PT Indonesian Aerospace
PT Industri Pesawat Terbang Nusantara (IPTN)

Indonesia's sole aircraft company is the state-owned enterprise PT Industri Pesawat Terbang Nusantara (IPTN), formally established in 1976 by the Indonesian Government to consolidate the country's aerospace facilities into one company. IPTN serves both the military and commercial aerospace markets, with work for the commercial transport sector distributed among the following divisions: the Fixed Wing Division for the production of aircraft; the Rotary Division, which houses the licensed production of helicopters; the Fabrication Division, involved in production of components, tools, and jigs; and the Universal Maintenance Center for the overhaul and repair of engines.

Indonesia entered the civil aviation sector in the early 1970s, building upon the nation's existing facilities for military aircraft production. The government's identification of aerospace as one of the key sectors to lead the nation into industrial transformation prompted the industry to adopt a four-stage development plan, intended to quickly transform the country into a high-level designer and manufacturer of aircraft.

1. Stage 1, which called for the licensed manufacture of aircraft from existing designs, got underway with two agreements concluded in 1975, one with Construcciones Aeronáuticas S.A. (CASA) of Spain to build the CN-212 Aviocar 26-seat twin turboprop, and the other with Messerchmitt-Bölkow-Blohm GmbH (MBB) of Germany for the licensed production of the BO-105 helicopter.
2. In 1979, the Indonesian industry entered the codesign and manufacturing stage (stage 2), with a second arrangement with CASA to develop and coproduce the CN-235, a 35- to 44-seat multipurpose turboprop, under the 50-50 joint venture Aircraft Technology Industries (Airtech).
3. Stage 3 of the industry's advancement, calling for complete autonomy in the design and production of an indigenous aircraft, is represented by Indonesia's first nationally produced civil aircraft, the N-250 regional turboprop incorporating flyby- wire technology, which emerged as a prototype in November 1994.
4. The final stage of Indonesia's aerospace development program incorporates advanced R&D for the design and manufacture of a regional jet. Indonesia's aircraft industry entered this fourth stage with plans to develop a family of aircraft starting with the N-2130 jet-powered airliner.

Indonesia's objectives in pursuing a national aircraft program were threefold -- to improve Indonesia's transport infrastructure while reducing the country's dependency on imported aircraft, to provide a source of jobs for Indonesia's large work force, and to accelerate the nation's industrial development via the promotion of high technology industries such as aerospace. With respect to the latter, Indonesian Government officials state that in order to reduce the time required for catch-up growth, the Indonesian aircraft industry must work in reverse, progressing from marketing of a complete product to gains in basic research.

While IPTN's structured approach to aircraft development had made Indonesia a manufacturer of airframes in only 20 years, the Indonesian industry currently supports few backward or forward linkages. The industry further lacks a comprehensive understanding of the elements constituting an aircraft program618 and had developed capabilities that were disconnected. For example, while the industry supported basic design capabilities, production processes and management skills were weak. Likewise, IPTN had experience in manufacturing whole aircraft, but lacked the ability to consistently produce reliable aircraft parts and components.

In terms of infrastructure, the absence of a local supplier base left IPTN largely dependent on foreign-supplied components623 and extremely vulnerable to currency depreciations. With respect to the N-250, for example, IPTN relied heavily on imported technology for several of the aircraft's advanced components, including major subsystems. In terms of dollar value, 39 percent of the N-250's content came from the United States and 22 percent from Western Europe. IPTN must also source machinery from overseas suppliers due to limited capabilities in tool production and a desire for the most advanced technological resources available. The company invested heavily in state-of-the-art machinery and computer equipment for its facilities, including production tooling for the N-250 line. While Indonesia's use of a foreign supply network for capital goods has provided the industry with sophisticated equipment, this approach diverted resources from the development of other fundamental capabilities.

In addition to the production of components for its own projects, IPTN manufactures parts under contract from Boeing and Airbus. IPTN also produced three distinct twin-engined turboprops: the CN-212 Aviocar utility turboprop, CN-235 short-range aircraft, and the N-250. Development for the N-250 began in 1989, and the 50-seat N-250-50 made its first flight in August 1995. The N-250-100, equipped with seating capacity for 64-68 passengers, followed in December 1996. In response to funding constraints and market preferences, IPTN suspended additional planned to manufacture a third derivative, the N-270, which will carry 70-76 passengers. Original plans called for this stretched version, aimed at the U.S. market, to be assembled and marketed by IPTN in the United States, with delivery of the first aircraft in early 2000.

