Bloomberg News

Garuda’s Wait for 777s Prolongs Use of Fuel-Guzzling Planes

February 14, 2012

(Updates with closing share price in eighth paragraph. Click {SHOW <GO>} for more Singapore Airshow stories.)

Feb. 13 (Bloomberg) -- PT Garuda Indonesia, the nation’s largest listed carrier, said it can’t get new Boeing Co. 777 planes quickly enough as it tries to boost yields on long-haul routes.

“We need 777s immediately, but they’re not available right now,” Chief Executive Officer Emirsyah Satar said today in an interview in Singapore, ahead of the city-state’s airshow. “Therefore, we cannot really renew our fleet quickly enough.”

The carrier is due to receive the first three of 10 on- order 777s next year, which it will use on routes to Europe and the Middle East. The planes will help Garuda raise fares and lower costs by replacing older 747-400s that are less fuel efficient and offer fewer features for passengers.

“Indonesians will pay more if they get more,” Satar said. With the 747s, “we really cannot get a good yield, as the aircraft are old aircraft.”

Garuda, based in Jakarta, will also this week sign an order for Bombardier Inc. regional jets to help bolster operations on smaller islands in Indonesia. The contract will comprise 18 firm orders and 18 options, Satar said. The airline intends to take 25 of the planes by 2015, he said.

The carrier has locked in all of its plane-financing needs through next year using export-credit agencies and lessors, Satar said. It also raised 4.8 trillion rupiah ($530 million) in an initial public offering about a year ago.

Garuda is now at looking for funding for planes arriving from 2014, and the “response has been quite positive,” Satar said.

The airline’s shares fell 1.6 percent to 610 rupiah in Jakarta trading today. They’ve jumped 28 percent this year.

Indonesia Growth

Garuda expects to boost sales 21 percent this year from an unaudited total of 27.1 trillion rupiah in 2011, as growth stokes travel. The nation’s economy grew 6.46 percent in 2011, the fastest pace since before the Asian financial crisis.

The airline is facing rising competition from low-cost carriers led by PT Lion Mentari Airlines, which expected to boost passenger numbers 30 percent last year to 27 million. The closely held airline has agreed to a provisional order for 230 Boeing Co. 737 planes worth $21.7 billion at list prices.

Tiger Airways Holdings Ltd., part-owned by Singapore Airlines Ltd., also last month completed the purchase of a 33 percent stake in PT Mandala Airlines to enter the Indonesian market. AirAsia Bhd., the region’s largest budget carrier, already has an affiliate in the country.

Garuda’s own budget arm, Citilink, expects to almost triple sales this year and to more than double passenger numbers to as many as 4 million. The unit is due to receive 11 new Airbus planes this year, roughly doubling its fleet, as it works to add about four new domestic cities to its network.

--With assistance from Susan Li and Karolina Miziolek in Hong Kong and Anand Menon and Kyunghee Park in Singapore. Editors: Garry Smith, Neil Denslow

To contact the reporters on this story: Neil Denslow at ndenslow@bloomberg.net; Femi Adi in Jakarta at fadi1@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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