JAKARTA -- Garuda Indonesia will slash its fleet in half in an attempt to cut losses and spiraling debt, Nikkei Asia has learned, as the carrier struggles to stay aloft amid the COVID-19 pandemic and its effect on the global airline industry.
Indonesia's biggest airline said in a filing to the country's stock exchange on Monday that it was offering an early retirement program as part of an effort to "make Garuda Indonesia a healthier and more adaptive company in responding to business performance challenges in a new era of normality."
While the company did not provide a redundancy target, halving its fleet -- which includes both owned and leased aircraft -- could result in forcing a significant number of employees to retire.
The program is being offered to staff as high up as vice presidents, an executive at the company told Nikkei. Garuda employs around 5,700 people.
Garuda currently operates 142 planes, but the executive said the number will shrink to below 70 by the end of 2022.
Management's plans affect only Garuda and do not extend to its subsidiaries, including low-cost carrier Citilink.
"The reason [for restructuring] is that due to the COVID-19 pandemic, the number of passengers on planes is still minimal, so it doesn't cover operating costs," the executive said, adding that there are only about 40 aircraft in service. The executive also acknowledged that Garuda has missed some payments to aircraft lessors.
Garuda is not alone in facing financial pressure due to the pandemic. Last week, creditors of Thai Airways International approved a restructuring plan that could last seven years.
Meanwhile, Singapore Airlines last week announced an annual net loss of 4.27 billion Singapore dollars ($3.22 billion). In fiscal 2020, it flew only 596,000 passengers -- a year-on-year decline of 98% due to global travel restrictions.
Garuda's plan comes despite last year's rescue package by the Indonesian government, when the finance ministry agreed to purchase 8.5 trillion rupiah ($593 million) of Garuda's newly issued bonds to inject cash into the company.
After having sustained two years of net losses, the airline managed to eke out a profit of $6.9 million in 2019. But travel restrictions have put the airline under renewed stress and returned it to a net loss of $1 billion in the nine months through September 2020. The company had booked a net profit of $122 million in the same period the previous year.
Garuda has yet to announce its full-year results for 2020.
The airline, like so many others, is carrying fewer passengers at higher costs. Seat load factor -- the percentage of available seats occupied by travelers -- fell to 50% in the first nine months of last year from 72.8% in the same period the year before. The cost per available seat kilometer -- an often-used metric of airline costs -- was 8.1 cents in the same period from 6.7 cents the year before.
The airline is facing a financial crisis, with consolidated group net debt at the end of September 2020 amounting to $6.5 billion, according to its financial statement, an increase of over 300% since the end of 2019. It also has both negative cash flow and negative equity, meaning total liabilities exceed total assets.
The company's debt "is increasing every month because [the airline] continues to delay payments to suppliers," the executive said.
Additional reporting by Bobby Nugroho