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Tuesday, February 14, 2006

Garuda; Change or Die

By Christovita Wiloto
CEO of Wiloto Corp. Asia Pacific
Bisnis Indonesia February 12, 2006

The changes in the "logic of business" that has been happening in the airlines industry turned out not only affected the small airlines. Big airline such as Garuda Indonesia is burdened by the load of debts in the tune of hundreds millions of Dollars. It has taken a lot of efforts and time to restructure the debts, but to no avail so far.

From the total debt of Garuda of 800 million dollar AS, 510 million of it is a debt to the European Credit Agency (ECA), 130 million dollar in the form of promissory note, and the rest of 160 million dollar to Bank Mandiri and PT Angkasa Pura I dan II. Garuda was also in default for payment of 55 million dollar to the holder of promissory note that fell due at the end of December 2005.

Apart from being burdened by the load of debt, the unfinished negotiation with the creditors was also contributed with how to find the best way to settle these debts. Generally, the creditors requested the management of Garuds to update the business plan. The business plan must contain the effect of the Bali Bombing relative to the performance of the company. They also seek guarantee from the Government of Indonesia towards the payment of the debts, injection of fresh fund and guarantee towards the Garuda business continuation.

The government has assisted Garuda by giving bridging fund totaling 56 million dollar, which will be used for working capital.

Meanwhile, in its guidance, the State Ministry of State Enterprise determines that Garuda must seek strategic alliance with other global airlines. This must be done in line with the transformation of its business to anticipate the growing competition in the airlines business.

The point is, whatever restructuring plan submitted to the creditors, the strategic alliance option is the option that must be dealt with by Garuda. Not surprisingly, if currently Garuda is actively courting some of the foreign airlines, especially from European countries.

But, the idea of forging strategic alliance with foreign airlines created controversy in the public, not only among the member of the parliament but also among the practitioners in the airlines industry. Even Vice President Jusuf Kalla added his surprising comment.

End of last year, the Vice President commented that the government no longer viewed Garuda as the flag carrier. His reasoning, is that current situation is different from the past, therefore it is possible that Garuda be sold of to the investors – both domestic or foreign.

''At present, there is almost no countries in the world that have flag carrier,'' said Vice President, after performing the Friday pray in his office. He added, that there has been growing trend for the sale of airlines, such as Qantas, KLM, atau Malaysia Airlines System (MAS).

Strategic Value of Garuda

The controversy should have been ended here. I think, all of us the fellow Indonesian citizen hope that Garuda can still spread its wings and fly away. Not only becoming the “bridges” from Indonesia to the rest of the world (and vice versa), but also becoming the ambassador for Indonesia in the international stage.

We must appreciate that our country has posted one ambassador for every country in this world. But, with their busy schedule in the diplomatic and elite circles, I am pretty sure that they will not have much time to socialize with the local people.

Service companies like Garuda can play greater role in entering the public domain. With its role as the bridges for people who are traveling to and from Indonesia, the existence of Garuda I think is more “eye catching” and familiar. People from some European countries, for instance, maybe are more familiar with the address of Garuda offices than the address and name of the Indonesian ambassador currently posted there.

In this situation, and with all due respect to what have been done by the Cultural Attaches in the respective embassies, in my opinion Garuda can play more effective and efficient role in promoting the tourism in Indonesia and even the country itself.

Now just imagine if Garuda no longer services the big cities in the world. What will happen is, maybe, the popularity of our country is decreasing. Meaning, whatever it takes, Garuda must still flying and represent the glory of Indonesia to the eyes of international world.

In order to achieve that, Garuda must totally change it business paradigm, from “only” the state owned company to become world-class company. This must be done to enable it to “compete” with other world-class airlines such as Singapore Airlines, Qantas, MAS or Thai Airways. Not only competing with the growing domestic airlines such as Lion Air, Adam Air, Awair and so forth.

The problem is, changing its total paradigm is not an easy job to do. It needs “Passion” and “Iron fists” to do it. It is possible that this will hurt some people along the way. Both internal and affiliated party of Garuda may be affected. I am sure that Garuda will face a lot of resistances, especially from the internal party.

The management and crews of Garuda can no longer instill the old paradigm that they are the “golden boy” and somewhat “different” from the others. The old paradigm must be replaced with the new one that enforces the competition, to serve more, to satisfy more. Garuda must understand that in order to compete in the new "logic of business" in the airlines industry, they have to change. In order also to become the “healthy” Garuda, nimble and can fly anywhere as well as ready to compete with other airlines in the world.

Therefore, Garuda has only two choices. Change totally its paradigm or die away.

Bisnis Indonesia
February 12, 2006

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