National flag carrier Garuda Indonesia has earned some breathing space as the majority of its sukuk (sharia-compliant bonds) holders approved the company’s proposal to extend its US$500 million sukuk amid the company’s financial struggle due to the pandemic.
The company had proposed an amendment of the terms of its sukuk, which was set to mature on June 3, requesting a three-year maturity extension and a covenant holiday until the airline’s operations return to the pre-COVID-19 level.
According to an announcement made by the company on Tuesday, 89 percent of the airline’s sukuk holders, who hold $444.9 million in principal of the bond, have agreed to the amendment proposal.
“Based on the valid electronic votes received to date, in favour of the proposal, extraordinary resolutions, which is the subject of the [upcoming] meeting, will be approved,” reads the announcement signed by Garuda finance and risk management director Fuad Rizal.
The meeting refers to the sukuk holders meeting to be held on June 10. Garuda claims that the number of electronic votes meets the required quorum for the meeting.
Garuda Indonesia issued the global sukuk on June 3, 2015, with a five-year tenure and an annual return of 5.95 percent, according to the company’s financial report released in September last year.
The company struggled to repay the sukuk investors amid flights disruptions caused by the emergency measures to curb the spread of COVID-19.
The airline has also laid off 180 contract pilots as well as hundreds of workers as a consequence of its ailing finances during the pandemic.
The move followed a previous announcement from the airline that it had furloughed about 800 workers for three months starting on May 14.
Garuda Indonesia has also taken several measures to maintain cash flow amid plummeting demand for air travel. The measures include cutting employee and executive salaries, cutting production costs for efficiency and renegotiating obligations to partners and aircraft lessors.
Garuda Indonesia president director Irfan Setiaputra acknowledged the layoffs in a statement on Tuesday, noting that the company had fulfilled its obligations vis-à-vis the affected pilots.
“We have been forced to terminate the contracts of our workers to align our workforce with the demand for our flight operations, which are significantly affected by the pandemic,” he said.
The COVID-19 outbreak has forced Garuda to park 100 of its 142 aircraft as its daily flights dropped due to the government’s large-scale social restrictions (PSBB).
According to a letter available on the Indonesia Stock Exchange (IDX) website, Garuda’s flight traffic was down 83 percent year-on-year (yoy) in April.
In the first quarter of 2020, the airline also recorded a 31.9 percent annual drop in passenger and cargo revenue.
In an effort to keep Indonesia’s flag carrier afloat, the government is set to give Rp 8.5 trillion ($597.6 million) in a working capital guarantees for the airline as part of the economic recovery stimulus package to stave off the impact of the pandemic, including on ailing state-owned companies.
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