Lift restrictions in airline industry: INACA

Lift restrictions in airline industry: INACA

JAKARTA (JP): The Indonesian National Air Carriers Association
(INACA) has called on the government to lift restrictions
disallowing foreign equity investors to acquire a majority stake
in local chartered airlines.

INACA secretary-general Benny Rungkat said on Monday the
removal of the policy on foreign investment was essential to help
the country's ailing unscheduled airline operators.

"Chartered airlines seriously need foreign equity partners to
finance the expensive leasing or purchasing of aircraft. But no
foreign investors are interested in investing when the regulation
does not allow them to acquire more than a 50 percent stake in an
airline," he told The Jakarta Post.

He said the government should also introduce a simpler and
more transparent regulation that would attract foreign investors
to collaborate with existing local chartered airlines, if they
were not allowed to open their own chartered fleets here.

"The government should also allow foreign investors to form
joint-venture companies with local chartered airline operators
and hold a majority stake if they want to. The government should
liberalize the local chartered airline sector the way it has
liberalized the banking sector," he said.

According to existing regulations, multinational joint-venture
companies are restricted from undertaking business in fields
considered to be vital to the country and to the livelihood of
the population at large, including airlines, drinking water
supply, shipping, public railways, electricity transmission and
distribution, telecommunications and mass media.

The government, however, has lifted the restriction in some
fields, such as telecommunications and drinking water supply, by
allowing foreign investors to form joint-venture companies, but
only with state-owned companies.

Benny said chartered airline operators could not really
utilize the opportunity given by the Ministry of Communications
-- which recently liberalize the sector by issuing more licenses
to new operators and allowing chartered airline operators to fly
routes usually managed by scheduled commercial airlines --
because they had no funds to lease or buy aircraft.

Between four and six operation licenses were issued this year
to increase the number of chartered airline operators to 37. They
hold licenses to serve mostly remote areas and islands across the
country.

Benny said the new chartered airline operators needed at least
US$8 million to obtain a secondhand aircraft, such as a Boeing, a
Fokker 28 or a DC9.

He said chartered airlines now had a broader chance to expand
their coverage since several scheduled commercial airlines had
canceled their flights to less profitable destinations.

State-owned airline Merpati Nusantara, which dominated
services to remote areas especially in Indonesia's eastern
provinces, canceled most of its flights after grounding around 70
percent of its fleet.

National flag carrier Garuda Indonesia, which flies to 20
cities across the country, has not canceled any flights but has
reduced the frequency of services to less profitable
destinations.

The sharp depreciation of the rupiah since late 1997 has
severely damaged the industry. Airlines' rupiah earnings were
eaten away by overhead costs, which are quoted in U.S. dollars.
The national average load factor fell by more than half to only
30 percent in 1998.

Benny also called on the government to stop delaying the
implementation of its plan to rescue the country's ailing airline
industry, the debts of which total around $300 million, excluding
the debts of Garuda Indonesia and defunct private carrier
Sempati.

He said there was no follow-up after the government announced
earlier this year a plan to assist the ailing local airline
industry by allocating some $345 million, around $40 million of
which was earmarked especially for chartered airline operators.
(cst)