Govt wants tougher requirements for new airlines

Govt wants tougher requirements for new airlines

Rendi A. Witular, The Jakarta Post, Jakarta

Amid stiffer-than-ever competition among domestic airlines, the
government may well increase the minimum requirements for new
licenses.

Minister of Transportation Hatta Radjasa believes that such
restrictions will create a healthier industry and improve safety
for air travelers. The regulations being considered, would
include an obligation for new airline companies to have at least
four airplanes available for operation, as well as working
capital of over Rp 20 billion (US$2.12 million).

Under the current requirements, a carrier can get an operating
license with a minimum of two airplanes and working capital of Rp
10 billion.

"The stiffer minimum requirements are needed for an airline to
be eligible to earn the Air Operation Certificate. Many new
airlines have stopped operating, or are jeopardizing the safety
of their passengers due to the lenient requirements," said Hatta
recently.

At present, there are 28 domestic airlines with around 414
airplanes in operation. Most of them are owned in partnerships
between local government administrations and private
businesspeople. However, transportation experts have decried some
of these as merely a show of pride, just so the province or
regency is seen as owning an airline.

The recent closure of budget carrier StarAir has shown that --
amid easy procedures for operation licenses -- many carriers have
insufficient financial resources to sustain operation and compete
over the long haul.

Hatta has even suggested that, after StarAir, more carriers,
at least two, would likely close down in near future, in addition
to about four or five airlines currently suffering serious
financial difficulties.

Critics have said that contributing to that condition was the
somewhat lenient terms given by the Ministry of Transportation in
obtaining an operating license with many believing the industry
has become overcrowded. They claim that it creates an "unhealthy
price war" because the companies are supposedly compromising on
expensive safety checks and/or equipment.

Critics also allege that a number of government officials have
turned the licensing procedure into a lucrative "money-making
scheme", and that it involves massive amounts of kickbacks for
those willing to obtain the license without having sufficient
operational resources.

"I've acknowledged the ministry had been too lenient in
issuing licenses for airlines. This is because there is a number
of officials see at as a 'business opportunity'. In the future, I
will not let that happen again," Hatta promised.

Despite the plans to issue the tougher rulings however, Hatta
pledged that the ministry would not issue new licenses any time
soon.

The ministry stopped issuing licenses for new airlines since
late last year.

"We have to limit the number of airlines, not only to make the
industry healthier, but also to ensure the safety of air
travelers. How can you guarantee their safety if you can only
operate with a small amount of capital and resources?" he said.

Aside from operational regulations, the ministry is also
seeking to reduce the high cost of doing business in the industry
by eliminating the value-added tax (VAT), currently charged to
airline companies for jet fuel.

The Indonesian National Air Carrier Associations (INACA) has
asked the government to scrap the VAT for fuel as it has caused
an additional burden amid the high world price of oil.

Spending on fuel accounts for approximately 30 percent of an
airline's operational costs.