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Garuda Indonesia, Erick and Suharto’s Legacy

The complicated problems faced by Garuda Indonesia are still lingering and unresolved. The Ministry of SOEs led by Erick Thohir has proposed four options to save the national pride airline. However, are these options correct?

By Muhammad Jasuma Fadholi

The problem that is being faced by the State-Owned Enterprise (BUMN), Garuda Indonesia (GI) is currently in need of immediate attention and intervention.

How not, apart from the idea of ​​early retirement for its employees, the debt accumulated by GI as of May this year has touched Rp 70 trillion. Mathematically, the potential debt continues to grow by more than IDR 1 trillion every month. 

Due to this emergency, the Minister of SOEs, Erick Thohir, did not remain silent. The ministry offered four options to save GI from the storm of crisis that was exacerbated by the derivative impact of the Covid-19 pandemic.

Loans or fresh capital injections, restructuring, establishing a new national airline, and liquidation are the four strategies proposed by Erick with the Ministry of SOEs.

Explicitly, all of these options depart from the history of crises faced by various state-owned national airlines in various countries in the world. The problematic history of Singapore Airlines from Singapore, Cathay Pacific from Hong Kong, Swissair from Switzerland, to Malev Hungarian Airlines from Hungary, are said to be the basis of the strategic plan to save Garuda from “extinction”.

Commission VI of the House of Representatives (DPR) has then scheduled a special meeting with Erick to discuss the four proposed options this week.

However, the Joint Union of PT Garuda Indonesia which consists of the Garuda Employees Union (SEKARGA), the Garuda Pilots Association (APG), and the Garuda Indonesia Cabin Crew Association (IKAGI) implies that the four options are not appropriate and that they have other options that are permanent and can improve. slowly the root of the problem.

The union together with GI came up with a priority proposal for improvement by the government over the GI’s operating scheme which had so far been inefficient. The option is considered better and can avoid the effect of offering early retirement, which, in another definition means terminating the employment contract.

Causally, the four options that were presented from Medan Merdeka Selatan were considered to have their respective negative consequences. Then, apart from the argument from the union with GI, why would the four options offered by Erick not be the right ones? Is it true that the crisis that occurred in GI has become a historical legacy in this state-owned airline? 

Erick’s Garuda Option Vulnerable?

The first choice to inject capital to the GI itself departs from the benchmark (benchmarking) on the way out of the airlines Singapore Airlines, Cathay Pacific, and Air China Airlines. Meanwhile, the restructuring with bankruptcy protection law was inspired by the experiences of Thai Airways International and Malaysia Airlines.

Then the option of establishing a new airline departs from the comparison of the case of Sabena Airlines from Belgium and Swissair. And the last alternative is liquidation, reflecting on the solutions that have been taken by Varig Airlines from Brazil and Malev Hungarian Airlines from Hungary. 

However, apart from not being a permanent solution as proposed by the union with Garuda Indonesia, the option based on benchmarking or a comparative approach seems to have more potential risks.

In a publication titled Unrealistic Comparative Optimism: An Unsuccessful Search for Evidence of A Genuinely Motivational Bias, Adam J.L. Harris et al explain the side effects of drawing conclusions and solving problems based on comparisons. The basis of the logic of the comparative methodology itself is, that all risks being faced must be the same as the previous average risk.

Harris et al say that this approach is one of the plus factors that will lead to a concept known as optimism bias or comparative optimism.

That’s because, in practice, predictors to solve a problem that looks similar can be very different and very specific to reality. Matters that depend on the accumulation of various current determinants can be ascertained to be different from the problem of the previous comparison sample. 

At the option of the Ministry of SOEs, the same is true. Not necessarily a single option from a series of comparison options with other national airlines offered becomes the most accurate solution in the case of saving Garuda Indonesia at this time.

In addition to the differences in the specific situations faced, the available options seem to make solving GI problems “follow the manual”. Things that could lead to potential negligence or misunderstanding ( optimism bias ), so as not to fix the real root of the problem, are exactly what the United States and Garuda Indonesia are worried about.

