State-owned airlines: A pile of homework behind the merger plan
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Maskapai BUM: Sederet PR di balik rencana merger
4 September 2023
By: Lorenzo Anugrah Mahardika
The plan to merge PT Garuda Indonesia (Persero) Tbk (GIAA), Citilink Indonesia, and Pelita Air has been announced by State-owned Enterprises (SOE) Minister Erick Thohir.
Erick mentioned that one of the purposes of the merger was to lower logistics costs and resolve the aircraft shortage issue. According to him, Indonesia lacks around 200 aircrafts if compared to the condition in the United States of America (USA).
The USA that has 300 million citizens and a gross domestic income (GDI) of US$40,000 is served by 7,200 domestic route aircrafts.
Meanwhile, Indonesia that has 280 million people and a GDI of US$4,700 only has 550 operating aircrafts. It means Indonesia needs 729 aircrafts.
“So, in terms of logistics, we are not there yet,” Erick said recently.
He explained that the SOE Ministry was continuously supressing logistics costs by merging companies. For example, Erick mentioned that he has merged PT Pelabuhan Indonesia or Pelindo from four companies into one entity.
He continued that it lowered logistics costs from 23% to 11%.
“We will also merge Pelita Air, Citilink, and Garuda to supress costs,” he revealed.
Meanwhile, Special Staff to SOE Minister Arya Sinulingga is continuously studying the merger scheme of the three state-owned airlines.
Arya said that the plan was a directive from Erick Thohir who wants the state-owned airlines to be consolidated. So, there will be a single management in the industry.
However, Arya mentioned that the merger did not mean Citilink and Pelita Air would be merged into Garuda Indonesia. Citilink will continue to be Garuda’s subsidiary, but Pelita Air’s role in the merger is still being studied.
“We do not know if the merger will be into Garuda or Citilink. Will they be a subholding? We do not know yet as it is still being studied,” Arya said at the SOE Ministry Office that was quoted on Thursday (24/8).
Regarding this matter, an aviation observer from Indonesian Aviation Network (Japri), Gerry Soejatman, said that the merger of the three airlines was not appropriate. According to Gerry, one of the main reasons is the financial condition of each airline.
Gerry said that Garuda Indonesia’s financial condition was not promising despite the suspension of debt payment obligations (PKPU). Meanwhile, GIAA’s subsidiary, Citilink Indonesia, is predicted to experience loss.
Meanwhile, Pelita Air is still in the early phase of its business plan, so the airline is not yet profitable.
“I think that the merger is a distraction for the SOE airlines and an excuse to avoid talking about the real problems of the airlines,” Gerry explained when he was contacted on Tuesday (22/8).
He also questioned the merger scheme that would be implemented by the SOE Ministry. Garuda is not suitable to be merged with Citilink and Pelita Air. Besides that, Citilink and Pelita Air does not have any clear reason that obligates them to participate in the merger.
Besides that, Gerry questions if the SOE airline merger will be an effective solution to supress logistics costs in Indonesia. Moreover, Erick Thohir is making the successful merger of Pelindo an example.
Meanwhile, Garuda and Pelindo have different functions. Pelindo manages maritime transportation infrastructure, while airlines are a mode of transportation that use the transportation infrastructure competitively.
“The idea behind the merger must be clear. I think that the general reasons stated by the SOE Minister are still vague and unclear,” Gerry said.
