Merpati sets example

Merpati sets example

The board of directors of the state-owned Merpati Nusantara
Airlines should be commended for having the courage to hold
firmly to common business sense. Despite pressure from the
Ministry of Transportation and a politically well-connected
company, Merpati's refusal to lease 16 CN-235 aircraft made by
the state-owned IPTN aerospace company should set an example for
other state firms to stand up against commercially unviable
requests or irrational government intervention.

Merpati's management is the most competent to assess the
commercial viability of the 35-seat aircraft made by IPTN, which
is chaired by technology minister B.J. Habibie, because the
airline has been operating 14 CN-235s since 1986. Merpati's
president, Ridwan Fataruddin, said their CN-235s currently in
operation have been losing money due to their unusually high
operating costs. Merpati loses Rp 406,000 (US$182) per flight on
its Jakarta-Bandung route, which is served eight times a day by
four CN-235s. Ridwan supported his statement with a detailed cost
breakdown to prove that the losses stemmed from inefficient
airplanes and not sloppy operational management.

At the risk of losing his job, Ridwan tried to maintain his
managerial reputation by making a decision that was rational and
important to the company's survival. Merpati received its present
CN-235s as equity capital from the government. Even though the
acquisition exacted no capital costs on the company, the planes
continued to lose money. The monthly cost to lease an additional
16 CN-235s would reach $110,000 per plane.

As a subsidiary of Garuda Indonesia, Merpati has often been
vulnerable at the mercy of the national flag-carrier. On several
occasions Merpati has served as the dumping ground for Garuda's
aging DC-9s, Fokker 27s and Fokker 28s. Merpati was also the
proving ground for IPTN's Casa-212 and CN-235. Because its small
fleet consists of such a wide variety of airplanes, its
maintenance and operation costs are unusually high.

A few years ago, Garuda began to phase out its domestic routes
and decided to maintain only the 12 routes directly connected to
its international services. But Garuda, beaten in the
international market by more efficient airlines, has been forced
to take back most of the domestic routes previously given to
Merpati.

As a state-owned company, Merpati is especially vulnerable to
intervention from the Ministry of Transportation, whose pressure
to lease the 16 CN-235s from PT Arta Saka Nusaphala, owned
jointly by the Bakrie and Humpuss groups, is just one example.
Merpati has long suffered from too many outside interventions and
the time has come for the company's management to show some
courage and establish managerial autonomy.

We wonder how Merpati has been able to survive commercially in
a market which has become much more competitive since domestic
airline service was partially deregulated. How could Merpati
operate efficiently if the capital costs of its earning assets --
aircraft -- were significantly higher than those paid by its
competitors.

We are confident that Minister of Finance Mar'ie Muhammad, the
nominal government shareholder in all state companies, will
support Merpati's decision. After all, Mar'ie himself has often
shown exceptional courage in taking rational measures against
insensible political pressures.