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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Turbulence in the Skies

Indonesia's airlines are running on empty

By Dewi Loveard / Jakarta


EVERY DAY, ADI MULIANA pours over the overseas job listings in the newspapers. The 37-year-old pilot was laid off by Indonesian airline Sempati on April 1. Muliana last flew in February. Now, his future is up in the air. "It's impossible to get a job," he complains.

Sempati has sacked 160 cockpit crew since the economic crisis hit last year. By this month, 60% of the carrier's flight staff had lost their jobs. In March, rival Bouraq suspended 14 of its 29 pilots. It is waiting for government approval to fire 1,194 employees. At Garuda Indonesia, which had been in trouble long before the crisis broke, one senior executive says the flag carrier has been shedding at least 400 people a year. More personnel could now be axed.

Indonesia's economic turbulence has badly buffeted its airlines, threatening the survival of the aviation sector itself. If carriers collapse, traveling across the archipelago and to and from the country could become much more difficult and the flagging tourist trade could take a further steep fall. The Garuda official warns that the airline could go bankrupt by early next year unless conditions improve. Revenues dropped 30% in the last quarter of 1997, wiping out profits for the year. Subsidiary Merpati Nusantara, which operates mainly domestic flights, took a Rp50 billion loss last year. "It would be fantasizing to expect a [profit] margin because of the crisis," the Garuda executive says.

After the government boosted fares by 30% recently, passenger loads tumbled by 22%. Some jets are flying with only a few dozen passengers on board. "People prefer to take the new fast trains now," says Garuda Finance Director Subijanto. To cut costs, the flag carrier has shut down some overseas routes such as its services to Seoul and the Gulf. It has reduced the number of Jakarta-Singapore runs. Garuda has tried to use its few long-haul international routes to subsidize loss-making domestic ones, but the strategy has failed so far. Both overseas and domestic traffic are sharply down. Sempati halted its international flights last year and now serves just seven destinations, down from 31. Bouraq no longer flies to Davao in the Philippines and Singapore.

Deepening the carriers' financial woes is the rupiah exchange rate. Ticket prices are determined on the basis of unrealistic rupiah rates to the dollar. The aim is to keep flying affordable, but the results are devastating. Sempati is using a rate of Rp3,500 to the dollar, while Garuda's peg is Rp5,000 to the greenback. Last week, the actual rate was hovering around Rp8,500. Garuda spends $0.80 for each passenger kilometer, though passenger seats are going for just half that.

The airlines' mounting losses have raised safety fears among passengers already worried about recent Garuda crashes. About 85% of Sempati's maintenance costs are in dollars. "We can hardly pay for regular spare parts," says Rima Avianti, a carrier spokeswoman. "Even the 'No Smoking' sticker has to be imported because it has to meet [U.S.-government] standards." Technical and Operations Director Budi Rahardjo says the airline can survive only if the dollar exchange rate rebounds to above Rp4,000.

Garuda has defaulted on some $8 million in leasing payments for six Airbus A300s. Due in December, the charges were rolled over into January, but the company was still unable to pay. It only recently settled the bill. Both Merpati and Sempati have terminated aircraft leases. One of President Suharto's sons, Hutomo Mandala Putra, who controls 15% of Sempati, has vowed not to liquidate the company. But airline staff say they do not know how the carrier can stay flying much longer.

Benny Rungkat, secretary general of the Air Carriers Association, fears the domestic airline industry could crash as early as next month. "It is very difficult to improve revenues," he says. "We need a [debt] moratorium to keep us alive." In the coming months, the airlines will have to keep their seatbelts fastened and brace themselves for one very bumpy ride.


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