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. Last Updated: 07/27/2016

Indonesia Reaches for Skies

BANDUNG, Indonesia -- Nearly 20 years ago German-trained Research and Technology Minister Jusuf Habibie began a project considered by many a flight of fancy -- to build planes in a country where every sixth person lived in poverty.

Habibie and President Suharto plan Thursday to unveil Indonesia's first home-made medium-range commuter plane, which is the centerpiece of Indonesia's ambitious and politically risky aerospace program.

The 70-seat N-250 has been 10 years in the making and could prove the turning point for state aircraft maker Industri Pesawat Terbang Nusantara (IPTN), headed by Habibie, who has been dubbed Indonesia's technology tsar.

The government has poured $1.6 billion into the IPTN since its birth in 1976 and the controversial firm has produced little to show that it has been a successful investment.

To many Indonesians, Habibie is a person who is promoting a luxury the world's fourth most populous nation, with an estimated 188 million people, can ill afford.

Workers in the mainly Moslem nation are among the lowest paid in booming South East Asia, many parts of the sprawling archipelago do not have electricity or supplies of clean water and the country has an external debt of about $100 billion.

"It is a political project whose economic value is hard to evaluate because no figures on the company's performance have ever been made public," an economist said.

He said the IPTN should have undertaken "lower technology" like car-making instead of rushing into the aerospace industry.

Habibie disagrees. "Why did we begin by building planes instead of bicycles or motorcycles? We wanted to take the fast lane in our quest to propel Indonesians into the technological era," he told a news conference late last month at the sprawling IPTN complex in Bandung, southwest of Jakarta.

"When we started IPTN, there were 500 employees and 17 engineers, including myself. Today, we have 16,000 employees and 2,500 engineers," said Habibie, a close associate of President Suharto, who sanctioned the N-250 project.

The aircraft project, which has so far cost about $650 million and is scheduled for commercial production by late 1997, will be showcased during the Asia-Pacific Economic Cooperation (APEC) summit on Nov. 15.

Among those expected to be shown the N-250 prototype will be U.S. President Bill Clinton. Habibie hopes to market the twin-engine turboprop aircraft in the United States by setting up a joint-venture.

The minister said the United States and Europe will have a combined need for 4,500 new and replacement medium-range commuter aircraft between the years 2000 and 2020.

"One-third of the demand will be in the United States," said Habibie, who has short-listed three American states -- Oregon, Arizona and Alabama -- as potential sites for the venture.

Habibie said IPTN would have a 40 percent stake in the American venture. The American partners are expected to be announced by Suharto in December.

Critics of the IPTN include the World Bank, which feels the world market for smaller aircraft will be crowded by the time the N-250 takes to the skies in 1998.

"By then (1996-1997), the world market for smaller aircraft will have several new entrants, all pricing their aircraft competitively," the bank said in a report late last year.

"IPTN can ill-afford a price war," it said. The N-250's 1994 price was $13.5 million.

"IPTN ... has absorbed $1.6 billion in government funds since 1976 but has yet to become internationally competitive or genuinely profitable," the report said. The firm, which has tie-ups with several major British and U.S. aerospace firms, makes a smaller version of the N-250 in cooperation with CASA of Spain. It also produces under licence French-designed Puma and U.S. Bell helicopters and parts for U.S.-designed F-16 fighters and British-developed rapier missiles.

Habibie said the N-250 project would break even when sales reached 259 units, adding the IPTN was targeting domestic sales of about 400 units over the next 20 years.

He said domestic sales alone were sufficient to make the N-250 a success, not withstanding that most domestic runways were too short to accommodate the plane.

"We'll just make them longer," he said.

"With the money we get from sales of the N-250, we can finance other projects which include building a jet airliner by 2006."