After two postponements the Indonesian government has scrapped the planned re-launch of Merparti Nusantara Airlines for later this year due to pressure from creditors for full settlement of outstanding debts.

Merpati's inability to lease aircraft due to its poor credit rating proved another factor. State-owned oil giant PT Pertamina, airport operators Angkasa Pura I and Angkasa Pura II account for its main creditors. The combined value of their claims totals $429 million.

Merpati’s debt totaled US$444 million when it grounded its fleet of five De Havilland DHC-6 Twin Otters and 13 Chinese-made MA-60 turboprops on Feb. 4, 2014, due to cash flow problems and an inability to obtain fuel on credit.

A senior official at the Ministry of Transport in Jakarta, Debbie Heryanto, said the government does not have the funding needed to re-launch Merpati.

The government held a 93.8-percent stake in the carrier through the Ministry of Finance (MoF) while Garuda Indonesia held the remaining 6.2 percent. MoF's offer to sell a 40-percent stake to a strategic investor failed to attract interest.

Talks to set up a joint venture airline, Merpati Aviation Service, with PT Bentang Perusaha Gemilang (PTBPG) and PT Amagedon Indonesia (PTAI) also failed when the parties could not agree on the funding structure.

Despite three bailouts, Merpati continued to operate in the red. Cash-strapped Merpati moved its hub from Jakarta's Soekarno-Hatta International Airport to Sultan Hasanuddin International Airport in Makassar under a major restructuring exercise in September 2008. Under the restructuring it cut the size of its fleet from 84 aircraft to 31.

It returned one Boeing 737-400, three 737-300s and one 737-500 to their lessor while the other 48 aircraft sat parked at airports across the country, weather-beaten and in want of heavy maintenance.

In 2006 Merpati signed a deal with China’s Xi’an Aircraft to acquire 15 MA-60 turboprops at $14.1 million each, $3 million more than buyers in Philippines, Ghana and Nepal had paid under similar terms.

It was the single largest order for the aircraft. China Import-Export Bank provided the financing at 2.5 percent interest over 15 years.

Crashes destroyed two MA-60s in May 2011 and June 2013. The bank has repossessed the remaining 13.

The government sold Merpati’s maintenance facility at the Juanada International Airport in Surabaya to a local company. MoF remains undecided what to do with the airline’s training center. The carrier started operations in 1962.

PT Perusahaan Pengelola Asset, the government-owned asset management company, has promised to continue paying monthly installments to creditors.