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.