Overmanning drags Merpati down

Debbie A. Lubis, The Jakarta Post, Jakarta

Carrying excess baggage of 1,500 employees, PT Merpati Nusantara Airlines has trouble lifting off from its current low of unresolved debt problems, tight competition and soaring costs, but its chief executive said layoffs were not the answer.

Outgoing Merpati president director Wahyu Hidayat said the airline had been suffering from overmanning since before he became chief there in 1999.

Still, he said, the company did not plan mass layoffs.

The policy still stood despite concerns over the viability of the airline that once pioneered routes into eastern Indonesia.

Now tighter competition is eating into revenue, as operational costs remain high, and as the company scrambles to repay some Rp 331 billion (about US$33 million) in debts maturing next month.

"We are trying hard to fix the company's condition, so that we don't have to ask the government to bail us out," Wahyu told The Jakarta Post on Thursday.

To this end, he said, Merpati would like to cut loose those employees it did not need.

But the cost of compensating dismissed workers, and their government-backed opposition to such a move, he said, made any layoff plan impossible.

Dismissing the 1,500 workers meant cutting Merpati's work force by a hefty one-third of its total 4,539 workers.

Wahyu said he had considered tough measures to reduce overmanning but feared such a move would draw the government's ire.

For their part, Merpati employees laid the blame for the airline's poor performance on mismanagement.

They charged that Merpati's financial management was a mess, which had led the company to the current state of near collapse.

Plans to merge Merpati with the country's national flag carrier PT Garuda Indonesia fell through as the latter rejected the offer. Garuda already owns a 6.5 percent stake in Merpati with the government controlling the other 93.5 percent.

In main reason for Garuda's refusal to merge was Merpati's financial woes.

After returning to black in 1999 with a pretax profit of Rp 72 billion compared to a pretax loss of Rp 657.7 billion a year before, the company slid back into the red in 2000, recording a pretax loss of Rp 187.9 billion.

Now Merpati owes the Indonesian Bank Restructuring Agency (IBRA) some Rp 331 billion that it must pay by April 11.

IBRA took over Merpati's debts from local banks that the agency bailed out in the wake of the late 90s financial crisis.

Merpati has yet to secure funds to pay off the Rp 331 billion owed to IBRA, which has offered to slash Rp 230 billion off the amount if the company can beat the April deadline.

To raise cash, the company plans to issue medium term notes but government approval for the plan has yet to come down.

"We have no money to repay the debts. So this plan to issue notes is the only way out," said Merpati's fund controller and insurance and tax manager Setyo Wisnubroto last week.

Recently, increasing competition from new airlines serving local routes has forced Merpati to ground 11 of its locally assembled CN-235 aircraft.

It has also returned three of the aircraft to repay debts it owed to aircraft manufacturer PT Dirgantara Indonesia.

Merpati was founded in 1962 as a state-run airline to serve the country's domestic routes, and started off with six aircraft that were owned by the Indonesian Air Force.

When Irian Jaya was handed over by the Netherlands to Indonesia in 1963, Merpati started to serve the eastern province, although it found that passengers were scarce while the cost of flying there was high.

The airline then went on to serve local routes in Irian Jaya and some short-haul destinations such as Jakarta to Semarang, Jakarta to Tanjung Karang, and Palangkaraya to Balikpapan.

Merpati became a subsidiary of Garuda in 1978, providing flights on pioneer routes, cross-border flights, transmigration flights, and international and domestic charter flights, all of which were costly operations that yielded little revenue.

In 1986, the government insisted that Merpati purchase 14 locally made CN-235 aircraft despite criticism that the planes were too costly to purchase and later to operate.