Indonesia will be converting part of the debt incurred by Merpati Nusantara Airlines into shares, in a move to keep the airline afloat despite its poor financial performance.
The decision to restructure the carrier's debt through a share conversion, despite urging from the country's asset management company to shut it down, was made at a ministerial meeting on 12 November. The government says it believes Merpati has the potential to overcome its financial troubles.
The state-owned carrier is "still needed" to open new airlinks, especially in the eastern part of Indonesia, the country's coordinating minister for economy Hatta Rajasa was quoted by state-owned Antara news agency.
Merpati owes rupiah (Rp) 6.7 trillion ($577 million) to 20 creditors, says Rajasa. About Rp2.5 trillion of that comes from a "sub-loan agreement" with the government, Rp2 trillion is owed to state-owned enterprises and about Rp3.2 trillion are in taxes and debt to unspecified creditors.
Debt owed to the government, excluding taxes, will be converted into shares, and those to SOEs will be similarly converted at a later stage. After the debt conversion process is completed, Merpati will be permitted to source for funds to procure aircraft, Rajasa adds.
Merpati will, however, have to submit a business plan within a month. Its debt to share conversion plan will also have to be approved by a commission in the country’s House of Representatives.
Airline officials contacted by Flightglobal Pro declined to comment on the issue. Officials at the ministry of state owned enterprises could not be reached.
In July, the Indonesian government said it was looking at options to sell the carrier to a strategic investor after an effort to salvage the loss-making carrier appeared to fail. There was no indication of progress on the sale, before Asep Ekanugraha was appointed to replace Rudy Setyopurnomo as Merpati’s president director in that same month.
Flightglobal’s Ascend Online Fleets database shows that Merpati operates 17 aircraft: nine Boeing 737-300s, -400s and -500s, six de Havilland Canada DHC6-300 Twin Otters and two Casa C-212-200 turboprops.