Jakarta. The State-Owned Enterprises (SOE) Ministry, as the majority shareholder of local carrier Garuda Indonesia (GIAA), is proceeding with plans to merge Garuda and Pelita Air Service, a subsidiary of the state-owned energy company Pertamina, into the tourism holding company Aviasi Pariwisata Indonesia, also known as InJourney.

According to Garuda Indonesia CEO Irfan Setiaputra, this merger would take place once Garuda's equity turns positive.

As of March 31, Garuda's consolidated financial statements show negative equity of $1.33 billion, higher than the previous year's negative equity of $1.24 billion. Meanwhile, Garuda's total liabilities slightly decreased from $8.10 billion to $8.09 billion.

“There was consideration that Garuda should join InJourney once its equity becomes positive to avoid burdening InJourney,” Irfan said during a hearing with Commission VI of the Indonesian House of Representatives (DPR) in Jakarta on Wednesday.

To facilitate this merger, the ministry has established a Project Management Office (PMO) team named the Aviation Industry Inclusion Team.

In addition to Garuda, the PMO team includes Citilink, Pelita Air, and InJourney itself. “Discussions are ongoing regarding the merger’s model, timing, and how Garuda will be integrated into InJourney,” Irfan added.

Previously, the integration of Garuda and Pelita into the InJourney ecosystem was expected to be completed before October 2024. The SOE Ministry has been active in forming PMOs to restore the equity of state-owned enterprises across various industries, including aviation, construction, and pharmaceuticals.

To restore Garuda's equity to positive, Irfan explained that management plans to improve profitability and change the accounting standard to PSAK 107 for aircraft leasing, also known as Sharia-based ijarah.

Garuda Indonesia's Director of Finance and Risk Management, Prasetio, is optimistic about Garuda's equity returning to positive, citing a 40 percent increase in operating revenue for the fiscal year 2023, while costs only rose by 4 percent.

“This indicates increased productivity. Additionally, in 2024, our production tools will increase. Comparing 2023 to 2022, our operational performance improved significantly, with a positive $6 million operating profit in 2023, compared to a $500 million loss in 2022,” Prasetio said.

He projected that Garuda's aircraft would become more serviceable, contributing significantly to profitability and increasing the company's equity.

Furthermore, GIAA has conducted a roadshow to various authorities regarding the implementation of PSAK 107. According to Prasetio, the main difference between PSAK 73 and PSAK 107 is that the former bases operating leases on present value, resulting in depreciation and higher operational burdens. The transition to PSAK 107 will shift transactions to a cash basis, converting accrual-based financial charges into gains that can offset negative equity.