Financial Trouble Grounds Indonesian Airline

Mandala Airlines will officially stop flying on Thursday as the company enters a restructuring phase, the Transportation Ministry says.


Director General for Air Transportation Herry Bakti said Wednesday that Mandala would be grounded for 45 days and might receive a permit extension up to three times before it would be officially terminated.


“Mandala has reported to us on its restructuring plans. Therefore, starting [on Thursday] it will stop flying to concentrate on solving its internal problems,” Herry said as quoted by detikfinance.com.


Herry said it was not clear how long the restructuring process would take. If the process took longer than the extension period granted by the government, the permit would automatically be terminated, he said.


“They still haven’t told us how long the restructuring process will take. We’ll see how things develop,” Herry said.


Previously, Mandala went public with its financial troubles, saying it had requested an extension on debt maturity (PKPU) from the Commercial Court. Mandala corporate secretary Nurmaria Sarona said the request was the best option if the company wanted to stay afloat.


“The request for PKPU is the best move to ensure the sustainability of the company in the future,” Nurmaria said in a press statement on Wednesday.


Nurmaria said the company was in need of funds to get through the restructuring process and to rebuild its brand.


The Transportation Ministry has instructed Mandala to refund tickets bought by customers or to refer them to other airlines for free.


“We have requested Mandala fulfill its responsibility to customers starting tomorrow or the next day. Customers’ rights must be protected,” Herry said.


Rumors about the company’s latest troubles spread earlier in the morning and led to its pilots threatening to go on strike. Several travel agents also stopped selling Mandala tickets.


The news came as a shock to many as the company recently launched international flights with routes connecting Jakarta-Singapore and Balikpapan-Singapore and purchased 25 new airplanes.


The outlook of the airline industry is also deemed positive with the rapid growth of regional economies, prompting the company to initially forecast a 25 percent growth in revenue this year.


Mandala began operations in 1969 under the auspices of the Army Strategic Reserves Command (Kostrad). Back in the 1990s, the company was considered the leading domestic airline in the country.


The company fell into a period of financial trouble following the 1997-1998 Asian financial crisis, the impact of which lasted until 2006 for the company when 51 percent of its shares were bought by Cardig International.


 

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