Bill Guerin, Jakarta – The closure of Indonesia's state-owned aircraft manufacturer PT Digantara Indonesia (DTI), which has laid off all of its workers in an attempt to avoid bankruptcy, appears to put in mortal danger a startling and unlikely dream: to make a Third World tropical nation into a technological powerhouse.
DTI closed Sunday for six months after a decree from its board of directors, who are now trying to figure out a way to save the company. In the meantime, employees are barred from entering and the premises are guarded around the clock by the air force's elite Paskhas unit. Thus yet another emerging nation has demonstrated the wisdom of English economist David Ricardo's theory of competitive advantage, which holds that economies are wisest to stick to what they do best.
The government on Wednesday was considering a complicated deal to rescue the stricken company, with the Indonesian Bank Restructuring Agency (IBRA) mulling converting DTI's outstanding debts, totaling Rp1.7 trillion, into equity. But IBRA said it would only do so if government also converts subordinated loans totaling Rp1.2 trillion to the company. The agency's outstanding loans to DTI amount to Rp3.17 trillion There are still orders on DTI's books, including for four CASA CN-235s for the Pakistani air force, two for Malaysia's Royal Air Force, one for the Indonesian air force and a CN-212 transport (CASA C-212 Aviocar) for the Indonesian navy, and some wings for the Airbus 380. DTI assembles Spain's CASA (Construcciones Aeronauticas SA) aircraft and several European-made helicopters as well as producing parts for international aircraft makers such as Aerospatiale, the French aircraft factory.
Funds earmarked for project funding have had to be used to cover operational costs and pay the salaries of workers, company president Edwin Sudarmo said. He promised that the move is "temporary in nature ... We are not making any dismissals, or cutting wages," Sudarmo pointed out.
Nonetheless, the whole enterprise has in fact been temporary in nature since 1997. The doomed Suharto government, under extreme pressure from the International Monetary Fund (IMF), caved in to demands to stop funding companies that were seen as pet projects or as little more than showpieces. After Suharto's fall, successive new Indonesian governments declined to top up the lavish funding that the aerospace industry had previously enjoyed.
The aircraft industry was the unlikely dream of B J Habibie, Suharto's research and technology minister, and later Indonesian president himself. Habibie, a German-educated technocrat and confidant of Suharto who in his heyday in the 1980s controlled 10 strategic industries, was obsessed with aircraft. He cajoled Suharto into spending hundreds of millions of dollars on the new venture, originally known as IPTN, set up in 1986 with an initial capital of Rp1.6 trillion. There were times when his dream began to resemble the plot of the famed movie Fitzarraldo, directed by the German Werner Hertzog, in which an Irishman dreams of creating an opera house in the middle of the Brazilian jungle in which Italian tenor Enrique Caruso can sing.
The dream of both Habibie and Suharto was to create an Indonesian high-tech aerospace industry that would kick off by producing passenger aircraft such as the Spanish-designed CASA CN-235 fixed-wing aircraft and assembling Puma and Bolco helicopters. The Indonesian government did its best to prop up the industry, obliging state-owned airlines to buy the trademark CN-235s. Some were bartered with Thailand and Malaysia for rice and cotton in 1995. There was also an attempt to foster intra-ASEAN (Association of Southeast Asian Nations) trade for the Proton Saga, Malaysia's national car, which, like Indonesia's airplane, was a heavily subsidized dream on the part of Prime Minister Mahathir Mohamad, and which also lost vast amounts of money.
By the early 1990s, operational costs were being met out of the state budget. In 1994 Habibie even took an "interest-free loan" of Rp400 billion, at Suharto's request, from reforestation funds to help bail out the company. The 50-seat N-250 made its maiden flight in 1995, prompting Habibie to declare grandly that this was the "national awakening" of Indonesia's technology industry. Only two prototypes were built, and they have not flown since 1997.
