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.