Garuda Indonesia (GA, Jakarta Soekarno-Hatta) has been granted protection from creditor claims, with the Central Jakarta Commercial Court giving the financially enfeebled flag carrier 45 days to reach a resolution with lessors and other creditors over its USD9.8 billion debt mountain, local media reported.

The court accepted on December 9 a debt petition filed against the airline, suspending all payments to creditors and propelling the state-owned company into a court-supervised debt restructuring process.

The ruling allows Garuda Indonesia to seek reworkings of lease terms or to try to return aircraft to lessors with only minor penalties, which could result in the airline slashing its liabilities to around USD3.7 billion.

The Debt Payment Obligation Postponement (Penundaan Kewajiban Pembayaran Utang - PKPU) petition had been filed in October by an aggrieved contractor, IT services provider Mitra Buana Koorporindo. The firm was subsequently able to prove to the judges that Garuda owed it IDR4.2 billion rupiah (USD292,000), that the airline has unpaid debts to more than one creditor, and that it is probably unable to pay its debts.

The court scheduled a hearing for the Monday after the 45 days are up, on January 24, but the process could then be extended if airline and creditors need more time. The maximum time limit for a PKPU case is 270 days, or nine months.

Garuda Indonesia’s president and chief executive, Irfan Setiaputra, responded positively to the ruling, telling reporters he considered it to be a landmark moment for the company as the ongoing restructuring and negotiations with creditors will now be legally protected.

“The provisional PKPU gives us 45 days to submit a peace proposal that includes a plan to restructure our business obligations to our creditors. Garuda will communicate its restructuring scheme to all creditors,” he said.

This is not a bankruptcy process, he argued. Instead it provides space for Garuda Indonesia to negotiate within a legal corridor “and is a performance recovery accelerator to realising Garuda as a business entity with strong business fundamentals for the future.” The “peace proposal” will be balanced and proportional, he pledged, prioritising mutual interest for creditors, customers, and business partners. All flight operations will continue as normal throughout the PKPU process, he added.

Garuda, in which the government holds a 60.5% stake, has been negotiating for over a year with dozens of lessors as it struggles to restructure its debts. Even if its finances can be stabilised, politicians and government officials have been pressing it to halt long-haul routes as it downsizes its fleet.

Garuda’s fate is of critical importance to the world’s largest archipelago. According to the ch-aviation capacities module, as of the week starting December 13 it operates 54 routes, all but eight of them domestic, while its regional subsidiary Citilink (QG, Surabaya) operates a further 85, all but three of them domestic.