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Garuda reform faces crucial test as airline meets shareholders

Workers angry over money-losing flag carrier's benefit cuts

Pahala Mansury, left, the former CEO of Garuda Indonesia, led a belt-tightening program that stemmed losses but angered employees. (Photo by Akira Kodaka)

JAKARTA/TOKYO -- Loss-making Garuda Indonesia's turnaround enters a key stretch as labor unions resist benefit reductions while the possibility of a government-led management reshuffle looms over next week's shareholders meeting. 

 All eyes are on whether President Joko Widodo, the final decision-maker, will leave cost-cutting CEO Pahala Mansury at the helm or remove him to avoid a renewed threat of disruptive strikes at the state-owned flag carrier.

Mansury, appointed in April 2017, has spearheaded an overhaul that will see the airline shed its direct route to London, a crown jewel of Garuda's past expansion, while expanding code-sharing agreements, like one announced Thursday with Japan Airlines.

Costs mounted and routes began underperforming under Garuda's two previous CEOs -- Emirsyah Satar, who guided the airline through its 2011 listing on the Indonesian stock exchange, and successor Arif Wibowo -- as demand failed to keep up with management's eager network and fleet expansion.

Garuda aimed to establish its own routes to North America, and sought to move upmarket, including by introducing first-class service.

Mansury -- formerly a executive at Bank Mandiri, one of Indonesia's biggest lenders by assets -- was brought on to turn Garuda around, and has shifted the company's focus from scale to profitability. As part of the belt-tightening, the airline recently announced it will end its lightly traveled London route in October, focusing instead on flights to Amsterdam. According to Mansury, Garuda has now cut 11 of 22 unprofitable routes.

To expand or at least maintain its network while reducing costs, Garuda will make use of code-sharing. That includes teaming up with JAL on Tokyo-Jakarta flights, as well as some of their respective domestic routes. Garuda will also be allowed to sell some seats on and attach its name to JAL flights to Los Angeles and New York.

Mansury told reporters in Jakarta on Thursday it was the kind of partnership that could only have been achieved with JAL, and would expand Garuda's sales opportunities.

On domestic routes, too, Garuda is concentrating its planes on profitable routes while teaming up on others. In May, the carrier announced a partnership with compatriot Sriwijaya Air, allowing it to curb purchases of additional aircraft. It intends to put investment cash freed up by this strategy toward China routes, where high demand is expected.

About a year and a half into Mansury's leadership, his efforts appear to be bearing fruit. Garuda's net loss narrowed in the April-June quarter from the preceding three months.

But labor unions' outrage at attempts to cut generous benefits, among other cost-saving moves, led earlier this year to threats of strikes, including during peak times like the Islamic season of pilgrimage, or hajj.

The government in Jakarta, which is Garuda's top shareholder and in effect holds management rights at the carrier, is wary of the disruptions that could result from a strike.

Speculation has arisen that Mansury and other executives could be removed at an extraordinary shareholders meeting scheduled for Wednesday. Replacement candidates are rumored to include former Garuda executives, as well as people affiliated with the ruling coalition.

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