JAKARTA -- National flag carrier Garuda Indonesia has appointed a relatively obscure technology expert as its new CEO on Wednesday, nearly two months after its former chief was sacked over allegations of smuggling.
Irfan Setiaputra becomes the fifth chief since 2014 at the majority state-owned airline, where normal tenure for a CEO is five years -- if it is not cut short due to political squabbles. Setiaputra faces the daunting task of balancing political considerations with improving company performance in an increasingly cutthroat aviation market.
The appointment, along with other board changes, were approved at the company's general shareholders meeting on Wednesday. Setiaputra previously served as the CEO at the Indonesian subsidiary of French internet of things company Sigfox. A graduate of Bandung Institute of Technology, his LinkedIn profile shows stints at IBM and Cisco Systems.
The new CEO did not speak with media after his appointment, but State-Owned Enterprises Minister Erick Thohir said in a statement that he hoped Setiaputra "can carry out the mandate properly, follow the principles of good corporate governance, and make Garuda even better."
Financially, Garuda is in better shape than when Setiaputra's disgraced successor, Ari Ashkara, took charge in September 2018. Ashkara assumed the top post when the company was deep in the red and its relationship with the labor union on the ropes. The man from Bali was installed with the goal of regaining workers' trust.
Ashkara moved to increase passenger yield by reducing capacity and took over operations at Sriwijaya, the country's third-largest airline group. The latter gave Garuda 46% of the domestic aviation market and enabled it to explore more profitable international routes, ultimately improving its financial position.
The former CEO also cut costs, pushing Garuda to a net profit of $122 million in the nine months ended September 2019 -- a notable improvement from the $114 million loss over the same period the previous year.
Garuda's share price had plunged to 200 rupiah in November 2018, its lowest since listing on the Indonesian Stock Exchange in 2011, but has since risen 127% to 454 rupiah as of Tuesday.
But how Ashkara righted the floundering airline left a bad taste, something the new CEO has to fix. Indonesia's anti-monopoly watchdog KPPU has accused the carrier of trying to form a cartel aimed at controlling airline ticket prices together with Lion Group, the country's biggest airline with a 51% market share.
Sriwijaya also broke off from the Garuda group at the end of 2019, less than a year after the tie-up, as it became unhappy with the terms of the partnership. This forces Setiaputra to chart a new course to future growth while faced with the urgent task of dealing with the new coronavirus spawned in China.
Other tasks left behind by Ashkara include revamping Garuda's fleet. The company was awaiting delivery of 49 Boeing 737 Max 8s before the aircraft was grounded after two fatal crashes. Replacing existing aircraft with more fuel-efficient ones would significantly cut costs. But negotiations with Boeing were up in the air during the ousting of Ashkara, who had wanted to switch orders to other Boeing planes.
"Garuda's new CEO will need to pursue further restructuring and reassess the group's long term strategy," said Brendan Sobie, founder of aviation analysis company Sobie Aviation. He noted that the current upturn in Garuda's financials was a result of reduced capacity in the domestic market, but "one cannot assume that capacity will continue to be maintained" at the reduced level. "Domestic competition could re-intensify at some point, impacting Garuda's ability to maintain profitability over the longer term."
Sobie added that the flagship carrier "continues to be unprofitable" in the international market amid stiff competition. "Improving the international operation requires significant changes to [it] that prior CEOs were unable to implement due to government intervention. Garuda needs stability following four CEO changes in less than six years, investment and the ability to pursue changes without any government interference."
A turnaround in public perception will also be high on Setiaputra's agenda, following a series of scandals last year that tarnished the airline's reputation.
In April, two members of the carrier's board of commissioners including Dony Oskaria from CT Corp., the largest private shareholder in Garuda, declined to sign off on 2018 results due to allegations over financial wrongdoing. The carrier was eventually forced in July to correct its 2018 results, resulting in a second straight year of net losses for the first time since public listing.
The shareholders meeting on Wednesday approved the appointments of Oskaria as the company's new vice CEO and Chairal Tanjung, director at CT Corp. and the brother of the founder, as the vice president commissioner on the board of commissioners, which supervises and advises the board of directors. This gives CT Corp. considerable leverage over Garuda.
In December, Ashkara was dismissed over charges of trying to smuggle a disassembled Harley-Davidson motorcycle into the country on a newly delivered plane. This was followed by a series of viral Twitter posts by an anonymous user -- described in local media as a Garuda whistleblower -- who alleged sexual harassment of flight attendants.
Garuda has not issued any official statements regarding the Twitter allegations, but one executive who was named in them has reported the whistleblower to police for defamation.