The first flight of the initial prototype, a 50-seater, occurred in August 1995. At that time, then-IPTN chairman Bacharuddin Habibie announced that IPTN would now manufacture the N-250 in two versions: a 50-seat aircraft and the larger N-250-100 version. The successful first flight for Indonesia's new N-250 commercial airplane led to an announcement of a plan for a mid-range jet aircraft to be finished in 2003 or 2004. Research and Technology Minister BJ Habibie said the N-250 has cost only $400 million so far of the $650 million budgeted, and that 192 firm orders left the program just 67 orders short of breaking even.

Indonesia's aerospace sector traditionally received strong financial and political support from the Indonesian Government. IPTN's Bandung facilities were built with direct subsidies, and the government has invested a total of $2 billion in IPTN over the years, including $650 million in state funds for the N-250 regional aircraft.

One of the Indonesian industry's greatest weaknesses was government control of the aerospace sector. The decisions of IPTN have been based primarily on the interests of a few highly influential political figures, and the company's financial performance has depended largely on government support; as a result, it is questionable whether IPTN or an Indonesian aircraft sector would exist had market forces been allowed to govern the industry.

In March 1967, the Provisional People's Consultative Assembly (MPRS) had named General Soeharto acting President. In 1968, the People's Consultative Assembly (MPR) formally selected Soeharto to a full five-year term as President, and he was reelected to successive five-year terms in 1973, 1978, 1983, 1988, 1993, and 1998. In mid-1997, Indonesia suffered from the Asian financial and economic crisis, accompanied by the worst drought in 50 years. Amid widespread civil unrest, Soeharto resigned on May 21, 1998, three months after the MPR had selected him for a seventh term. Soeharto's hand-picked Vice President, B.J. Habibie, became Indonesia's third President. President Habibie reestablished International Monetary Fund (IMF) and donor community support for an economic stabilization program.

By 1998 the Indonesian aircraft industry faced serious economic and political uncertainty because of the region's financial crisis. Though IPTN had long supported a large aerospace work force, employees' work hours were cut to reduce expenditures and the company plans to lay off 3,000 workers in 1998.

Indonesian officials indicated in 1998 that the government will continue to back the civil aircraft sector. However, as part of the nation's obligations under the International Monetary Fund's restructuring program, Indonesia has agreed to cease all monetary support for national aircraft programs. The next likely source of funding, the nation's banking sector, was unwilling to invest in IPTN due to limited knowledge of the aircraft industry and a preference for traditional business ventures. IPTN's attempts to enlist international partners willing to accept a risk- or revenue-sharing role in national aircraft projects failed to result in concrete agreements.

Indonesia's first elections in the post-Soeharto period were held for the national, provincial, and sub-provincial parliaments on June 7, 1999. The People's Consultative Assembly (MPR) selected Abdurrahman Wahid as Indonesia's fourth President in November 1999 and replaced him with Megawati Soekarnoputri in July 2001.

In the aftermath of the 1997-98 financial crisis, the government took custody of a significant portion of private sector assets via debt restructuring, but subsequently sold most of these assets, averaging a 29% return. Indonesia has since recovered, albeit slower than some of its neighbors, by recapitalizing its banking sector, improving oversight of capital markets, and taking steps to stimulate growth and investment, particularly in infrastructure.

PT Indonesian Aerospace, previously named PT IPTN, restructured the company by changing the board of directors and cutting its employees from 9,670 to 4,000. The GOI, through the Indonesian Bank Restructuring Agency, agreed to hold a 92.9% share in PT IA. In November 2006, PT IA signed an MOU with EADS for producing 60 units of CASA 212-400 worth of $480 million for a 5-year period. PT IA was also working on several orders to deliver CN-235 to the Pakistani Air Force, Malaysian Air Force, and the Government of Thailand. In addition, PT IA has to deliver three Marine Patrol Aircraft (MPAs) and 16 Super Puma helicopters to the Indonesian Air Force and six MPAs and five helicopters to the Indonesian Navy. Besides manufacturing an aircraft, PT IA had contracts to manufacture parts for BAE and Airbus Industries.