Indonesian government to review plans on state-owned airline merger

The Indonesia government is reportedly reviewing its plan to merge state-owned airlines Garuda Indonesia and Pelita Air, the airline arm of energy firm Pertamina, to ensure airfares remain affordable.

The merger will include Garuda’s low-cost airline unit Citilink and the move was welcomed by Dendy Kurniawan, president director of Pelita Air who said that the plan was under the review of the Indonesian state-owned enterprises (SOE) ministry, according to Reuters.

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Kurniawan also said that the merger would strengthen Indonesia’s aviation industry while ensuring affordable ticket prices.

SOE minister Erick Thohir reportedly explained that the merger will help to reduce the country’s logistic costs while increasing its fleet size which needs 179 new planes. Currently, Garuda Indonesia was operating 101 planes in June while Pelita Air operates seven planes.

News of the merger comes after Garuda Indonesia’s proposal to restructure its over US$9 billion debt won the approval of a majority of the airline’s creditors, as reported by Reuters.

In fact, over 95% of creditors accepted the airline’s proposal to write-down and exchange the remaining debt amount with US$825 million of nine-year bonds and US$330 million equity for aircraft manufacturers, lessors, maintenance vendors, and Islamic bond investors.

The proposal will restructure about US$6 billion of liabilities with loans to banks and state firms to be extended without a cut.

Recently, Singapore Airlines (SIA) and Garuda Indonesia also announced plans to enter into a joint venture agreement to deepen the cooperation between the two carriers, increase passenger capacity between Singapore and Indonesia, and offer customers more travel options between the two countries.

The agreement, which is still subject to regulatory approval, is expected to cover routes between Singapore and Denpasar, Jakarta, and Surabaya, expanding the Memorandum of Understanding (MoU) that the two airlines signed in November 2021, according to a statement by SIA.

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