Ailing state airline company PT Merpati Nusantara aims to record only Rp 70 billion ($5.88 million) in net profit this year by cutting its capital expenditure to practically zero.

“We can only aim for so little because there are still a lot of mandatory costs that we need to settle,” president director Bambang Bhakti said on Friday.

Among the mandatory costs, he said, are the need to integrate Merpati’s information technology (IT) system in support of new routes as well as crew management, and also the settlements of debts.

Still, if materialized, the projected profit would represent a gradual improvement for the company.

Merpati boasts some Rp 950 billion in assets but has been suffering from massive debts and soaring costs, and is now under a restructuring program of the Asset Management Company (PPA) — the state-sanctioned agency tasked to restructure ailing state firms.

It has a total debt of Rp 2.2 trillion to two other state firms, plus around Rp 800 billion it owes as part of employee layoff settlements, following the dismissal of up to 1,300 workers on a voluntary basis.

Bambang said that the company was recovering from its critical problems since the fourth quarter of last year.

Bambang said the company would not allocate any capital expenditure for this year as a practical  means  to achieve its targeted growth in net profits and revenue.

He said the company aimed to achieve a 50 percent increase in revenue this year, from an estimated Rp 2 trillion (unaudited) last year to a forecast Rp 3 trillion this year.

“This year capital expenditure is zero,” he said.

He said that in this time of crisis, company management is trying to make fixed costs into variables.

“We are not planning any investment (fixed costs), but we will look at other options such as leasing, outsourcing, and the increasing of fuel efficiency,” said Bambang.

He said the company would benefit more if it leased airplanes instead of buying them, outsourcing employee services, and using electronic ticketing, as well as setting up a new special team to ensure adequate fuel supply and fuel management, rather than excessive use of fuel, without compromising on safety measures.

The company is also looking for joint operation agreements (KSOs) with regencies, firms or individuals, as a way to boost its performance.

Bambang said that Merpati had gained 14 KSO deals that could see the company increase its fleet from 10 jets and 10 propeller driven aircraft to 16 jets and 19 propeller driven aircraft, respectively.

Previously, Merpati signed a contract in 2006 with China’s Xi’an Aircraft Industry. The contract centered on the purchase of 15 Xinzhou-60 aircraft by Merpati from Xi’an, using a soft-loan scheme, with each aircraft costing around $14 million.

However, Merpati failed to honor the contract, leading to a halt in delivery of the airplanes, forcing the need to renegotiate the deal.

State enterprises minister Sofyan Djalil had said earlier that the renegotiation of this contract was still ongoing with both parties trying to re-negotiate the price, quantity, and guarantees for the planes. (fmb)

The company is aiming to achieve a 50 percent increase in revenue this year

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