-
Garuda Indonesia denies it is bankrupt even it applies for Chapter bankruptcy petition in New York district court
-
The move is intended to shield the debt-laden airline from potential lawsuits or garnishment of assets by their creditors in the US and other countries
-
The Indonesian flag carrier’s president tells Parliament that Garuda has a total of roughly US$5.1 billion debt
Garuda Indonesia is seeking Chapter 15 protection in a New York court in a bid to secure its profitability.
The airline filed its petition on September 23 in the US Bankruptcy Court of the Southern District of New York, Garuda president director Irfan Setiaputra told the Indonesian Parliament on September 26.
The New York court is where troubled non-American companies, including Philippine Airlines, commonly seek protection from potential lawsuits or garnishment of assets by their creditors in the US and other countries.
Garuda’s total debt now amounts to roughly US$5.1 billion, Setiaputra told the Parliament. He said the airline filed the petition but stressed that it does not mean Garuda has declared bankruptcy.
Instead, it did so in order that the court would recognize the results of the restructuring under the local legal process known as the Suspension of Debt Payment Obligations (Penundaan Kewajiban Pembayaran Utang), from which the carrier has now emerged.
In the same hearing, Indonesia finance ministry senior official Rionald Silaban said one of Garuda’s lessors, Boeing, had yet to participate in the restructuring plan, but said the US planemaker “will eventually participate”, Reuters reported. Garuda reportedly owes Boeing $822 million.
Chapter 15 allows for cooperation between US and foreign courts, as long as there is financial interest in proceedings that is favorable to the United States.
The restructuring plan, so far, is being challenged in Indonesia’s Supreme Court by an Ireland-based aircraft lessor, Greylag Goose Leasing, and a decision is still being awaited.
Greylag Goose has previously objected to the calculation of its claims in the restructuring plan at 2.3 trillion rupiah (US$152.07 million) in the restructuring agreement.
The new chapter was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants, and other parties involving more than one country.
Garuda is expected to post net profit of around US$400 million in 2023, increasing this gradually to US$647 million in 2026, the Indonesian Finance Ministry official told Parliament.
Garuda and its creditors agreed to halve its debt to about US$5 billion in a deal overseen by a bankruptcy court in Jakarta in June.
On September 3, 2021, Philippine Airlines filed for Chapter 11 protection in the same US court, as it dealt with its creditors. PAL exited bankruptcy proceedings after the court approved its restructuring plan on December 17, 2021.
The plan slashed for more than US$2 billion debt from existing creditors off its balance sheet and called for improvements in PAL’s critical operational agreements and additional liquidity, including a US$505 million investment in long-term equity and debt financing from PAL’s majority shareholder, PAL Holdings.
