Merpati urged to sell aircraft, lease planes instead

The Jakarta Post, Jakarta

Ailing state carrier PT Merpati Nusantara Airlines should sell some of its aircraft and other assets in a bid to raise funds and help resolve cash flow problems in the short-term, the Ministry of Finance says.

Treasury director general Mulya Nasution said the company's other main creditors, Bank Mandiri and national flag carrier Garuda Indonesia, supported the sale plan.

"We haven't seen any effort to improve the cash flow (in the company). Why not unload some of its aircraft, the proceeds of which can then be used to lease more planes so as to boost the carrier's revenue," Mulya said on Tuesday night during a gathering to break the fast.

Mulya did not elaborate how many aircraft -- out of some 40 Boeing and Fokker jets owned by Merpati -- should be sold. He said the move would secure the company's financial balance for about four months, the period needed before the planned conversion of the firm's government debt into equity takes place.

At present, the firm has Rp 1.3 trillion in debts and assets worth about Rp 775 billion. Its major creditors are the government (Rp 225 billion), Mandiri (Rp 230 billion) and Garuda (Rp 246 billion).

The House of Representatives and the firm have agreed the planned debt-to-equity conversion would take place prior to Merpati's privatization. However, Mulya said an audit was needed in advance before the conversion plan.

"The audit process could take about three to four months," he said. This put more pressure on Merpati to quickly improve its cash flow and selling the aircraft was a good option, he said.

"I do not think they (Merpati) have another choice. They have to accept the suggestion, because it did not come only from the government, but from other creditors because obviously the creditors do not want to lose their money as well," he said.

The heavily indebted Merpati needs fresh capital to help restore its equity to positive territory and expand its business amid tough competition in the airline industry.

If successful, the sales would eventually boost its value ahead of its privatization program, Mulya said.

The government, after securing approval from the House of Representatives last month, is set to sell a 49 percent stake in Merpati to strategic investors next year.

The stake on sale could be raised to 51 percent if the buyers are local investors.

The debt restructuring (debt-to-equity conversion) and a strategic sale to foreign and local investors are part of the company's restructuring program set out to keep it afloat.

An initial public offering (IPO) -- selling shares to public investors in the stock market -- is planned after the restructure and sale.