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Garuda Indonesia CEO: Looking at the losses made me shiver
Pahala Nugraha Mansury, PResident Director of PT Garuda Indonesia (Persero) Tbk. ANTARA/Fajrin Raharjo
Tuesday, 16 May, 2017 | 14:42 WIB
Garuda Indonesia CEO: Looking at the losses made me shiver

TEMPO.CO, Jakarta - Pahala Nugraha Mansury, 46, never thought twice about accepting the job of being the Garuda Indonesia boss, offered by State-Owned Enterprises Minister Rini Soemarno. He immediately indicated his readiness when Rini asked Pahala to venture beyond the financial sector. "It was interesting," commented Pahala, about the offer. He was still finance director at Bank Mandiri when the top job at state-owned Garuda Indonesia was offered to him a few days before the airline shareholders held their meeting. 

Held on April 12, the Garuda shareholders meeting approved the appointment of Pahala as the airline CEO. Pahala replaces Muhammad Arif Wibowo, who has been with the airline and its seven subsidiary companies, since 2014. 

Pahala's background in finance may have been Garuda's main reason for hiring him. The company's first quarter report showed the airline losing US$99 million or Rp1.3 trillion. It was 11.96 percent higher than the loss incurred during the same period last year. "When I saw the financial report, I was shocked," said Pahala, who holds a degree in accounting from the University of Indonesia.

Minister Rini has given Pahala 12 months to improve Garuda's finances. He thinks it's a hard target to achieve, but by implementing a series of optimization steps, he is optimistic he can succeed in his mission. He said he can already see improvements far beyond the April target.

Two weeks ago, Pahala met with Tempo reporters Ali Nur Yasin, Sapto Yunus, Raymundus Rikang, and Reza Maulana at Hangar 2 GMF of the Soekarno-Hatta airport complex at Tangerang, Banten. He admitted being quite awed by his current surroundings, never having been inside an airplane hangar in his life. Additionally, it was his first media interview since he took on his new job.

What made you decide to accept the job of heading Garuda Airlines? 

Garuda is a good brand. Who doesn’t know this company? Only after joining did I realize that it was a 24-hour industry. It was a bit of a shock, especially since this industry demands perfection. No mistakes, however small, are allowed.

Did Minister Rini say why she chose you?

She never did. I was just asked to do a presentation, a fit and proper test. The staff of the SOE ministry attended my presentation and gave helpful comments on the industry. At that time, there was no word about selecting me.

Were there other candidates?

As far as I know, there were. Who they were, please ask Bu Rini. I am grateful for the chance to manage Garuda and enable me to get out of my cocoon, even though I am entering a difficult profit-making business. But the satisfaction of a professional is how I can improve the company’s condition.

So, before your appointment, you had monitored the flagging finances of Garuda? 

Just at a glance. But after my appointment, I immediately studied all its problems.

How did you react to reports that Garuda had incurred a Rp1.3 trillion loss during the first quarter of this year? 

I was aghast when I first looked at the financial report. But I proceeded to look at the company’s problems in more detail. Just looking at those losses made me shiver.

How bad are Garuda’s finances? 

The margin is just too wide. The costs are increasing by about 21 percent, while income is growing at six percent. The number of our aircrafts continue to increase. At Garuda, there are 144 units: 136 are leased and eight are owned. Citilink has 55 aircrafts, 47 of them leased and eight wholly owned. This year we plan to add one unit, which means an increase in operational costs. Four years ago, one aircraft cost 12 to 14 percent of Garuda’s basic cost. Today, it’s 27 percent. Meanwhile, the only revenue comes only from the cargo sector, and is growing by two digits, or 19 percent. The airline industry today is really tight. If we can book a two to four percent (profit) margin, we would be very happy.

How do you plan to suppress those costs?

We look at a number of things, including the costs of maintenance and rentals. Maybe, if necessary, we need to renegotiate the terms of the rentals. We also need to talk with the aircraft manufacturers about a faster delivery of aircraft. If we manage this, we can clamp down on three to five percent of our costs.

There has been criticism about the costly purchases of aircraft. 

Aircraft are not like commodities. Their specifications can vary. If people think the price of aircraft we purchase is too expensive, we will renegotiate (the terms) so as to meet the target of efficiency in the industry. Perhaps we should also discuss the problem of maintenance, and make a plan for scheduled maintenance. If an armada is included in the financial list, we need a specific strategy in order to maximize operations, for example by sub-leasing or even selling some of the aircraft. That can be an option for aircraft with a low utility level.

What is the most urgent problem that needs to be solved immediately? 

Optimizing the armada and renegotiating contracts on acquisition and maintenance, followed by overhead efficiency costs, like the purchase of aviation fuel, the cost of in-flight services and marketing expenses. I must also be able to optimize (Garuda’s) routing. For example, the Jakarta-London-Jakarta route only has a 65 percent occupancy rate. This means we must review our routing, flight schedules and adapt to what kind of aircraft are suited to long-distance flights. There’s also the problem of the unsatisfactory performance of (Garuda) employees. Finally, on the strategy to improve revenues, what we need to do is create a price structure based on consumer behavior.

What solution have you proposed? 

On the domestic route connectivity, we must begin to integrate with Citilink, our subsidiary airline. If we have the same routes, something else must be worked out. Garuda should not be competing with its own subsidiary. In the meantime, improving the performance of subsidiary companies needs innovation, like in the case of Aerowisata, which can seek other customers (other than Garuda) with their catering services. Furthermore, Aerohotel can be integrated with ticket bookings, so that passengers also have the option to stay at our hotels.

Are the aircraft being used optimally? 

Right now, it’s good: nine hours 13 minutes. Our Boeing 737s operate more than nine hours a day. But we also have Bombardier CRJ1000-a total of 18 units-and 12 ATR units, which only fly five to seven hours. Their flight time should be over eight hours.

But wouldn’t increasing flight times also add to the risk of accidents? 

No problem. We just need to know the aircraft. The ATR, for example, which purely relies on visuals, would not be used for night flights. We just need to be smart about organizing flight schedules so they become more productive.

One reason for Garuda’s losses could be the rising cost of aviation fuel. Given this situation, what is your strategy?

We try to choose flight paths which optimize fuel without sacrificing safety factors. It’s not about eliminating routes, but choosing routes which are most efficient. I will also look at the contract to purchase aviation fuel, to make it more efficient. Only 20 percent of the demand for aviation fuel is purchased through hedging. The rest is bought on the spot.

 

Read the full interview in this week's edition of Tempo English Magazine



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