Should Garuda Indonesia Airways, Use, Sale, or Lease the Aircraft After Suspension of Payment (PKPU) Approved? 

Tempo published news on 17 June 2022 that almost 97%  of the creditor of Garuda approved the debtor’s proposed plan, and only a few creditors disagreed with the proposed project. Therefore, the bankruptcy court pronounced that the procedure for accord (perdamaian) had been approved at the finals meeting. Congratulations.

One thing to note is Boing, one of the institution’s creditors and aircraft manufacturers, with a debt of 822 million US$, was not involved in this meeting.

The president director of Garuda Indonesian Airways revealed quoted by Sindo news that one of Garuda’s plans is to propose a new contract for leasing Aircraft to serve specific routes, which considerably have an economic value. 

Perhaps we have to learn from the case. In re Continental Air Lines, Inc., here is the case: 

Facts

Continental Air Lines, Inc. (“CAL”) filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code on September 24, 1983. During the period, CAL operated its commercial airline service as a debtor-in-possession under 11 U.S.C. Accordingly, CAL owes appellants.

On March 16, 1984, CAL filed a motion for authority to enter into lease agreements for two DC-10-30 aircraft with the bankruptcy court. CAL represented that the leased aircraft would allow it to strengthen and enhance profitability and cash flow greatly and increase the asset value of its Mid Pacific and South Pacific operations. 

The bankruptcy court granted CAL’s latter motion; a three-day hearing on the proposed leases commenced on March 30, 1984. On April 6, 1984, the bankruptcy court signed an order authorizing the leases. However, the bankruptcy court amended this order on April 16, 1984. The bankruptcy court approved the lease subject to its approval.

 The bankruptcy court found that if CAL did not implement the new DC10-30 service to its Mid-Pacific and South Pacific route system, CAL’s revenue and profit forecast for 1984 and after that would be threatened, and CAL would be unable to compete over these routes effectively. As a result, CAL and its estate [might] not be able to protect and preserve these route systems for the benefit of CAL, its bankruptcy estate, and the creditors thereof.

The bankruptcy court concluded that CAL had properly sought authority under 11 U.S.C. § 363 to enter into the leases, that the Mid and South Pacific route systems were precious assets of the bankruptcy estate under 11 U.S.C. and as a debtor-in-possession CAL “is under a duty to take reasonable steps to preserve, protect and enhance the assets of its bankruptcy estate which have value for the benefit of CAL and its creditors.” The bankruptcy court further concluded, “This duty is subject to the overall impact of any proposed individual action on the existing financial condition of the Debtor and the attendant risks to creditors.”

The Institutional Creditors present two primary issues. The first concern is the statutory authority for CAL’s proposal to enter into a 10-year post-petition financial commitment of over $70 million. The second addresses the adequacy of the process the Institutional Creditors received in approving the leases.