The strategic role of the treasurer

The airline Garuda Indonesia went through a major restructuring after the company ran into financial trouble as a result of the pandemic. Bima Tesdayu, Vice President, Treasury Management at Garuda Indonesia, describes the challenges of being involved in such a high-profile – and high stakes – restructuring, and how the treasurer’s role is critical in any organisation.

If you have ever flown to or from Indonesia, the chances are you went on a Garuda flight, an airline whose vision is to connect Indonesia with the world while delivering Indonesian hospitality. And if you’ve flown with Garuda, the chances are you think positively of that experience – and of the airline itself.

For Indonesians, the airline is a source of national pride. It is the country’s flag carrier – representing Indonesia to the world – and when the company ran into financial trouble, it was a huge public issue, with many Indonesians concerned about the future of one of their nation’s best-loved companies.

All this was on Bima Tesdayu’s mind when he was first appointed as Vice President, Treasury Management at Garuda Indonesia. The company was struggling at the time, and he questioned whether he wanted to be involved in such a high-profile situation. The company had a systemic financial problem, and the news of its restructuring was in all the media outlets. His friends and family were questioning him about Garuda’s future, and his mother asked him, “Bima, is Garuda going to survive? Please, it can’t close down – I like Garuda!” This outpouring of affection, Bima explains, had an impact on his decision to work for the company. “This triggered something in my mind that this company has something that other companies don’t have; it has a real sentimental value,” says Bima.

Bima did take that job at Garuda Indonesia, and it is the same role he does today. He took a circuitous path into corporate treasury, however, and did not initially plan this kind of career. He started out as an engineer and graduated with a degree in Engineering and had studied Geological and Geophysical Engineering. However, once he experienced the realities of the job market, he reconsidered his options. Oil prices had started to drop, and he saw his friends being laid off from oil companies and he wondered whether this industry would be sustainable and provide a life-long career. “I started to get interested in what the drivers of oil prices were and how that would affect the industry,” he explains. That sparked an interest in the financial industry, and from there he applied for roles in the banking sector.

He landed on a trainee scheme at Bank Mandiri, Indonesia’s largest bank by assets, where he went through a number of rotations in various divisions including human capital, business development and corporate banking. As part of a talent exchange programme, he had the opportunity to work at the Ministry of State-Owned Enterprises. And here, in the Vice Minister’s office, he got to work on a number of projects involving state-owned companies whose assets totalled around US$600bn. That experience then led to the opportunity at Garuda Indonesia, which is 60% owned by the Indonesian government.

He decided to join Garuda Indonesia at a very fraught period in its history. The company was going through PKPU [penundaan kewajiban pembayaran utang] proceedings, which is the formal process for companies that are on the brink of insolvency. Indonesian law gives protection to companies going through PKPU, which is similar to Chapter 11 bankruptcy protection in the United States. The PKPU allows the company to continue to operate, but it is given a grace period on paying its debts while it restructures.

Garuda Indonesia, like many airlines, had run into trouble as a result of the pandemic when lockdowns and closed borders left the company unable to fly its usual routes. Planes were stuck on the tarmac with nowhere to go, and some staff were laid off. The company suffered losses as a result and was unable to meet its debt obligations, including leasing payments for its aircraft. Matters came to a head when creditors went to court to initiate the PKPU proceedings. Usually, the PKPU lasts 45 days, but can be extended to 270 days, which puts a tight timeframe on reaching an agreement with the creditors. A restructuring proposal was put forward at the end of 2021, which would dramatically reduce the company’s liabilities from around US$10bn to nearly US$5bn. The company restructured its debts, exchanged its liabilities with long-term bonds and issued new equity.

Submission of this restructuring proposal scheme is the first step of the entire restructuring process and is an important [sign of] momentum in our efforts to transform into a more adaptive, efficient and profitable business entity.

In February 2022, when Garuda Indonesia was working on its restructuring, the company’s Chief Executive, Irfan Setiaputra, was reported in the news saying, “Submission of this restructuring proposal scheme is the first step of the entire restructuring process and is an important [sign of] momentum in our efforts to transform into a more adaptive, efficient and profitable business entity.”

The majority of shareholders (95% of them) agreed to the deal, and a court approved the agreement in June 2022. The agreement went into effect at the end of 2022. The creditors had to take a substantial haircut, with a write down of approximately 80% of what they were owed.

Bima explains that the restructuring was challenging because of the scale of it, and also a lot was at stake; the beloved national carrier was at risk of failing. The restructuring was in the national headlines, which also added to the pressure. And then there was the time constraint. “We had a maximum of 270 days to finalise the restructuring. If it took longer than that then we would face bankruptcy. As we were going through that the cash flow was very tight,” he explains. The cash balance at the end of the month was very small for a company of its size, and the company still had bills to pay. “There were limited resources – it was very challenging – and we still had to make the salary payments,” explains Bima.

