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The Sriwijaya – Citilink Imbroglio Explained

Former State-Owned Enterprise Minister Dahlan Iskan Outlines the Complicated Business Relations Between Sriwijaya Air and Citilink Airline

RadarBali has published an analysis shedding more light on the current corporate dispute between the National Flag Carrier Garuda Indonesia and Sriwijaya Air.

On November 8, 2018, Garuda Indonesia assumed management control of Sriwijaya Air and Nam Air as part of an overall plan to resume Garuda’s role as the largest domestic air carrier in Indonesia. Recently, a dispute over the appointment of a new President Director by the shareholders of Sriwijaya has seen Garuda Indonesia indicate the corporate cooperation between the two airlines may be at an end, with Garuda removing their corporate logo installed on the fuselages of Sriwijaya’s Aircraft.

M Ikhsan Rosan, a corporate vice-president and secretary at Garuda Indonesia, commented on the decision to remove Garuda’s logo from the Sriwijaya fleet as necessary to protect the National Flag-Carrier’s reputation. Rosan said that Sriwijaya was failing to maintain Garuda’s service standards. Adding, "We need to say that the decision to withdraw the Garuda Indonesia logo was made to ensure that our logo continues to represent safety and good service during flights.”

In a related development, RadarBali reports that the Garuda subsidiary Citilink has filed a legal action against Sriwijaya that is set to start before the Jakarta Courts on October 19, 2019

Commentary on the current imbroglio between Citilink and Sriwijaya has been offered by Dahlan Iskan - the former Minister for State-owned Enterprises, CEO of the State Power Board (PLN) and one-time publisher of The Jawa Pos Group via his online blog. 

Iskan defends Citilink's suit against Sriwijaya as a defensive move that will protect the State-owned carrier from future fallout in the form of official financial, procedural and other official audits of the Citilink-Sriwijaya brief alliance.

Iskan went on to say that he did not favor executives who personally cloak themselves in litigation steps overtaking the necessary steps to protect and safeguard the company.  Taking a somewhat cynical view, the former Minister opined that even if Citilink should lose in its suite before the Courts, the managers of the State-owned airline will find protective cover in the fact that they pursued an aggressive legal program and, even in the events that such legal steps incur costs and damages for the Airline, those damages will only come due after the executive involved are no longer employed by Citilink.

The former minister compared this to the vastly different approach to legal actions between private-sector corporations where every effort is made to avoid the cost and potential damages of prolonged legal battles.

Iskan suggested that the corporate cooperation agreement between Citilink and Sriwijaya was never popular with the management of the low-cost Garuda Subsidiary and was a move forced on the airline “from above.”

The starting point of the cooperation between Citilink and Sriwijaya, according to Iskan, was clearly linked to a large debt owed by Sriwijaya to GMF – the Garuda-owned aircraft maintenance company where Sriwijaya and its sister airline NAM serviced all its aircraft. For reasons that are not completely clear, GMF allowed the maintenance debts of Sriwijaya/Nam to balloon to Rp. 1.6 trillion.

Following the cooperative agreement of November 2018, Garuda found itself pushed into a corner much of its own making. Sriwijaya refused to pay its outstanding debt to GMF, claiming its revenues were insufficient. The result was that Garuda Indonesia found itself managing an airline that had planes that were no longer airworthy due to the refusal of another Garuda subsidiary – GMF to service without payment of a large account receivable due to them.

From an original armada of 30 airplanes operated by Sriwijaya Air, only 12 are said to still be airworthy – a number that will dwindle even further if maintenance service continues to be refused by GMF.

The former State Minister and respected businessman postulate that the legal moves by Citilink against Sriwijaya may be designed to pave the way for Garuda – via its subsidiary Citilink – to take control of Sriwijaya and run it profitably as part of the National flag carrier.

Apparently, Sriwijaya is being chased by creditors on many fronts. Money owned to PERTAMINA - The State-owned Petroleum Company – for aviation fuel has reached Rp. 800 billion.  Substantial debt is also reportedly owed by Sriwijaya to the State-owned airport management company – Angkasa Pura and to Bank BNI concerning credit card charges.

There is also the threat of looming action from the KPPU – The Commission for Free Trade and Competition. Through the acquisition of Sriwijaya, Garuda now technically owns more than 50% of the domestic air market – a circumstance forbidden under the Indonesia Anti-Monopoly Law of 1999. This violation is nowhere more apparent in its negative impact on the general marketplace than on the Denpasar – Dili (Timor-Leste) route now operated exclusively by Citilink and Sriwijaya where both airlines charge per-flown-kilometer fares that are 4 time the national average on other routes.

Tension recently became combative between Citilink and Sriwijaya when the Commissioners of Sriwijaya summarily dismissed the directors of Sriwijaya – all of whom are former Garuda managers: CEO Joseph Adrian Saul; Director of Human Capital Harkandri M Dahler; and Commercial Director Joseph K Tendean.  Iskan suggests the Commissioners were ordered to fire the three by the Airline's owner Chandra Lie, who owns a large tin conglomerate in Bangka, Indonesia. Lie was reportedly at odds with Garuda on how the Airline was being managed. Also reportedly at Lie’s direction, a new CEO with no past history with Garuda was appointed to head the Airline without first consulting the Indonesian National Flag Carrier.

The suit now proceeding before the courts allege Sriwijaya failed to fulfill its contractual obligations to Citilink.

In the midst of the current legal impasse, Iskan claims that Garuda has now ordered Citilink to withdraw its legal action against Sriwijaya and instructed GMF to recommence the service and maintenance of the Sriwijaya fleet of aircraft.

The situation remains confusing. Have Citilink and Sriwijaya arrived at a rapprochement? Will the current CEO of Sriwijaya be replaced with someone more to Garuda’s liking? Will Sriwijaya’s many other creditors – many of whom are State-owned Enterprises – be paid or otherwise appeased to allow the Sriwijaya Aircraft to continue to obtain aviation fuel and land at Indonesian airports?

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