ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Transportation

Scandal-hit Garuda Indonesia weighs third CEO in three years

Stalled reforms cloud future of national carrier after accounting error

Garuda Indonesia is working to bolster its operations, but the government's control over the company limits its options.   © Reuters

JAKARTA -- Pressure is growing on national carrier Garuda Indonesia to dump its third chief executive in as many years as the airline has been left reeling from a bookkeeping scandal and stalled cost-cutting reforms.

Despite a booming domestic air travel market, which has nearly tripled in the past decade, the flagship carrier has struggled to escape red ink amid stiff competition from budget carriers like fellow Indonesia airline Lion Air and Malaysia's AirAsia. And the government's plan to have the airline cut fares to stem the decline in passengers could squeeze it further.

Last month, Garuda was forced by regulators to correct its 2018 results to a $179 million net loss from an $800,000 profit, marking its second year in the red.

Ari Askhara, the airline's CEO, did not attend the July 26 news conference that announced the new results. But Fuad Rizal, director of finance and risk management, offered no apologies for the drastic disparity, instead stressing the company turned a profit in the January-March quarter and is on solid ground.

Garuda had originally booked $240 million, which it expected to earn from new Wi-Fi service on its planes over the next 15 years as part of its 2018 revenue. Normally, an airline would only book at most three years' worth, according to a source at a Japanese company.

The idea to book all the revenue in 2018 accounts faced pushback internally as well. But executives argued it was not technically illegal and went forward.

"There was strong pressure to turn a profit," a Garuda executive said.

Amid the fallout, there is growing sentiment in Jakarta to replace Askhara and the rest of the leadership team over the scandal. This could happen when Indonesian President Joko Widodo, known as Jokowi, starts his second term in October.

If Askhara resigns or is ousted from the post, he would be the latest to leave a job that has become somewhat of a revolving door. Emirsyah Satar, who ran the airline from 2005 to 2014, helped the state-run carrier bring runaway costs under control and debut on the country's stock exchange. But he was accused in 2017 of taking bribes from jet engine supplier Rolls-Royce, and was arrested this month. He was followed by Muhammad Arif Wibowo, who held the job until 2017. Wibowo's successor, Pahala Nugraha Mansury, was forced out last year after clashing with Garuda's labor union.

Unlike Pahala, Askhara has grown cozy with the union, drawing criticism that he is too close to labor. "Morale among our employees has improved," one executive said. But this has also delayed reforms that involve cutting labor costs and benefits.

However, Askhara has his hands tied given that Garuda is state-run and there are political risks to cutting jobs. The airline has relied on alternative measures like scaling back or eliminating unprofitable routes or extending aircraft leases to improve its bottom line.

Though the airline ended with a net profit for the first six months of this year, uncertainties remain. There has been talk of eventually merging the airline with Angkasa Pura II, the company that operates Jakarta's Soekarno-Hatta International Airport, to boost revenue. But it would be difficult for the airport to challenge Singapore and Bangkok's dominance as the region's hub. If the company fails to advance reforms under government control, the debate regarding its full privatization could pick up as well.

Other political risks weigh on Garuda as well. A rise in fuel costs has pushed up Indonesian airfare, leading to a decline in passengers this month. The government is looking to curb this trend by capping ticket prices, which could further negatively affect earnings.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends June 30th

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media