Garuda Prepares for Expansion
As Indonesia’s national carrier Garuda initiates efforts to enhance service through increased frequencies and destinations, in anticipation of its move to join the SkyTeam global alliance in March and the ASEAN Open Skies in 2015, it is looking at adding around 200 to 250 aircraft to its fleet between 2015 and 2025.
The carrier, which is to soon finalize its plans for a mix of narrow- and widebody aircraft, is expected to seek board approval this year to increase its fleet to 350 to 400 from its present 133 by 2025, CEO Emirsyah Satar told Reuters in Hong Kong.
Garuda has 110 aircraft on order, including 50 Airbus A320neos and Classics, 17 Airbus A330-300s, 25 ATR72-600 turboprops, plus six each of the Boeing 777ER and CRJ-1000NG regional jet. By the end of this year, it expects to have a fleet of 128, up from its present 110.
The airline has secured $200 million in loans from banks to fund expansion of its fleet. Plans to conduct a rights issue in this year’s first quarter, with an aim to raise $163 million, have already been approved by shareholders. “For 2014, it plans to allocate $325 million in capital expenditure for business expansion. About half of this amount should originate from funds generated through the rights issue,” according to a report by private equity firm Indonesia Investments.
Garuda obtained a $1.7 billion loan from Industrial and Commercial Bank of China (ICBC) in October, with the airline selling and leasing back from ICBC six Airbus 320s, which will be operated by its budget subsidiary Citilink–taking that carrier’s fleet to 32 by year-end–plus five Boeing 777-300ERs for its mainline fleet.
Capacity expansion to North Asia will be made mainly with the new 777-300ERs. Plans to start a five-times-a-week service to London in November were delayed due to the pavement classification number (PCN) of the runway at Jakarta’s Soekarno-Hatta Airport with a 120-ton PCN as against the 132-ton PCN required for operating a full-capacity 777-300ER. To make that flight, Garuda will still need a restricted takeoff weight and a reduction of 39 passengers and cargo. Service to Amsterdam is planned for 2015.
Regional connectivity to remote airports with shorter runways is being enhanced with the delivery of the first two of 25 ATR72-600s. “The aircraft stand out as one of the best choices for short-haul flights and operations between the various islands of Indonesia…[They] will provide…the lowest operating costs for regional networks,” said Filippo Bagnato, CEO of ATR. Under a 10-year global maintenance agreement, ATR will maintain the fleet from its customer support center in Singapore, while ensuring availability of key spare parts, such as propellers and fuel nozzles.
Challenges remain, however. With a plunging rupiah (the current rate to the U.S. dollar exceeded 12,000 in January), there is a need to increase capital for growth as Garuda plans to maintain an average age of aircraft, said Emirsyah Satar, president and CEO. “Also untapped are Islamic funds that are spreading to airlines, not just in the Middle East but in other countries.”
Garuda has experienced a transition from being banned from flying to the EU, to becoming one of two Indonesian carriers removed from the blacklist. Regional hubs and mid-sized cities are emerging, but infrastructure for airports is not keeping pace. “The market is growing in the next ten years. It is not just about airports, but also about infrastructure for pilots and engineers. It takes longer to build engineers than pilots,” said Satar, alluding to the ASEAN Economic Community that is to come into being in 2015 with the aim of liberalizing air travel between the 10 member countries, which is expected to further raise competition. Concerns remain, however. Satar said, “It is not a level playing field. Chinese airlines can fly anywhere to ASEAN, but carriers here can fly only to certain points in China.”