Government-Owned Garuda Indonesia Has Filed For Bankruptcy – In The United States

A week and a half ago Indonesian flag carrier and SkyTeam member Garuda Indonesia revealed its plan to drop first class and most international service. It was losing money flying long haul, so planned to rely on partners to bring people to and from its flights in Indonesia. Somehow pivoting to focus on the more competitive domestic market, rife with low fares, was going to be a more profitable strategy for them.

Garuda has now filed for bankruptcy in the U.S.. A Chapter 15 filing prevents any creditor lawsuits here, as well as seizure of assets. Garuda restructured $9.5 billion in debt this year, and has $5.1 billion remaining. Boeing did not participate in the restructuring in Indonesia.

The airline has blamed high leasing costs for their woes, but those come from corrupt deals involving money laundering and bribery involving top airline officials at the government-owned carrier.

Despite plenty of domestic air service, the government of Indonesia has made it a priority to revive the fortunes of its flag carrier. I will leave it to you to speculate as to that motivation. Meanwhile they’re in the market to buy new planes and double their fleet.

There’s something odd about a majority government-owned airline declaring itself insolvent when the government that owns it claims not to be. Then again, companies separately incorporate subsidiaries and bankrupt those subsidiaries all the time.

Indonesia’s Ministry of Finance projects Garuda will become profitable next year. If you can trust the books, I’ll take the under on that.

(HT: @crucker)

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