The plan to merge national flag carrier PT Garuda Indonesia with PT Pelita Air Service, a subsidiary of energy holding state-owned enterprise (SOE) PT Pertamina, has reached a new stage. State asset fund Danantara has brought Garuda and Pertamina together to assess share structures and other corporate aspects. The move aligns with broader efforts to streamline SOEs. However, critics argue that the merger primarily serves as an effort to rescue the financially distressed Garuda.

Danantara stated that the proposed merger aims to reduce market cannibalization between the airlines while advancing its mandate to streamline and consolidate SOEs. Under this plan, the airlines would operate with clearer segmentation while sharing best practices. Danantara targets a reduction of holding SOEs to one per industry, and a cut in the overall SOE ecosystem from roughly 1,000 companies to 200.

The Garuda and Pelita merger was first proposed by the former SOEs Ministry, now the SOEs Regulatory Agency, in 2023 while Garuda was on the brink of bankruptcy with Rp 142 trillion (US$8.5 billion) in debt. At the time, Garuda, Pelita and Garuda's subsidiary PT Citilink Indonesia were envisioned to serve the full-service carrier (FSC), "medium-to-premium" carrier, and low-cost carrier (LCC) market segments, respectively, under a holding company.

A House of Representatives Commission VI member opposed the merger, citing risks to Pelita Air's management quality and corporate culture. Several experts have argued that consolidation alone will not solve Garuda's problems. Garuda posted US$142.8 million in losses in the first half of 2025. Pelita, while recording US$5.9 million of profit in 2024, only had US$101.5 million in assets. It also had Rp 519 billion in equity and Rp 1.1 trillion in liabilities.

Indonesia's high import duties on aircraft spare parts at 37.9 percent drove maintenance expenses from 13 percent of Garuda’s operating expenses in the first quarter (Q1) 2023 to 21.7 percent in Q1 2025. Suppliers also require upfront payments due to Garuda’s financial state, tightening cash flow and forcing the temporary grounding of 15 Citilink aircraft.

By the third quarter of 2025, Garuda's net loss widened to US$182.53 million, with liabilities reaching US$8.28 billion. In response, shareholders approved the issuance of 315.6 billion series D shares at Rp 75 per share, raising Rp 23.67 trillion consisting of Rp 17.02 trillion in capital deposits and Rp 6.65 trillion in shareholder loan conversions. Garuda allocated Rp 14.9 trillion to support Citilink's operations and help repay its Rp 3.7 trillion jet fuel debt to Pertamina, while Rp 8.7 trillion will fund Garuda's working capital and maintenance.

Danantara aims to restore Garuda to profitability by 2026 through four key pillars. First, financial overhaul, including the planned transfer of airport SOE Injourney Airports' land assets to Garuda's maintenance unit GMF AeroAsia. Second, service transformation across all customer touchpoints. Third, business transformation by prioritizing strategic and profitable routes. Fourth, operational and technological improvements to raise efficiency and performance. A key component of this turnaround is the reactivation of Garuda's grounded aircrafts. They continue to incur maintenance costs while generating no revenue, worsening Garuda's financial pressures.

However, political dynamics may pose new issues. Gen. (ret) Glenny H. Kairupan was recently appointed as CEO of Garuda as Prabowo reportedly looked for someone he personally trusted to resolve his dissatisfactions with the airline. Glenny, who has been in Prabowo's circle since their military cadet days and a member of the ruling Gerindra Party's board of trustees for 2020–2025, has no experience in both managing large corporations and working in the aviation industry.

To address concerns about management quality and preserve Pelita’s good performance, the merger should result in a holding company that allows each carrier to maintain its culture and operational identity. Cargo services could be consolidated into a separate unit. Segmentation should extend beyond service standards under Law No. 1/2009 on Aviation to align with national priorities by distinguishing airlines serving major international and domestic routes from those serving secondary cities and underserved areas.