Merpati Nusantara Airlines faces crisis. Should the Indonesia government pull the plug?

Indonesia's Merpati Nusantara Airlines is facing a financial crisis and is looking to recapitalise and restructure its network to survive. The government-owned carrier has already shrunk in recent years while all its competitors and Indonesia's overall domestic market have expanded rapidly. But Merpati has held onto some trunk routes, where it competes against larger and stronger carriers.

The most logical solution is for Merpati to abandon competing against Indonesia's main carriers and focus entirely on regional routes to remote areas. But the number of regional routes requiring government subsidy are declining.

More efficient Lion Air has a fast-growing regional subsidiary operating ATR 72s and is looking to add smaller turboprops to access an even larger chunk of Indonesia's vast regional market. Garuda is also introducing ATR 72s in Nov-2013, leaving even less room for a government-backed regional carrier. The Indonesian government seems to recognise there is no longer a need to keep Merpati running.