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.