ANDREW DOYLE / BANDUNG
Indonesian Aerospace is battling to re-invent itself after being forced to shelve its flagship N250 turboprop programme
Industry trade shows come and go, and memories fade - but few who attended the 1997 Paris air show will forget the triumphant appearance of former Indonesian science and technology minister BJ Habibie alongside the prototype N250 turboprop, developed by the company then known as IPTN.
As it turned out, the show marked the apogee of IPTN's rise from humble origins in 1976 when Habibie returned to his native country from his studies in Germany, armed with an aeronautical engineering degree.
The dream fell apart in 1998 when Jakarta was forced to pull the plug on funding for the N250 at the insistence of the International Monetary Fund, which provided $14 billion in loans to help prop up Indonesia's ailing economy.
Another casualty was the even more ambitious N2130 regional jet programme, which had completed its pre-development phase, and was being managed by Habibie's son Ilham.
But BJ Habibie found himself with little time to reflect on these setbacks after he was installed as the country's interim president pending a general election to find a successor for long-time leader Suharto.
IPTN was renamed Indonesian Aerospace (IAe) in February 2000, in an effort to secure the company wider recognition in the international marketplace, and to help it to promote the products and services which are central to ensuring the company can stand on its own two feet.
"We are still in the survival and recovery phase," says IAe president director and chief executive Yusman Syafil Djamal. "We have to re-adjust and re-orientate the vision and mission of the company."
In the aftermath of the Asian financial crisis in 1998, and the loss of state financial backing, the company realised it had to rapidly re-invent itself to stave off a complete collapse.
The first two N250 prototypes were parked in a hangar at IAe's Bandung factory, and construction of a third was halted while options for drawing a cash lifeline from the company's existing products and services were studied. "We have already decided that we cannot continue the N250 programme," says Yusman.
Having to suspend work on the N250 was frustrating because around $900 million had already been sunk into the project between 1990 and 1998, including funding for the expansion of the company's engineering and design facilities, and only an estimated $90 million more was needed to complete US and European certification of the turboprop.
Unsustainable losses
But IAe's annual losses, which peaked in 1998 at 791 billion rupiah ($77 million), became unsustainable after the Indonesian government withdrew support.
As part of the recovery plan, accountancy firm Ernst & Young was brought in to go through the books, while Deloitte Touche Tohmatsu compiled a study into improving IAe's business prospects. The new strategy also took into account a 1996 report by AT Kearney. "Based on these studies we are doing all the [necessary] restructuring," says Yusman.
Key steps taken so far include "de-layering" IAe's corporate structure to give operating units more autonomy, and reducing the workforce from a peak of 15,570 in 1998 to 9,500. And an outstanding $100 million government loan has been converted into equity.
The restructuring efforts are beginning to pay off. The annual loss was reduced to 116 billion rupiah in 1999, and to 58billion rupiah in 2000. The projected, but as yet unaudited, loss for 2001 is 33 billion rupiah. "We hope that in 2003 we can achieve a small profit," says Yusman.
The IAe factory floor is now operating at 60% capacity, compared with only 20% in 1998 during the worst of the downturn.
Yusman says the target is to increase annual revenues to around $200 million by 2003, approximately half coming from manufacturing Airtech CN235 turboprop utility aircraft and assembling helicopters under licence. "We can only rely on one product, the CN235, and the three helicopters," he adds. The other 50% of revenue is to be raised from associated businesses. These will include component manufacturing, design and engineering, and maintenance and modification.
The Airtech consortium is a 50:50 joint venture between EADS Casa and IAe. "The revenue target is still in the area of 1.5-2 billion rupiah," says Yusman. He reckons IAe can sell a dozen CN235 utility aircraft annually, and as many licence-built helicopters. "We have to sell at least 12 per year because that is our capacity," Yusman adds. The South Korean air force has taken delivery of two of eight CN235s on order, while Pakistan is buying four examples and the Indonesian air force is acquiring three for use as maritime patrol aircraft.
The latter two customers will start taking delivery of their aircraft from next year.
IAe is also attempting to sell CN235s in direct competition with its Airtech joint- venture partner EADS Casa - but Yusman aims to negotiate a deal giving the Indonesian company exclusive distribution rights for Asia Pacific. "We have to re-arrange our relationship with EADS Casa, and split the marketing area," he says.
On the helicopter side, the Indonesian armed forces have ordered three NBO 105s, two NAS332 Super Pumas (both built under licence from Eurocopter) and a single NB412, built under licence from Bell. IAe can only sell these helicopters in South-East Asia, with Bell or Eurocopter approval on a case-by-case basis. The Indonesian manufacturer must also pay royalties on each sale.
IAe has won limited subcontracting work from BAE Systems, Boeing and Korea Aerospace Industries (KAI) and hopes to expand this aspect of its business substantially in the coming years. A team from BAE recently visited Bandung to carry out a quality audit with a view to placing Airbus-related production contracts with IAe, but Yusman says: "We [still] don't know what they are giving us."
The order from KAI is small, aimed at allowing the South Korean conglomerate to evaluate the quality of IAe's work before offering additional subcontracts. Among other projects IAe is teamed with Thales of France to bid for a contract to integrate the mission systems on Turkish maritime patrol aircraft. Yusman says the government aims to start privatising IAe by late 2003, though this is likely to be done in stages by corporatising and selling off individual subsidiaries.
Stakes in some of the company's non-core operating units have been sold. These include a software and communications subsidiary in which IAe retains a 10% stake, and its industrial turbines business which is majority-owned by General Electric.
Next in line
Yusman says that IAe's engine maintenance operations could be next in line for privatisation. He adds that the staged approach is "better for foreign partners because they can learn exactly what they have" after completing due diligence.
IAe still harbours long-term ambitions to complete US and European certification of the N250, and has had talks with several potential foreign investors over securing the required $90 million additional funding, says Yusman. However, there is concern that a delay of several years in getting the N250 certificated will ultimatelyprevent IAe from fully exploiting the aircraft's original target market.
Yusman maintains that the N250 could still have a role to play, with its low ownership costs establishing it as an alternative to second-hand Western-built turboprops, and perhaps larger used airlines, such as the Boeing 737 Classic, which are available at extremely attractive lease rates.
The partially built third N250 prototype would have to be completed to secure US Federal Aviation Administration and European Joint Aviation Authorities approval after processes used for the construction of the first two aircraft were not accepted by the two agencies.
Yusman says that, before 11 September, IAe was in advanced talks with a Hong Kong-based investor over an N250 project rescue, but the deal fell through after market confidence was shattered by the attacks in the USA. Despite this most recent setback, optimism is returning to the small company with big ambitions, amid the belief that things can only get better.
Source: Flight International
