Back from the grave?

Indonesia’s government declared in March it expects to complete a comprehensive restructure of Merpati later this year.

“We want Merpati to continue to exist,” declared Deputy State Enterprises Minister for Restructuring and Business Development, Aloysius K Ro. “This month (March), all the obligations towards employees will be completed, and that will be the basis to continue the privatisation of Merpati,” he added.

When he spoke the company had apparently paid out what it owed to 900 of its 1,120 staff through an industrial relations settlement mechanism and expected the rest to get their money by the end of March. Once they’ve got their cash, however, it’s doubtful many will be prepared to stake their future on such a shaky company.

As the proxy of Merpati’s major stakeholder the Ministry of Finance, the State Enterprises Ministry is proposing to the Coordinating Minister for Economic Affairs to endorse the privatisation of Merpati and to invite strategic investors to take a stake in the carrier. The government holds a 93. 8 per cent stake through the Finance ministry while Garuda Indonesia holds the remaining 6. 2 per cent. But there are several serious flaws in the plan and the main question being asked by most industry observers and analysts is a very basic one: “Why bother?” Merpati has been a disaster zone for years. At its peak it had a fleet of 84 aircraft ranging from narrowbody jets to regional turboprops. By September 2008, under restructuring, it cut the size of its fleet to 31, returned one Boeing 737-400, three 737-300s and one 737-500 to their lessor, with 48 other aircraft parked at airports across the country, weather-beaten and in want of maintenance.

By 2014 the fleet was down to just 25, including 13 Chinese MA-60 turboprops. It had signed a deal in 2006 with China’s Xi’an Aircraft to acquire 15 MA-60s – the single largest order for the aircraft – at $14. 1 million each, $3 million more than buyers elsewhere had paid. The purchase was made through financing at 2. 5 per cent over 15 years by the China Import-Export Bank. Crashes destroyed two of the aircraft – in May 2011 and June 2013 – and the bank has since repossessed the remaining 13. Also on order were 40 Comac ARJ21-700s, a deal that has also fallen by the wayside.

Indonesia has talked about privatisation several times and postponed these plans several times. After two earlier postponements the Indonesian government in April last year scrapped the planned re-launch of Merpati, due for late 2015, due to pressure from creditors for full settlement of outstanding debts. Its main creditors are state-owned oil giant PT Pertamina and airport operators Angkasa Pura I and Angkasa Pura II, jointly owed some A$586 million.

But the Merpati saga has been a story of “on-again, off-again” with the government one moment saying it was going to be privatised, the next declaring it would not be re-opened. Can it finally find a buyer who can, Phoenix-like, coax Merpati back to life? There are genuine doubts anyone would be interested. While one government source suggested some time ago that two investors, one from China and the other from Europe, had expressed keen interest in developing Merpati by setting up a consortium with an Indonesian company, it is understood that interest has waned.

No wonder. An investor would be looking at an airline with a “ghost” fleet and the prospects of having to fork out millions to buy or lease new jets. A strategic investor would be offered a 40 per cent stake but it can’t expect any real financial assistance from the government, which has already pumped in rescue cash three times and says it doesn’t have any more funds to help Merpati.

There is another very good reason many believe the airline should be buried. Despite the strong growth of aviation in Indonesia and soaring traffic numbers, there are already more than 50 carriers of various sizes operating around the country. Admittedly most of them are small and many operating just two or three aircraft but it still adds up to saturation. The market is dominated by national flag carrier Garuda, its low-cost subsidiary Citilink and the aggressive Lion Air. Plunging into this fiercely competitive fray, where incumbents will be only too willing to get into a fare and capacity war to protect their marketshare, would not only be very high-risk, it more than likely would be suicidal.

There are genuine doubts anyone would be interested.