In addition, there is quite a lot of literature that describes the negative impacts of a comparative or benchmarking approachincluding not being able to map out the real root of the problem, the different metrics for comparing the situation at hand, to the nature of benchmarking which can only look back, not forward.

As the originators of the four options for saving Garuda, Erick Thohir and the Ministry of SOEs are likely not ignorant of this. However, there are other non-technical variables when faced with national airline problems, namely the political aspect.

Collapsed in the Ruler’s Political Accommodation?

It is undeniable that Garuda Indonesia’s problems seem to be the residue of a lack of professional management and government intervention, even since the administration in the past.

Garuda Indonesia itself has become the national airline since serving former President Sukarno to attend his inauguration ceremony as President of the United States of Indonesia (RIS) on December 28, 1949, from Yogyakarta to Jakarta.

Since then, Garuda Indonesia has become the pride of the nation when it comes to the official state-owned airline. But unfortunately in its journey, GI management is not like a professional airline should be managed.

If traced, the dilapidated management of GIs has occurred since the New Order (Orde Baru) era. At that time, or rather after the decade of the 80s, GI was in decline due to corruption, collusion and nepotism (KKN), and dominant political interference.

Aircraft mark-ups to collusion with subsidiaries, wrapped in a large series of unreasonable contracts. Names from Cendana such as Hutomo Mandala Putra to Ary Sigit are also reported to have played in the vortex. As a result, mismanagement and debt became an unpleasant legacy for Garuda. 

The era has changed towards reform, but improvements have not occurred due to the signals of the New Order era practices that are still being preserved. Does Joanna Bailey explain the factors causing this in What Are The Pros And Cons Of State-Owned Airlines ?.

In the national airline discourse, there is a key factor in the form of a ” long term view “, namely the government’s consideration of the state-owned enterprise (SOE) or BUMN airline policy. The government is considered to tend to think or calculate considerations in an election cycle or political process, or in other words, it is practically unable to let go of political considerations in its management.

This means that, although national airlines are often symbols of national pride, on the one hand, the government tends to be reluctant to “invest” in improving the infrastructure of national airlines, which will take time to see the benefits.

Bailey mentions cases of ownership transfer or the phenomena of privatization to renationalization of national airlines which lead to the conclusion that national airlines that are allowed to operate as efficient and professional entities will have good performance as SOEs. While those who are too burdened by politics are said to be unlikely to succeed.

The current case of Garuda Indonesia seems to show that it is not only the result of the derivative impact of the Covid-19 pandemic but also an indication of the legacy of political intervention that is still being maintained.

This reflects on the precedent in the past that GI has often been an active variable in political dynamics. In 2018, for example, there was a polemic against the signing of the Garuda Indonesia yearbook report. At that time, the Director of the Institute for Development of Economics and Finance (INDEF) Enny Sri Hartati suspected that the GI’s “good report card” could correlate ahead of the political year.

Marco Umbas, an aviation observer also said that the condition of Garuda from time to time cannot be separated from the political map of Indonesia. Since the era of former President Susilo Bambang Yudhoyono (SBY) to the current President Jokowi, there have been fundamental changes in economic policy, especially the appointment of the Minister of BUMN and the Board of Directors of Garuda.

In the last 15 years, for example, there have been six SOE ministers. Not including the phenomenal record that in the last five years Garuda has replaced the four directors who commanded Garuda.

Contemporary airline competition requires continuity and a deep understanding of aviation business management. Political wedges are again suspected to be a problem that can be the beginning of a solution to GI problems if implemented professionally.

In the end, SOE Minister Erick Thohir seems to be holding the hot ball at the moment, that he must make a breakthrough to solve the GI problem to its root. Not just a comparative solution that is not suitable, let alone maintaining the political accommodation variable in it.

Editor’s note: The views expressed in this article are the author’s own and do not necessarily reflect those of PinterPolitik.

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