed a handwritten menu. After the video went viral, an internal memo was leaked instructing cabin crews to ban passengers from taking photos or film videos during flights, which has drawn further public scorn.

The carrier, as well as its low-cost carrier competitor Lion Air, is also being scrutinized by Indonesia's Business Competition Supervisory Commission (KPPU) following allegations of malpractice, including the fixing of domestic flight ticket prices. The two companies combined hold more than 90% of the domestic LCC market.

"Performance-wise, [Garuda's LCC subsidiary] Citilink can contribute" in returning the company to profitability, commented Satrio Utomo, research analyst at Universal Broker. However, "the biggest challenge for Garuda now is to win back public trust."

Nikkei staff writer Ismi Damayanti contributed to this report.

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