Thursday, February 21, 2008

Garuda to Raise Funds for New Planes by $200 Million Share Sale

by Michelle Roberts

Garuda Indonesia, Indonesia’s largest airline is planning to fund its new aircrafts by selling $200 million shares in the next year. The airline is also in the process of persuading the European regulators to remove the ban imposed on it citing safety reasons. Emirsyah Satar, the Chief Executive Officer said that Garuda is talking to the banks regarding the primary sale of the shares. He also hoped that the profit for the company will double for the current year.

The fund raising by way of selling the shares is going to help the airline that is owned by the Indonesian government to buy new planes from the Boeing Company. Buying the new planes will double the existing fleet of the company and it would have 103 planes at its disposal, by the year 2013. Buying the new planes will also help the company to change its image in the world, especially in the European Union which has banned its 51 planes from flying to different destinations in the EU. The ban came after one Garuda carrier was involved in a serious mishap.

Head of research at PT UOB Kay Hian Securities in Jakarta, David Chang said that in restructuring Garuda, the company has made many improvements. He also added that selling the shares will help the company to raise finances towards its maintenance plans, so that international standards can be met. Since 1998, the initial share sale of Garuda had suffered a number of delays. In June, it had anticipated to have $300 million through the sale of 49% of the entire company. In order to continue the operations of the company, the Indonesian government had invested 1 trillion rupiah in Garuda. Garuda takes its name after a mythological bird which carried God Vishnu in Hindu mythology. CEO Satar said that the company had talked to many private equity companies as well as investment companies who have already invested in the airlines sector. Since the company has an extensive history and it is also the dominant airline in the domestic airline industry of Indonesia, investors have good reasons to invest in the company.

International Air Transport Association expects that airline companies in Asia are actively searching for investors to raise funds for fleet expansion, since there is great economic growth in the region which is driving demands in air travel. As far as the Asian fleet figures are concerned for the current year, there will be an addition of 427 new planes in the different airlines of Asia. The International Air Transport Association also expects that travel demand will increase by 6.4% in the current year. Garuda announced that it would be buying 10 Boeing Co. 777-300ER planes at the cost of $2.8 billion, so that its services to Europe can be resumed which will begin from Amsterdam. Garuda, in addition, also has plans to order Boeing’s single-aisle 737 planes. The 49 ageing planes in the fleet of Garuda will be replaced by the new Boeing planes.

 

 

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