Garuda Indonesia returning nine Boeing 737 to lessor

After reaching an agreement to stop a bankruptcy lawsuit, Garuda Indonesia is reportedly willing to return early nine leased Boeing 737-800 NG to the lessor. According to the agreement, the nine aircraft produced in 2014 and 2015 were leased from Aercap. Garuda had initially leased the planes for a period of 12 years.

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Garuda Indonesia 737-8 photo by Delhi Clicks

On July 28, 2021, Garuda and its lessor, Aercap, Ireland, signed an agreement letter to end legal actions against the airline. On June 4, 2021, Aercap filed a bankruptcy petition in the Supreme Court of New South Wales.

“Aercap agreed, among other things, to stop the lawsuit/legal procedure that Aercap had brought against it in the guise of a bankruptcy lawsuit,” Garuda added. The company, on the other hand, undertook to fly and relocate nine 737-800 aircraft leased by the company to an appropriate location.” Garuda also wants to “ensure that the agreement with Aercap is followed up on while always prioritizing the principles of good corporate governance.”

Garuda was also taken to court for failing to pay a debt owed to an air cargo company. After the COVID-19 travel disruption, the airline attempted to return excess aircraft fleets, seeking early termination, lease deferrals, and pay-by-the-hour plans to decrease operational expenses. Aercap filed a case in a London court in May 2020, requesting payment of outstanding lease rentals, but canceled the action in October when it re-entered talks with Garuda in the hopes of reaching a mutually agreed arrangement.

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Garuda Indonesia has a 148-aircraft fleet, according to ch-aviation. One hundred and eighty-eight of those planes are leased. Garuda Indonesia leases its Boeing 737-800s from various lessors, including well-known companies like Avolon, GECAS, and SMBC Aviation Capital.

Garuda Indonesia 737-8 PK-GNK photo by PKU Spotter

Garuda Indonesia is currently $4.9 billion in debt, with more debt accruing each month as leasing fees are not paid. Garuda Indonesia’s income in May 2021 was $56 million, according to the Indonesian daily Tempo. It had to pay leasing payments that equaled the $56 million in revenue during the same time period.

To avoid insolvency, the airline must restructure. Minister Thohir claims he is doing everything he can to avert this and is attempting to reach an agreement with the airline’s creditors. Garuda Indonesia has already reduced its operational fleet by roughly a third and is offering staff the option of retiring early.

Garuda said in June that it would eliminate more than 100 leased planes from its mainline fleet to decrease fixed costs. Garuda has previously returned 20 aircraft to lessors before the Aercap deal. The airline is still in talks about returning other planes early. Due to the low demand for travel caused by the pandemic, the airline intends to fly only 41 aircraft out of its 142-plane fleet.

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According to Airfinance Journal, Garuda has achieved agreements to return around 40 aircraft and is in the final stages of arranging more aircraft returns. Garuda is attempting to gain control of the airline industry by doing everything possible. The airline also stated that it aimed to keep its staff at a level corresponding to the number of planes. Garuda, which had over 7,800 employees before the outbreak, has cut its workforce by 2,300 individuals by offering early retirement and contract terminations.

In preparation for a debt restructuring, Garuda has hired Guggenheim Partners as financial advisers. For financial guidance, the firm will collaborate with Mandiri Sekuritas, and for legal advice, it will work with Cleary Gottlieb Steen & Hamilton and Assegaf Hamzah & Partners. Garuda had appointed lease negotiator Somnath Guharoy to oversee and consult on its aircraft leasing deals, according to an exclusive report by Airfinance Journal earlier this year.

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