Good evening everyone.

Tonight we are going to present the case of garuda indonesia & its
issues of bankruptcy using root cause analysis. First I am going to explain Garuda Indonesia’s
critical points that lead to major issues the airline is facing.

SLIDE 1: Background

Garuda Indonesia is the flag carrier of Indonesia. The airline made its debut on the Indonesia
Stock Exchange in February 2011, with the government of Indonesia retaining a majority of the
shares.

In April 2019, Chairal Tanjung and Donny Oskaria, Independent Commissioners of the airline
called out that Garuda's 2018 Annual Report is not in accordance with the Statement of
Financial Accounting Standards, thus decided not to sign the report. Various violations inside
the report are then found which lead to penalties.

On 13 July 2019, travel reviewer and YouTuber Rius Vernandes shared a picture of a hand-
written menu during his flight from Sydney to Jakarta, which leads to Garuda's management
reporting the YouTuber to the police followed by prohibiting selfies on the plane, which is
criticized by worldwide netizens.

On 5 December 2019, Ari Askhara as the CEO was fired from his position for smuggling a
classic Harley-Davidson motorcycle and Brompton folded bicycle.

In 2020, COVID-19 hits and it immediately puts the airline industry into a halt.

In 2021, Yenny Wahid, one of Garuda Indonesia's commissioners revealed that Garuda
Indonesia is in a substantial debt of IDR 70 trillion, which uncovers the desperate state that
Garuda Indonesia is currently in.

SLIDE 2: Situational Appraisal

First, we assessed the issues that Garuda is facing. Among many issues, we grouped them by
analyzing 3 aspects, which are the time, trend, and impact.

In this table, we see several types of problems, which are economic, management, operations,
image, and environment. The first states that Garuda’s revenue decreased 67% from its
previous year, which leads to 2,44 billion USD in losses. It’s asset and liability increases from its
previous year, resulting in negative equity. This financial performance leads to the drop of GIAA
stock prices as much as 40% in 2020.

In its operations, we saw that Garuda Indonesia is having problems stemming from too many
lessors and types of airplanes that aren’t utilized efficiently. Their operational expense in 2020 is
even higher than their revenue, with 75% spent for leasing. This indicates a problem in their
business model.
Negative press and bad performance also swung the public into judging Garuda Indonesia
unfavorably, but the most drastic issue stems from an unpredictable source, which is the
COVID-19 pandemic resulting in travel bans.

By analyzing these problem’s aspects, we can prioritize and determine the causes of each
problem.

SLIDE 3: Problem Analysis

So, we found 3 main causes as to why Garuda Indonesia is threatened by bankruptcy: the first
is because it’s major loss of 2,44 billion USD. This is caused by the 67% drop of revenue
compared to the previous year, and the fact that their operating expense is 1,65 billion USD,
higher than their revenue of 1,45 billion dollar USD.

The drop of revenue is mainly caused by COVID-19, but also a presence of substitute services
which offers a more attractive price.

And then, why is their operating expense higher than their revenue? It is because their
maintenance and salaries cost are too high, also because Garuda Indonesia leased too many
types of aircrafts, which they are unable to utilize profitably. These factors are caused by an
error in their business model.

the second main cause of Garuda Indonesia’s bad situation is their increasing liabilities, sitting
higher than their assets, which means negative shareholder equity. Why is this so? It is caused
by having too many planes leased, and having too many lessors. While their asset increases, it
is not balanced by the amount of increase in their liabilities.

then the last main cause is that its stock price plummets 40%, making it the lowest it has been
in years. This is mainly caused by the lack of public trusts, stemming from cases of the previous
CEO’s smuggling and corruption cases, bad service reviews, the issue of hajj & umrah
monopoly. This all contributes to the bad image of the Garuda Indonesia brand in the public.
Stock prices are also lower because the shareholders gradually believe that Garuda Indonesia
no longer could recover from their losses, so stocks are released or sold.

SLIDE 4: Decision Analysis

From the tree problem analysis, we provide some solutions for garuda indonesia in order to be
free from bankruptcy. We divide the problems into 2 types, which are urgent problems and
lingering problems. The urgent problems consist of revenue drops by 67%, net loss increased,
operational expenses higher than revenue and covid-19 outbreak. The best solution for these
problems are restructuring the board of directors and commissioners, reducing investment in
assets, renegotiating leasing terms, selling subsidiaries (the example is PT Sabre Travel
Indonesia which is a travel agent company and PT Aero System Indonesia which is a
technological company), cost reduction and shifting the previous business model.

SLIDE 5: Potential Problem Analysis

By taking immediate steps to resolve urgent problems, Garuda Indonesia still has some
lingering problems that would most likely arise in the future. Those are continuously increasing
liabilities, unfit business model, and low stock price. All three is an indication that there needs to
be an in-depth analysis in regards to the potential problem caused or amplified by previous
urgent problem resolutions.
- Government support in obligations and debt restructuring is possible but would not
alleviate Garuda’s liability pains instantly.
- Legal bankruptcy processing is also possible but it requires restructuring--of which
Indonesian regulations are not yet clear. Restructuring would also instigate union
protests and labor issues.
- Backward vertical integration would be the option with less risk than the rest but it needs
to be done with finesse. However this means that Indonesia will no longer have a
national flag carrier.
- Restructuring and establishing a new national airline company is an option that needs
more time to implement and a capital as much as 1,2 billion USD, which would also be
adding liability stress in the future.