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UPDATE 1-Indonesian airline Garuda delays plan to sell stake in low-cost unit-CEO
September 4, 2014 / 9:47 AM / 3 years ago

UPDATE 1-Indonesian airline Garuda delays plan to sell stake in low-cost unit-CEO

(Recasts with CEO comments, adds context)

By Eveline Danubrata

JAKARTA, Sept 4 (Reuters) - Indonesia’s flag carrier PT Garuda Indonesia Tbk has postponed a plan to sell a stake in its loss-making budget unit Citilink, the airline’s chief executive said on Thursday.

The reason for the delay was because the price offered by potential buyers was too low, the Jakarta Post had reported earlier. In a text message to Reuters, Garuda’s Chief Executive Emirsyah Satar confirmed the delay but declined to comment on the valuation.

“We will still develop Citilink,” Satar said. The budget carrier competes with privately held Indonesian airline Lion Air at home and other Southeast Asian low-cost airlines such as Malaysia’s AirAsia Bhd.

Garuda has been trying to sell up to 49 percent of Citilink for several months. The Jakarta Post said the airline had reviewed two potential buyers, but did not indentify them.

The delay in selling the Citilink stake comes at a time when market conditions are deteriorating for carriers in Southeast Asia, including in the cut-rate Indonesian market.

Airlines in Indonesia have struggled with a depreciating local currency and an increase in fuel and maintenance costs, but intense competition means they have limited capacity to raise fares.

Earlier this year, Singapore’s Tiger Airways Holdings Ltd shut its Indonesian joint venture, while the Indonesian unit of AirAsia reported a net loss in the second quarter.

Industry analysts said the delay in the sale of the Citilink stake was not surprising, given the intense competition in Indonesia and the overall region.

“Until the overcapacity situation is managed, it doesn’t make much sense to buy an airline company,” said K. Ajith, an analyst at UOB Kay Hian in Singapore.

“Particularly in Indonesia, demand and infrastructure are not keeping pace with airline orders,” he added.

Garuda posted a net loss of $211.7 million for the six months ended June, widening from a $10.9 million loss a year earlier. (Additional reporting by Anshuman Daga in SINGAPORE; Editing by Miral Fahmy)

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