While Indonesia is still mourning for the lives that were lost in the military plane crash in Medan (North Sumatra) on Tuesday (30/06), the Indonesian Transportation Ministry threatens to suspend operating permits of 13 Indonesian airlines that are being plagued by negative equity, raising concerns about these airlines’ safety practices. The Transportation Ministry reviewed audited financial reports of 60 local carriers. These airlines will have time until 31 July 2015 to adjust their balance sheets.
The 13 involved domestic airlines are Indonesia AirAsia, Batik Air (part of the Lion Group), Cardig Air, Trans Wisata Prima Aviation, Istindo Services, Survei Udara Penas, Air Pasifik Utama, John Lin Air Transport, Asialink Cargo Airline, Ersa Eastern Aviation, Tri MG Intra, Nusantara Buana and Manunggal Air.
Ignasius Jonan, Indonesian Transportation Minister, announced that the 13 airlines have been given a grace period until the end of July. In that period they should restructure their capital in order to avoid sanctions (including the suspension of operating permits). Negative equity is the result of the value of an asset being used to secure a loan is less than the outstanding balance on the loan. Reportedly, negative equity of the involved airlines ranges between IDR 10 billion (USD $ 751,879) and trillions of rupiah. Jonan said that it is important for airlines to maintain positive equity in order to safeguard standard safety levels.
After the fatal Indonesia AirAsia’s Flight QZ 8501 crash in December 2014, which killed all 162 people on board in the Java Sea, the Indonesian government pledged to tighten controls over the Indonesian aviation industry and enhance safety standards. This led to several new regulations. For example, in February 2015, the Transportation Ministry issued Ministerial Regulation No. 18/2015 obliging domestic airlines to submit audited annual financial statements by 30 April. By receiving these reports the ministry can monitor the airlines’ financial conditions and ensure that they operate in accordance with prevailing safety and security standards.
Another new regulation that was issued is Regulation No. 45/2015, stating minimum paid-up capital for transportation companies. Under this regulation, commercial airlines operating scheduled flights with a capacity of more than 70 seats required paid-up capital of IDR 500 billion (USD $38 million). Those airlines with plans that have a maximum of 30 seats are required to have paid-up capital of IDR 300 billion (USD $22 million). Those operating cargo planes need to have IDR 100 billion (USD $7.5 million) as paid up capital.
There are a total of 65 domestic airlines active in Indonesia. However, only four - i.e. national flag carrier Garuda Indonesia, budget airline Indonesia AirAsia, and air charter services providers Airfast Indonesia and Ekspres Transportasi Antarbenua (Premiair) - are allowed to fly to the European Union (EU) as they have passed the latest Universal Safety Oversight Audit Program, administered by the International Civil Aviation Organization (ICAO).
On Tuesday (30/06), a military plane Hercules C-130 crashed into a residential area in Medan shortly after take-off from the military airport. According to local media, the aircraft carried dozens of civilians triggering allegations that the Indonesian military is using its aircraft for commercial transportation.