Garuda's Shares Soar Amidst Planned Merger with Citilink and Pelita Air

Shares of PT Garuda Indonesia Tbk (GIAA) surged amid plans by State-Owned Enterprises (SOE) Minister Erick Thohir to merge the airline with two other carriers, Citilink and Pelita Air. According to Erick, the merger of these three state-owned airlines aims to reduce logistics costs in Indonesia and alleviate the domestic aircraft shortage.

Based on Yahoo Finance data, Garuda Indonesia shares closed up 7 points or 9.58% to Rp80 per share at the close of trading on Wednesday (August 23, 2023). This share movement marks the highest point in the last three months for GIAA.

However, Garuda shares plummeted sharply in early January 2023, falling from around Rp200 to below Rp100 per share. Subsequently, GIAA shares experienced a decline, reaching their lowest level this year on May 19, 2023, at Rp51 per share. This is shown in the graph above.

Aviation observer Alvin Lie believes that the corporate action of merging the three airlines is not the right step to curb logistics costs. He argues that a merger of Garuda Indonesia Group with Pelita Air may not necessarily improve Garuda's financial performance.

"If you want to save Garuda, don't forget the fate of its creditors. Some only finished their PKPU (Suspension of Debt Payment Obligations) in 2021. Well, Garuda still has long-term obligations," said Alvin, as quoted by Katadata.co.id on Wednesday (August 23, 2023).

According to Alvin, SOEs should reconsider the plan to merge the three aviation companies. The merger is feared to backfire on the companies' businesses.

Previously, Garuda Indonesia reported a loss of US$76.5 million, equivalent to Rp1.15 trillion (assuming an exchange rate of Rp15,080/US$), in the first half of 2023. The national airline had recorded a profit of US$3.76 billion in the same period last year.

Garuda Indonesia recorded a 50% reduction in debt by the first quarter of this year after obtaining homologation or a peace agreement in the PKPU. Garuda Indonesia's remaining debt is US$5.1 billion, down from US$10.11 billion previously.

Separately, Garuda Indonesia's CEO, Irfan Setiaputra, said that discussions regarding the exploratory steps for the corporate merger are still ongoing. "Currently, Garuda is exploring in depth various opportunities for business synergy that can be presented to jointly optimize aspects of performance profitability," he said.