JAKARTA -- Shares in Indonesia's flagship carrier Garuda Indonesia plunged on Friday, following the country's decision to suspend all domestic passenger flights from Saturday.
The decision by the government, meant to curb people's movements during the holy month of Ramadan, will undoubtedly hurt the carrier's finances. The government has so far been slow to support the airline industry, leaving Garuda in a precarious position as it faces a mountain of debt this year.
Garuda's shares dropped as much as 6.7% on the day to 167 rupiah per share, its lowest level in nearly a month. The latest drop equates to a 66.4% drop compared to the end of last year, making the airline's shares among the worst performing in the region.
Prior to the coronavirus outbreak, the majority state owned company was showing signs of recovery. Having gone two full years with a net loss, Garuda managed to eke out a net profit of $6.9 million in 2019.
But as a result of the international travel restrictions imposed earlier in the year as well as restrictions on domestic movement of people, "the company's operating revenue in the first quarter of this year decreased by approximately 33%" compared to the same period last year, said a source with knowledge of the matter.
Particularly harsh was Indonesia's ban on travel to China, which makes up 5% of the carrier's revenues, and Saudi Arabia suspending pilgrimages to Mecca, which account for 15%. "The decline in economic conditions also resulted in decreased purchasing power, and people chose to reduce expenses for traveling," the source added.
The government's latest measure means Garuda's second quarter earnings will take a similar, if not larger, blow, and puts the company at risk of falling back into net loss.
That leaves Garuda stuck between a rock and a hard place, as it faces the maturing of $1.5 billion worth of long- and short-term debt by the end of this year, according to data from Factset. The biggest of the lot is a $500 million bond issued in 2015 and due to mature in June.
Garuda announced last year that it would issue "sukuk" bonds that adhere to Islamic law to refinance the debt, but the sale was canceled as the company could not complete the necessary procedures on time. As of the end of 2019, the airline had $299 million in cash and cash equivalents.
The source said the company was looking into various financial measures to withstand the financial shock from COVID-19, including negotiating with lessors for delaying lease payments, seek financing from banks, and "negotiating with third parties on the company's obligations that will mature."
"Government support for the aviation industry will be critical," said Brendan Sobie, founder of aviation analysis company Sobie Aviation. "The support provided to the aviation sector by Indonesia's government has so far been insignificant. A more substantial assistance package for Indonesia's airlines is needed urgently."
"What we need to see are broader, more significant measures such as job schemes, where the government covers most wages for airline employees, and loans. This should be available to all airlines," he added.
According to the transportation ministry, the government is considering a number of measures to support the aviation industry, including incentives toward aircraft parking fees, reducing landing fees and delaying fuel payments. It wants to roll these measures out as soon as possible, but coordination among ministries is taking time, said a source in the transportation ministry.
Additional reporting by Bobby Nugroho in Jakarta