Merpati to buy 20 new planes amid fierce competition

Rendi A. Witular, Jakarta

State-owned airline company PT Merpati Nusantara Airlines plans to purchase 20 new airplanes within the next two years to cope with growing competition in the domestic airline industry, the company's top official said.

Merpati president director Hotasi Nababan said the company planned to allocate around Rp 600 billion (US$68 million) to purchase 20 new planes, half of which would be jets and the remainder propeller planes.

"We aim to increase the size of our fleet from 40 to 60 planes, in order to boost our flight frequency," said Hotasi after a hearing with House of Representatives Commission IX for finance on Wednesday.

He explained that the plan was expected to create a more efficient airline, a key factor in strengthening Merpati at a time when competition in the industry is becoming tighter with the entry of many new players, both local and foreign.

He said that some of the planes were designed to have a capacity of 25 to 30 passengers for each aircraft to serve short- range routes in remote areas, since demand for short-range routes would grow rapidly in the future, including in the heavily populated island of Java.

Merpati currently serves some 250 routes, mostly to remote areas.

The purchase of the new aircraft will be financed from proceeds gained from the company's privatization program, which is expected to start this year.

The government plans to sell up to 51 percent of its shares in Merpati to strategic investors this year, in a bid to restructure the ailing company. Aside from strategic investors, the government also plans to unload 10 percent of its shares for public investors next year, and list the company on the Jakarta Stock Exchange.

However, the government has yet to receive approval from the House of Representatives for the plan.

Hotasi said that the company had urged the government and the House to speed up the privatization process, in order for the company to immediately receive sufficient capital to compete with other airlines.

"Other airlines have already received fresh capital to expand. We will be left behind if the government and the House delay our privatization plan," said Hotasi.

Competition in the local airline industry has become tougher with the entry of several new players in the past couple of years.

Local passengers have seen prices dipping over the past couple of years particularly with new airlines providing cheaper no- frills services. This has contributed to the troubles faced by major domestic airlines like Merpati and state-owned Garuda Indonesia (the country's flagship carrier).

Merpati has asked for a government bailout amid huge debts and declining business following the SARS outbreak, terrorist attacks and tougher competition.