Revamped Merpati seeks to earn its wings

Revamped Merpati seeks to earn its wings

JAKARTA (JP): Floating shares and becoming considered a world-
class company is enough for most corporations to prove their
efficiency and value.

These goals are part of the vision of state-owned domestic air
carrier Merpati Nusantara Airlines, which has just sidestepped a
bankruptcy threat.

Merpati president Wahyu Hidayat said the company was entering
an era of survival and forming a new paradigm since new
management took over the airline a year and a half ago.

"Merpati was in a very bad condition, both from financial and
cultural aspects, when I was assigned to manage the company. Then
all of us at Merpati worked together, repositioning and
restructuring the company. Slowly we have seen results."

For a long period, Merpati was in a tough battle, but it
turned its first profit last year.

Initially, the airline was known as a carrier serving mostly
domestic feeder routes. And it did not have much money.
Established in 1962, Merpati became a subsidiary of the national
flag carrier Garuda Indonesia in 1978. Merpati's development
mission, assigned by the then government, was limited to only
serving pioneering, unprofitable routes in remote areas.

In 1997, Merpati was reborn as an independent airline as the
government finally approved its separation from Garuda after a
four-year tussle. It was the first step for Merpati to optimize
its core business as a commercial air carrier.

However, it has been a longer road to make the company a
profitable firm. Just like Garuda, Merpati rarely gained profits
and was caught in debt.

Wahyu said that by last year Merpati booked a pretax profit of
Rp 72 billion, a turnaround from a net loss position of Rp 600
billion in 1998 and Rp 400 billion in the previous year.

The profits were due to an improvement in the airline's
operations and the rescheduling of the airline's debts.

Financial problems have affected most airlines in Indonesia
due to declining income and increasing expenses, particularly
because of the continually decreasing value of the rupiah to the
U.S. dollar. Many airlines experienced difficulties in covering
their dollar-based operational costs.

Reborn just as the country was hobbled by the economic crisis,
Merpati found itself in dire financial straits.

But it is understandable that the government did not want to
let the national air carrier collapse.

In the meantime, Merpati also launched several improvement
measures, including streamlining operations.

One of the popular strategies taken by the airlines during the
crisis, including Merpati, was reducing its fleet and cutting
services. Merpati, which operated some 90 aircraft in the
precrisis period, now flies only 35. Services have been reduced
by 30 percent to 270.

Maintenance costs burdened Merpati as it has a wide variety of
aircraft in its fleet, including A-310-300s, B-737-200s, F-28s,
F-27s, ATPs, Casa-212s, Twin Otters and CN-235s.

"However, communality is not always good. Merpati still has
its mission to serve other areas with airports able to
accommodate small aircraft, therefore Merpati has to operate
small, medium and wide bodies," said Wahyu.

The reduction of fleet capacity affected the airline's load
factor, causing it to fall below 40 percent. Revenues dropped to
about Rp 70 billion per month during 1998 and part of 1999.

Merpati, however, began to see signs of recovery in the second
half of last year. The load factor rebounded to over 70 percent.

The airline was also successful in restructuring hundreds of
billions of rupiah of its debts.

Merpati has also improved its service performance, including
its on-time performance, which has increased to 85 percent from
80 percent previously.

Wahyu said Merpati would continue to improve as a national air
carrier.

He said to anticipate stiffer competition, Merpati was
committed to offering service excellence.

Merpati is now in a long-term planning period, which consists
of reengineering (1999-2000), profitization (2001-2004) and
privatization (2003-2004).

According to Wahyu, when Merpati becomes a world-class
operator, it will be time for the company to go public.

The firm will study either direct private placement by
inviting new investors or seeking strategic partners from leading
international airlines, he said.

"When Indonesia becomes more stable, the population's economic
power to travel by air will increase. Therefore, the air
transportation sector will grow much better," he said.

He acknowledged the remaining problems, including its debt and
aging fleet.

Despite it all, he firmly believes the airline has the
potential to become the largest domestic network airline. (icn)