JAKARTA/TOKYO -- National airline Garuda Indonesia on Sept. 12 sacked its chief executive whose cost-cutting measures drew strong resistance from the labor union and replaced him with an executive from another state-owned company.
Garuda, which is controlled by Indonesia's Ministry of State-Owned Enterprises, replaced Pahala Mansury with Askara Danadiputra, president of port operator Pelindo III, at a shareholders' meeting. Other executives were reshuffled, leaving just two of Garuda's eight board seats unchanged.
In a news conference, Danadiputra, who had also previously served as Garuda's director of finance and risk management, highlighted the challenges ahead and said the working conditions of its employees is a top priority.
"The leadership must face the turbulent economic conditions, starting from the depreciated rupiah to rising oil prices," he said. "The main focus of the new management is ... an increase in employee happiness. Because making the employees happy will improve customer service."
Mansury, a former director at state-owned lender Bank Mandiri, spent less than 18 months at the helm. He embarked on a cost-cutting drive to turn around Garuda, which had seen its aggressive expansion program take a toll on its finances.
He scrapped unprofitable routes and froze the expansion of the fleet. The efforts appear to be bearing some fruit -- Garuda reported a net loss of $116 million for the six months until June, less than half the $281 million loss a year earlier. But he also tried to cut into employee welfare benefits, a move that drew backlash from the labor union.
Some board members, including Mansury, were also unpopular for their lack of experience in aviation. His removal is seen as an intervention by Indonesian President Joko Widodo's administration, which sought to avoid turmoil at one of the country's most iconic companies ahead of a presidential election next year.
The move casts uncertainty over the national carrier's ambitions of becoming a global airline.
Indonesia, the world's fourth most populous country, is home to a fast-growing aviation market fueled by an influx of tourists as well as an increasing number of locals traveling abroad. But Garuda faces cutthroat competition with low-cost airlines such as AirAsia and regional carriers from the Middle East and Asia. It has also been rocked with governance issues -- Emirsyah Satar, a former chief executive, was named a suspect in a graft case last year.
As a result, Garuda lags behind its regional peers like Singapore Airlines and Cathay Pacific Airways, both in reputation and investor trust. Garuda's stock price has fallen to record lows, giving the company a market capitalization of around 5.5 trillion rupiah ($370 million) -- making it one of the least valuable airlines in Asia.
Nikkei staff writer Bobby Nugroho in Jakarta contributed to this story.