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Garuda Aims to Spin Off Citilink Unit
Faisal Baskoro | January 03, 2012

Citilink will add new aircraft and is planning an IPO as it looks to thrive in the region’s increasingly competitive low-cost carrier market against the likes of Lion Air and AirAsia. (Photo courtesy of Garuda Indonesia) Citilink will add new aircraft and is planning an IPO as it looks to thrive in the region’s increasingly competitive low-cost carrier market against the likes of Lion Air and AirAsia. (Photo courtesy of Garuda Indonesia)
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Garuda Indonesia, the nation’s flag carrier, aims to spin off its Citilink unit by the end of March so it can compete in the country’s low-cost airline business.

Elisa Lumbantoruan, Garuda’s finance director, said the company was preparing an application with the Ministry of Transportation, the airline regulator, seeking to have Citilink certified to operate its own aircraft as a separate entity. The Airline Operator’s Certificate would allow Citilink to use aircraft for commercial purposes.

The certification is expected to be completed within in three months, Elisa said.

The AOC requires the operator to have personnel, assets and systems in place to ensure the safety of its employees and the general public. It will also list the type of aircraft to be flown and flight destinations.

“Citilink will become an independent airline operator at the end of the first quarter of this year at the earliest ,’’ Elisa said on Tuesday.

He also said that Garuda aimed to make Citilink a publicly traded company over the next two years, following an expected initial public offering.

“After the spin-off, the next thing we will do is study a plan for an IPO,’’ Elisa said. The share sale, he added, would take place in 2013 or 2014.

Garuda established Citilink in 2001 to cater to a lower-end segment of the airline industry. It finds itself in an increasingly intense competition against low-cost carriers such as Lion Air and Batavia Air to carry passengers across Indonesia.

Lion Air announced in November an expansion plan that included the purchase of 230 Boeing 737 aircraft valued at $21.7 billion. The record deal will increase its fleet to more than 400 airplanes by 2017.

Indonesia AirAsia, the local unit of Malaysia’s AirAsia, plans to hold an initial public offering here this year.

Elisa said spinning off Citilink would enable it to expand its business. Growth in the low-cost carrier market has surpassed that of full-service carriers, he said.

“The market for low-cost carriers is strategic because passenger growth could reach 15 percent,” he said. “The number of air passengers in the low-cost carrier [sector] is estimated at around 40 million people.”

He did not provide details on Citilink’s potential market, except that the airline expects to carry 3.4 million to 4 million passengers this year.

Elisa said last month that Citilink may have carried as many as three million passengers in 2011, which would be 50 percent more than it carried in 2010.

He said that Citilink planned to add 10 Airbus A320s to its fleet this year, which would give it a total of 20 planes.

Shares of Garuda Indonesia closed unchanged at Rp 470 on the Indonesia Stock Exchange on Tuesday.