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The Finance Ministry has approved ailing state-owned PT Merpati Nusantara Airlines’ subsidiary loan agreement for the leasing of planes from China’s Xian Aircraft, possibly resolving a longstanding dispute between the two companies that had led to tension between the Indonesian and Chinese governments.

Muhammad Said Didu, secretary of the State-Owned Enterprises Ministry, said the 13 new MA-60 planes would be gradually delivered over the course of this year.

“Merpati’s technical team will go to Xian’s factory this week to check on the condition of the planes. After that, the planes will be gradually transported to Indonesia,” he said. “The planes come with a guarantee. If there’s a fatal flaw, Xian will buy back the planes according to their book value.”

The SLA is a financing scheme through which the government covered Merpati’s loan agreement with Xian.

The delivery of the planes to Merpati would end a long-running dispute with Xian and point of contention between the two governments. Merpati agreed in 2006 to purchase 15 aircraft from Xian for $232 million using a soft loan facility from China.

By late 2008 the deal was embroiled in charges of corruption and allegations that Merpati officials had overpaid for the planes in return for kickbacks. A number of members of the House of Representatives called for an investigation.

In October 2008, Merpati and the government began putting pressure on Xian to lower the price of the planes, but Xian insisted on the price stated in the contract.

Last February, former Energy Minister Purnomo Yusgiantoro, said a consortium of Chinese banks had postponed most of its loans to state-owned electricity company PT Perusahaan Listrik Negara for Indonesia’s “fast-track” power projects in retaliation for Merpati’s alleged failure to abide by the terms of the contract with Xian.

Then in October, the consortium disbursed the loans to PLN after the Chinese government reportedly pressed the Indonesian government to accept the planes.

Sardjono Jhony Tjitrokusumo, Merpati’s president director, said that he was still unaware of the Finance Ministry’s approval of the SLA.

“It’s good to hear that it has been approved, but we haven’t received it yet,” he said. “We also haven’t received the Rp 310 billion [$34.1 million] loan from state asset management company PT Perusahaan Pengelola Aset [PPA], but technical and other preparations are progressing in parallel.”

Sardjono said that even though the SLA had been approved, it could take a long time before the planes started coming in.

“There’s the matter of bureaucracy, and speaking with the Chinese government. I don’t know when the overall process will be settled,” he said.

Merpati has said that it will buy another two MA-60 planes from Xian Aircraft next year, as well as 11 SAAB 340B Plus planes from Sweden and seven ATR 72s from France.

The airline is currently waiting for the loan from PPA. It plans to use the money to open up new routes.

“The loan [from PPA] is still being processed by the Finance Ministry. It will be use to finance new routes in eastern Indonesia, Kalimantan and Sumatra,” Said Didu said, adding that Merpati would also provide feeder services to national flag carrier PT Garuda Indonesia.

Merpati has about Rp 3 trillion of debt, which it is struggling to restructure. It has projected a loss of Rp 27 billion this year.

It posted a profit of Rp 5.4 billion last year, after losing Rp 186 billion in 2008. However, it has projected a profit of Rp 11 billion in 2011, Rp 61 billion in 2012 and Rp 209 billion in 2014.

Merpati said it needed about Rp 800 billion for its operations and fleet procurement this year.