Ilham Habibi, right, and Industry Minister Saleh Husin, second from right, with a model of the RAI R80 turboprop aircraft at the 2016 Singapore Airshow on Wednesday (17/02). (JG Photo/Dion Bisara)

Indonesian Manufacturers Aspire to Take Over Aircraft Market From ATR

BY :DION BISARA

FEBRUARY 19, 2016

Singapore. Two Indonesian aircraft manufacturers are on a mission to produce regional turboprop airplanes in an effort to dominate the French-Italian company ATR in the archipelago's short-haul flight market.

Indonesia started manufacturing modern turboprop airplanes 30 years ago, initiated by former President B.J. Habibie, who believed that the highly efficient turboprop aircraft would better serve intercity or inter-island routes across the archipelago, compared to jet aircraft.

But the 1997 financial crisis changed the aircraft industry, forcing Indonesian turboprop manufacturers to miss Southeast Asia's budget airline boom in the 2000s that went on to become the largest market for jet manufacturers including Airbus, Boeing and global turboprop market leader ATR.

Today, 70 percent of regional flights in Indonesia with an average distance of 350 kilometers are served by a 50-seater ATR 42, or a 78-seater ATR 72 aircraft.

Still, with Indonesia's air travel market set to double by 2020 and quadruple by 2030, aspirations to command the Indonesian commercial aviation market lives on.

State-owned Dirgantara Indonesia, the direct descendant of aircraft manufacturer Industri Pesawat Terbang Nusantara (IPTN) in the '80s and '90s, and National Space and Aviation Agency (Lapan), are gearing towards developing a 60-seater N245 that will go head-to-head with the ATR 42.

Meanwhile, Regio Aviasi Industri, a privately held company affiliated with B.J. Habibie and his son Ilham Habibie, are also eying the market, having completed a preliminary design of the 92-seater turboprop R80.

Growing Market

Ilham, who is a commissioner at Regio, did not shy away from announcing the company's underlying goal to take over market share from the ATR 72.

"Their planes are smaller. Our planes are more efficient and more modern, and use the most [advanced] technology," Ilham told reporters on the sidelines of the 2016 Singapore Airshow.

ATR still has a backlog of at least 65 aircraft to deliver to Indonesia over the next three years. But beyond that, the market is up for grabs. It is projected that the number of air travelers in Indonesia will rise to 137 million by 2020 from 60 million currently, according to projections by the International Air Transport Association (IATA). Indonesia will also be one of the top five world aviation markets by 2034, boasting 270 million passengers, IATA projects.

Three local airlines, including NAM Air, a unit of Indonesia's third-largest airline Sriwijaya Air, Kalimantan-based Kalstar Aviation and Trigana Air Service, have placed orders for 145 aircraft from Regio.

The three airlines have also been involved in the design stages and have already listed their complaints with existing turboprop models. This has allowed the company's engineers to consider their input and to improve the R80 design, Ilham said.

Regio aims for the first flight to be ready in 2019, depending on the company's ability to secure funding from backers for the detailed design and building the prototype.

Ilham said the R80 needs $700 million to be developed from scratch, but he opted not to elaborate on how much funding the company would still require to build a complete prototype.

Capable Ecosystem

Regio has made a strategic partnership with Dirgantara Indonesia to help with the R80 design. It has also tied up with other local manufacturers from the Indonesia Aircraft Component Manufacturing Association (Inacom) to help with the supply of the parts.

"Thanks to an early investment in the area decades ago, Indonesia actually has a wealth of human resources to build aircraft," Ilham said.

Ade Yuyu Wahyuna, vice president of business development at Dirgantara Indonesia, echoed Ilham's sentiments.

The company is assigning a local engineer and Lapan is looking for a way to remove the ramp door from its CN235 military aircraft in order to develop it into a commercial version, the N245.

"I always told the team that the aircraft must perform better than the ATR 42 and do that at a lower operating cost. Otherwise, I would not bother selling them," Ade said.

By choosing to modify an existing plane instead of designing one from scratch, Dirgantara Indonesia is able to save up to 85 percent on development costs. Additionally, the company projects that the N245 will be certified by the end of 2019.

Ade said the N245 has the potential to become an aircraft to serve the Association of Southeast Asian Nations (Asean), encouraging synergy between the neighboring nations that could spur the aviation industry in the region.

"We are the only [country in Asean] that has the manufacturing capabilities [to produce aircraft]. But Malaysia is good in maintenance, Thailand in finishing delivery, and the Philippines has a good pilot training program. This will be an ideal project for Asean connectivity," Ade said.

Industry Minister Saleh Husin said the government plans to provide more support to the aerospace industry, among others, by establishing aerospace manufacturing complexes and providing tax breaks for aerospace component imports.

Doubts

While progress in the development of the aircraft is promising, some are concerned whether they will actually be able to find buyers upon completion.

"Financing is still a problem for the airlines. Local manufacturers want to get paid in cash, so that they can immediately continue production, but airlines are often only capable of paying in instalments," Inacom chairman Andi Alisjahbana said. "Meanwhile, foreign manufacturers often come with a complete financing package."

The Lion Group's latest $1 billion order of 40 ATR aircraft in 2014 was financed by banks in France and Italy, the countries where the aircraft were assembled, and from Canada, where their Pratt & Whitney engines are produced. Additionally, the incentive is that the industry sustains thousands of jobs in the respective countries.

So, it's not surprising that ATR has not yet shown any signs of feeling threatened by the Indonesian competition. After all, the joint venture between Airbus and Italy's Finmeccanica now holds a 37 percent share of the below-90-seat regional aircraft market globally, and is still growing.

"I've been hearing about new regional projects many times before, in India, in China and in Indonesia. But there is little to no news about them. So I cannot tell [whether it is] credible," said David Vargas, head of ATR media relations.

"Still definitely this turboprop market is huge. A decade ago they said the turboprop would die, but now you can see the number. This is definitely the market you want to be in," David said.

SHARE