But politicians can always come up with a justification for even the most outrageously wasteful policies. In the present case, the rationale is that Merpati is still needed in order to serve routes between Indonesia’s smaller cities. In other words, the implication is that if Merpati were to be privatised, it would no longer be interested in serving these routes.
Supposing that is true, however, the appropriate solution to this problem is quite simple. If the political decision has been made that Indonesia should have at least one airline serving routes that would not normally be profitable, then all that is required is to open a tender in which airlines are invited to bid for the right to provide this service—just as construction companies bid for the right to build roads, dams, office blocks and so on for the government. Provided such tenders are conducted transparently, the government will then be able to provide these subsidised services at minimum cost, which will be less than the cost of keeping an inefficient airlines such as Merpati in business.
Bottom line: there is no justification for Indonesia’s government to be in the domestic airline business.