Editorial: Garuda's merger and logistic cost
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Editorial: Merger Garuda dan biaya logistik
24 August 2023
The government has prepared a plan to merge three state-owned airlines, namely PT Garuda Indonesia (Persero) Tbk (GIAA), Citilink Indonesia, and Pelita Air.
The merger plan that was revealed by State-owned Enterprises (SOE) Minister Erick Thohir is an effort to not only accelerate the business world and the aviation industry in Indonesia, but also the performances of the three state-owned airlines.
For the business world, SOE mergers that are continuously carried out by the government will improve efficiency and lower logistics costs, which will reduce the burden of business players in Indonesia.
Logistics costs that are still relatively high is one of the focuses of the government. Hence, Minister Erick is continuously making efficiency efforts by merging state-owned companies.
For example, PT Pelabuhan Indonesia (Pelindo) was merged from four separate companies. The SOE merger has supressed logistics costs by 23%.
A similar merger is set to be carried out by the SOE Ministry on the state-owned airlines. Discussions on the merger of Garuda, Citilink, and Pelita are continuously held. The government expects the merger of the three airlines to resolve the lack of aircraft issue.
We know that, similar to other countries, the Covid-19 pandemic has significantly impacted the aviation industry in Indonesia. Demand reductions as well as international and domestic travel limitations have lowered the revenues of airlines.
Many airlines have experienced a decrease in passengers, aircrafts, and flight schedules as well as work terminations due to the pandemic. Now, after the Covid-19 pandemic, demand is slowly recovering. Airlines are reviving. However, Indonesia still lacks hundreds of aircrafts.
For comparison, the United States of America (USA) has 7,200 aircrafts to serve the domestic routes in the USA. These thousands of aircrafts serve around 300 million people that have an average gross domestic income (GDI) of US$40,000.
Meanwhile, Indonesia has 270 million people with a GDI of US$4,700. Currently, Indonesia has 550 aircrafts, but 729 aircrafts are required. We agree with Minister Erick as the condition shows that the logistics cost issue has not been resolved.
The requirement of new aircrafts could be fulfilled through the merger of the three airlines. However, the government also needs to consider that there is no guarantee that the merger of the three SOEs will improve the performance of the aviation industry.
However, the corporate action has the potential to make the merger company has more assets and better liabilities. Moreover, the merger will be more beneficial for Garuda that has a financial condition that is worse than Citilink and Pelita Air. We know that Garuda was on the brink of collapse and Pelita Air was ready to replace them.
Efforts to save GIAA have been carried out through some of the most complicated restructurings in the history of corporate rescues in Indonesia.
Now, Garuda is relatively safe as creditors have agreed with the suspension of debt payment obligation (PKPU) scheme. Garuda is maintained as Indonesia needs a flag carrier.
Do not let Garuda’s problems infect the merger company. We hope that the merger plan will make the business world more efficient and smoother.
In the end, affordable logistics costs can sustain the national economy to grow more rapidly.
