Small Indonesian airlines face difficult times ahead of the implementation of a new law (UU No. 1 2009 on Aviation) which stipulates that per 1 July 2015 all Indonesian airlines have to operate at least ten aircraft. Of this ten airplanes, at least five aircraft have to be owned by the airline, while the remainder can be leased. The Indonesian government emphasized that if domestic airlines fail to comply with the new law per July 2015, then their flight permits will be revoked.
Obviously, this new law forms no threat to the country’s main airlines including Garuda Indonesia, Lion Mentari Airlines, Sriwijaya Air, Citilink Indonesia, and AirAsia Indonesia, which all own dozens if not more than 100 aircraft. However, there are also about 45 domestic airlines that fail to meet the requirements of the new law. On average these smaller airlines only operate three to five airplanes.
For example, Aviastar Mandiri is one of these smaller Indonesian airlines which currently only operates seven aircraft. The owner of this airline, Sigit Sudarmaji, requested a judicial review of the new law at the country’s Constitutional Court as he considers the law as a form of discrimination. Only the larger companies can afford to comply with new rules. The smaller ones, on the contrary, loose the opportunity to establish and expand their business. Being the world’s largest archipelago and having many small airports in the more remote regions (where larger aircraft cannot land), Sudarmaji claims that it is vital for inter and intra-connectivity to foster small airlines in the regions. The Court is scheduled to give its ruling on the matter in mid-April.
To make matters worse, the implementation of the new law comes at sluggish economic times. Although the aviation industry in the Asia-Pacific (and especially Indonesia) still has promising perspectives on the longer term, people’s weaker purchasing power impacted on the aviation industry. Moreover, Indonesian airlines feel financial turmoil due to the depreciating rupiah against the US dollar (about 70 percent of airlines’ operational costs are US dollar-denominated). This means that the timing is far from ideal to invest heavily in new aircraft. A new aircraft will cost about USD $25 million, while a used aircraft can still cost up to USD 5 million.
The Indonesian National Air Carriers Association (INACA) also stated that the new law is harsh for the small Indonesian airlines in the regions that tend to operate local flights only (from city to city) and agrees that the new law should be revised (specifically the minimum aircraft ownership requirement) in order to provide room for these smaller airlines to exist.
From the perspective of the Indonesian government the reason behind the new law is clear: curb the amount of domestic airlines (while at the same time boosting the amount of domestic airplanes) in order to enhance monitoring of the country’s aviation industry. Given that smaller airlines that are dependent on limited flights in one particular region are more vulnerable to financial turmoil, safety becomes an issue.
The government advises those airlines that cannot comply with the new minimum aircraft requirement to engage in mergers or change their permits from ‘scheduled commercial flights’ to ‘non-scheduled commercial flights’.
Canada-based International Air Transport Association (IATA) has repeatedly expressed its concern about safety in Indonesia’s aviation industry. At least one air crash has occurred in Indonesia every year since 2010. Therefore, the country needs to upgrade its air traffic management system, particularly as Indonesia has to cope with a rising number of aircraft in the skies.
IATA advises that the Indonesian government should put more effort in updating regulations and infrastructure in order to keep pace with expansion of Indonesia's air traffic. The country’s air travel market is expected to triple over the next 20 years to 270 million passengers.
The aviation industry in the Asia-Pacific region is one of the world's fastest growing regions in terms of air travel. Indonesia, Southeast Asia’s largest economy, contains a burgeoning middle class that is increasingly using airplanes for domestic and international transport. Being the world's largest archipelago that is home to 250 million people, air travel is the easiest option for fast travel across the country.