Also, he says, the company had to be very careful in how it managed its resources because it had to face the creditors and be accountable to them for how it was managing those resources. The settlement the company offered the creditors meant they were losing 80 cents on the dollar, which was not an ideal solution and one they would not be happy with. However, the alternative – if the creditors didn’t accept the restructuring deal – was to allow the company to go bankrupt and be liquidated. In that scenario, the creditors would recover even less of what they were owed than if they accepted the restructuring deal.

“We convinced the creditors that this restructuring would make the company leaner – we will cut costs, the pain will be shared, but the company would survive and be in a more sustainable condition,” says Bima.

In February 2023 news media reported that the restructuring was proceeding well, and Setiaputra, the Chief Executive, was reported as saying that the company had been transparent with creditors about the process. “We have done this through intensive communication and long discussions with all creditors since the completion of the restructuring process some time ago,” Setiaputra was quoted by Flight Global as saying.

During the entire process there has been a lot of media attention on the deal. Garuda Indonesia is more than a state-owned company (the government is a majority stakeholder), it holds sentimental value and is a source of national pride. Its future is a topic of public debate and part of the national conversation. Did Bima feel the pressure of working on a restructuring that was so high-profile?

Yes, he did feel the pressure at a personal level. “Indonesians are proud of the company. Everybody loves Garuda and its fleet goes everywhere in the world carrying the Indonesian flag,” he says.

Such a challenging time, however, is an opportunity to learn. What learnings did he have from this time of being in the centre of such a public restructuring of a company? “The main lesson from this experience is that treasury is really significant and has a really important role to play,” he says. In his role, there is a lot of responsibility, where many things need to be done well, and many priorities need to be juggled – all of which have serious implications for the future of the company. “We have to do risk management well, not just managing foreign exchange (FX) risk, but also fuel risk – the biggest cost for the airline industry is fuel. And we also have to manage debt very carefully,” Bima explains. It is something of a tightrope that needs to be walked in judging how much debt to take on and managing the cash to ensure it can be paid back. “After the pandemic we became a lot more conservative in how we manage cash,” Bima explains.

We have to do risk management well, not just managing foreign exchange (FX) risk, but also fuel risk – the biggest cost for the airline industry is fuel. And we also have to manage debt very carefully.

When asked about his current role and the priorities he is focused on right now, he explains that the airline industry poses particular challenges for treasury teams, which he deals with on a daily basis. Airlines typically grapple with large capital expenditure with the aircraft, and the fleet has to be restored every three to five years, a cost that is usually quite high. And companies like Garuda also rely on leasing companies for their aircraft – the repayments of which can end up being prohibitive if cash flow is squeezed. Managing the cash flow efficiently is critical to ensuring there is sufficient liquidity to cover such expenses.

Another typical challenge is the cost of fuel, and the volatility in oil prices can dramatically impact an airline’s profitability, especially if the risk is not adequately hedged. Foreign exchange risk also has to be managed prudently because Garuda – as an international airline – operates in multiple countries. These challenges have become more acute since the Russian invasion of Ukraine. There is also the debt management to consider. “After the restructuring we still have significant debt obligations to manage. That is a priority to ensure that this company is able to operate sustainably in the future,” says Bima.

The current macro environment is also posing particular challenges. The central bank’s base rate is still quite high, and some of the company’s debt carries interest rates with double-digit figures. The currency price is also unfavourable, with the Indonesia Rupiah to US dollar rate still high. On the positive side, however, oil prices are slowly dropping, and Indonesia has a strong GDP forecast of around 5.3%. The early figures for this year indicate that tourism is rebounding and people are flying again, which is also a positive indicator for the airline industry.

There is a lot to think about in his role as treasurer and many of his decisions can have a material impact on the financial health and the future of the company. Does he find such responsibility stressful? Bima takes such a question in his stride, like he does the responsibility he carries in his role. “I can say it is quite stressful, yes, but I also really enjoy it – particularly when I see each problem and how we can learn something from it,” he says.

On this point, Bima says, “Whenever there is a high profile or important decision, my CEO often asks me to join the meeting.” He wants to ensure the actions being taken are sustainable, and that the risk is being mitigated appropriately.” This points to the growing importance of the treasurer to organisations, where they are increasingly taking on a strategic and advisory role. Being trusted at the highest level of a company in this way is surely a positive, but does being involved in such important decisions worry him in any way? Does the burden of responsibility weigh on him? Not at all, says Bima. He says that the CEO – as a true leader – made it clear that the decisions were his and he would take responsibility for them, but he wanted to hear any concerns that Bima might have. “If they – the senior leaders – want to make any major decision they often want to ask the corporate treasurer’s opinion. The life of the company is in the cash flow and the corporate treasurer is sitting in the middle of it to ensure that the company has the blood to sustain that life,” says Bima.

The role of the treasurer is indeed critical to the future of any company. And when it comes to Garuda, the company’s restructuring is now on track. Flights are also rebounding and are at higher-than-predicted levels and Indonesians and foreign tourists alike are now flying again. It is a relief, especially after such a high-profile restructuring. And although Bima still has the stresses of his day job to think about, there is one thing he can relax about for now: he can tell his friends and family that Garuda won’t be closing down, and that his mother can continue to fly with the airline she loves.