Financing jet development
Financing jet development
The 10-day-old PT Dua Satu Tiga Puluh (DSTP) may have the most
political clout of all private companies in Indonesia. President
Soeharto and two former vice presidents sit on its board of
commissioners and three other high officials, including
Minister/Cabinet Secretary Saadilah Mursjid, in its management.
While each official is serving in a personal capacity, their
representation will still have political and business
ramifications. So what is the point of loading a company with so
many political figures?
The answer lies in the formidable task DSTP has set for
itself. The company was formed to raise funds for the N-2130
passenger jetliner being developed by the state-owned PT IPTN
aerospace industry in Bandung. The project has a long pay-back
period and is highly capital and technology intensive. However,
PT IPTN has yet to make its mark in the fiercely competitive
international aircraft market, or even in the Asian market. Thus
DSTP needs political weight to assure potential investors of the
project's prospects.
The immediate results have been impressive. Fifty-five
businessmen have put up 25 percent of DSTP's paid-up capital of
US$100 million. Without political influence, it would have been
extremely difficult for DSTP to sell the project to investors.
Private sector analysts and the government have long differed
on the economic and commercial viability for Indonesia, a largely
agriculture-based country with a per capita income of less than
$900, to enter the cut-throat international airplane market.
President Soeharto, one of the company's founders, believes
that the twin-jet airplanes will help meet the vast archipelago's
transportation needs in the next 10 to 20 years.
He argues that development of the N-2130 jet, which is
expected to take five to eight years, must begin now. But the
long gestation period of the project also means that its
investors should be oriented toward long-term benefits and be
willing to forgo dividends and capital gains for at least 10
years.
Many analysts share Soeharto's belief in the market potential
of the N-2130 in Indonesia and overseas. As per capita income
levels increase with economic growth, the volume of air traffic
for both passengers and cargo in the country will expand. The
100-130 seat jetliner is indeed suitable to bridge the numerous
islands.
The same analysts, however, question IPTN's ability to
manufacture the high-tech airplane. Moreover, selling jetliners
requires huge financing and well-managed networks of spare parts
depots. Airplane manufacturing also requires a high economies of
scale.
The investor outlook might have been different had the N-250
turbo-prop airplane, currently being developed by IPTN, achieved
commercial success. The 70-seat propeller aircraft isn't even
scheduled to start commercial sales until 1998.
Despite its remarkable progress over the last 19 years, IPTN
operations in Bandung are like an island. The company has
virtually no backward nor forward linkages with other industries
in the country, unlike in the United States and Europe, where
aircraft manufacturing involves hundreds of vendors.
The passenger aircraft market is dominated by Airbus and
Boeing. In terms of seating capacity, the N-2130 will compete
with the Boeing-737 series now used widely in Indonesia. Even the
Netherlands' Fokker, which established its trademark in the
international passenger jetliner market, has declared bankruptcy.
Japan has established numerous trademarks for high-tech products
but has not dared venture into the manufacturing of commercial
aircraft.
Given the odds, President Soeharto was wise in ruling out the
use of the taxpayers' money (state budget) to finance the jet
project. His personal involvement will continue to be strategic
in attracting private investors.