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)