In February 1996 Suharto came up with a brainwave. To pay for the design and development of Indonesia's first flying machine, the N-2130 (N for Nusantara, two engines, 130 seats), he set up a private company, PT DSTP (Dua Satu Tiga Puluh), chaired by himself and acting in his own personal capacity. The total target needed for getting the new kite in the air was to be US$2 billion.
DSTP shareholders pressed into service included 20 top conglomerate owners, among them Prajogo Pangestu, Henry Pribadi, Eka Tjipta Widjaya, and Sudwikatmono. These well-heeled investors promptly bought up some $400 million worth of shares. Two ex-vice presidents were appointed to the board of commissioners – Sudharmono and Umar Wirahadikusumah. In a meeting with governors at the end of March, Suharto turned the screws, telling them of the "national importance" of the aircraft.
Pressure was put on several state-owned enterprises to contribute to Indonesia's future in the aerospace industry. In May, six struggling government companies under the Forestry Ministry, responsible for managing Indonesian forests, coughed up $15 million for shares in DSTP. The money was taken from rainforest-preservation funds.
A month later 21 other state-owned companies under the Ministry of Industry and Trade agreed to buy Rp70 billion ($35 million) worth of shares. Then, on June 13, came the bombshell. Suharto, citing the need for gotong royong (mutual self-help), called on all regents across the country to collect Rp5,000 from every member of the population, a down payment on an estimated $10 from every Indonesian.
By 1997 the management was forced to set about restructuring the vastly inefficient white elephant. The 16,000 workforce was slashed to little more than 9,000. A series of crippling strikes ensued as the company's workers rejected the action outright, saying chronic financial problems were not reason enough to take the decision without their consent. They called for the investigation of corruption charges of Rp4 billion at the company's aircraft service division in 1999 and the disappearance of 18 CN-212 aircraft engines worth $400,000 in 1998.
Union leaders demanded that the government replace members of the management, whom they accused of corruption, collusion, nepotism and incompetence, to solve the company's chronic problems. They also demanded that the government appoint a caretaker management to run the company.
In October 2001 some 2,000 workers protested at the provincial legislative council building in Bandung, where the plant is based. As well as slamming the failure of company management to eradicate corruption, collusion and nepotistic practices in the firm, they also demanded a pay raise.
A month before, the workers had rallied at the House of Representatives in Jakarta to make the same complaints, prompting the company's chief commissioner, air force chief Admiral Hanafie Asnan, to compare the incident to a coup d'etat. "In the military, this kind of [labor] action is considered a coup that must be quelled immediately," he said.
Unfortunately, the problems for the company were deeper than just corruption or labor strife. The N-2130 faced stiff competition from similar Chinese-built models, the MD-59 and the F-100. Stiff competition forced Fokker, the maker of the latter, to go bankrupt as well in the late 1990s.
The dream, however, still lives on for Hababie. The ex-president, who now lives in Germany, told Indonesian TV station SCTV this month that he was ready to leap to the rescue and come back to make his brainchild viable. The proviso was that he be given 5 percent of any company stakes that could not be sold, in order to "provide legitimacy for my position in the company".
Strangely enough, State Enterprises Minister Laksamana Sukardi did not reject this out of hand. "If he wants to have 5 percent golden shares, we will study the concept and what he will do with the debts," Sukardi said on Monday.
"We could have another round of talks. If necessary, we could have the manpower minister act as a mediator," Hanafie said.
Hanafie is still chief commissioner and observers expect DTI to come down hard on protesters during the current layoff. However, Manpower Minister Jacob Nuwa Wea has sent a team to the plant to intervene in the dispute. Wea says the company's decision breaches a clause in the recent Employment Act, Law No 13/2003, which requires bipartite discussions before any layoffs are made.
The current state minister for research and technology, M Hatta Radjasa, believes the company should be "salvaged". Though offering no magic wand, the minister said on Tuesday that DTI was part of a strategic industry that needed to be developed and kept in the country.
Union officials have promised a long fight to protect their future.