Observers and industry players have questioned whether Garuda and the state-owned enterprises (SOEs) can bring Merpati airlines back to life, yet also highlighted opportunities in the cargo business and aviation services, which will be the line of business focus for the ailing airline.

Aviation observer Alvin Lie said the cooperation between Garuda and Merpati might have been agreed on without deep financial calculations. He expressed concern over the possibility that the cooperation burdens the state-owned enterprises involved, as opposed to providing mutual benefits.

“I cannot understand the logic of this,” he told The Jakarta Post.

Under the agreement, signed on Wednesday, Merpati will operate an air cargo business for domestic and international routes using Garuda’s fleet. State logistics agency Bulog, trade company Perusahaan Perdagangan Indonesia, cement giant Semen Indonesia and fisheries firm Perikanan Nusantara will use the cargo services.

Alvin questioned the difference between Merpati’s new cargo business and other air cargo businesses. He warned of potential unhealthy business competition and monopolistic practices, as SOEs who signed the cooperation would be required to deliver their goods using Merpati cargo services, instead of making free market-driven decisions.

Apart from cargo, Merpati will also handle maintenance, repair and overhaul (MRO) services for state energy giant Pertamina and utility company PLN as a marketing agent and turbine maintenance service operator. Four state lenders — Bank Mandiri, Bank Tabungan Negara (BTN), Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI) — will provide the necessary financing.

Aviation observer Arista Armadjati chose to look at the glass half full, seeing the cooperation as full of business potential for Merpati and a way to start generating profit in the short-term.

“In eastern Indonesia, especially regions in Papua, there’s a high need for fast logistics forwarding through air cargo services. So this definitely has potential and, in the short run, Merpati can generate a profit,” he told the Post on Thursday.

Founded in 1962, Merpati ceased operations in 2014, strangled by mounting loans to several parties, including SOEs. In 2018, the court decided that Merpati was not bankrupt and ordered it to pay debts amounting to Rp 10.9 trillion (US$773.17 million). Merpati is now left without any fleet and license to fly.

Arista said the SOEs’ rescue of Merpati came on the heels of strong SOEs Ministry support for the struggling airline. It is expected that the Merpati cargo business can be run independently and expand, following an adjustment period.

The Express Couriers Association of Indonesia (Asperindo) said cargo services to Papua had strong development potential, especially as Merpati would handle eastern Indonesia’s cargo services — there are three areas in Papua where cargo traffic boomed in the past two years.

“But the competition is not easy. Many air cargo operators have provided services for local routes within Papua. There are around three to four players already if I’m not mistaken, one of those is Tri-MG Airlines,” Asperindo deputy chairman Budi Paryanta said.

Budi suggested Merpati’s cargo service in Papua to focus on inter-island routes such as from any city in Java to Papua or Sulawesi to Papua, rather than serving local routes with local players already dominating the market.

“There are not so much air cargo freighters for interisland routes. Sometimes bottlenecks occurred in Makassar or Denpasar where goods need to wait there for the freighter to fly them to Papua. More reighters serving these routes would be better,” he added.

Air cargo traffic within Papua has shown a stable increase over the years. Data from the Transportation Ministry’s Civil Aviation Directorate General show that domestic air cargo arrivals at Sentani International Airport in Jayapura reached 38.4 million kilograms in 2018, a more than fourfold increase from 8.6 million kg in 2017.

At Wamena Airport, air cargo reached 125.4 million kg last year, almost half of overall air cargo arrivals across Indonesia at 238.1 million kg.

In addition, Garuda will help manage Merpati’s training center so that it can become a source of income for the company.

“We are thankful for this collaboration. This will help Merpati to utilize its resources and capabilities to fulfill the requirements of the company’s restructuring process,” Merpati president director Asep Eka Nugraha said.

He said the cooperation meant Merpati could fly again, though assistance would be needed for the airline to return to full operations.

“We will collaborate to bring Merpati back in business. At the same time, it [the cooperation] will benefit us too,” Garuda Indonesia president director Ari Askhara said in Jakarta on Wednesday.

“We hope this cooperation can be an opportunity for Merpati to restart operations and bring in cash flow to pay installments to its creditors.”

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