State-controlled Garuda is undergoing a Jakarta court-led debt restructuring, known as PKPU, after a vendor petitioned the court over unpaid liabilities.

The airline has an estimated $9.8 billion outstanding liabilities and has been running on a negative cashflow throughout the COVID-19 pandemic due to a slump in air travel.

Garuda is offering sukuk holders a recovery rate of 19 cents on the dollar, combined with converting a third of the debt into equity, Garuda's chief financial officer Prasetio told a briefing on Friday.

When asked about whether Garuda will extend the maturity, he said: "For the bonds, we offer 10-year (maturity) with a 7.25% coupon rate."

Garuda defaulted on the Islamic bonds last year. It had extended the bonds' tenure by three years in June, 2020 around the time the bonds were originally due.

The majority of Garuda's lenders, lessors and vendors have submitted their claims and the airline is currently verifying them, deputy minister of state-owned enterprises Kartika Wirjoatmodjo said.

For plane lessors, the airline is offering that they subscribe for new bonds, while asking for leasing rates to be lowered to market rates and for Garuda to pay by the hour for plane usage during the pandemic, he said.

The airline is also looking to return more planes as it seeks to slim down its fleet to 66, its CFO said. It had 142 planes in its fleet before the pandemic.

Garuda's creditors and lessors could not immediately be reached for comment. They are set to respond within the next two weeks.

The court provides a 270-day negotiation time limit and "the probability that we don't reach an agreement is really small", said Kartika.

The government will propose to parliament an injection of around 7.5 trillion rupiah ($522.47 million) of fresh capital into Garuda after the PKPU process, the deputy minister said.

($1 = 14,355.0000 rupiah)

(Reporting by Gayatri Suroyo; Editing by Ed Davies)