Provincial administrations attracted to prestigious airline industry

A'an Suryana, The Jakarta Post, Jakarta

Emboldened by the autonomy law, which has given provinces larger incomes and greater power to manage their own economic affairs, several rich administrations are trying their luck in a prestigious and risky business: airlines.

At least two airlines owned or partly owned by regional administrations have been issued licenses to operate by the Ministry of Transportation, while another is awaiting a license.

The two airlines recently awarded with licenses are PT Riau Airlines, owned by the Riau provincial administration and the regency administrations of the province; and PT Seulawah Nangroe Aceh Darussalam, which is partly owned by the Aceh provincial administration.

Another airline, Papua Indonesia Air System, which is partly owned by the Papua provincial administration, has applied for an airline operator's certificate from the ministry.

"We are processing the certificate," Edi Wibowo, director of air transportation at the Ministry of Transportation, announced on Friday.

The North Sumatra provincial administration and the regencies in the province have also established their own airline, PT Sumut Airlines. The airline started operations last week despite the fact that it has yet to obtain an airline operator's certificate from the Ministry of Transportation.

Analysts say the airline industry has attracted not only the private sector but also provincial administrations because of low airplane leasing prices.

Leasing prices for aircraft have dropped following the setback experienced by airlines in Europe and the United States after the Sept. 11 terrorist attacks in the U.S. last year.

Airline industry observer Dudi Sudibyo said that after the terrorist attack, airline capacity rates on both continents fell by 50 percent and 60 percent.

"The lack of passengers has forced airlines to ground their fleets," Dudi told The Jakarta Post.

"In a bid to offset maintenance costs, the airlines were forced to lease their planes to airline companies in developing countries, at much lower prices," said Dudi.

Indonesia is one of the developing countries being offered aircraft for lease.

Prior to the terrorist attacks, leasing prices for aircraft varied from US$150,000 to $250,000 per month, depending on the type of the aircraft.

"Now, the price has dropped by approximately 30 percent," said Melly R. Untung, corporate secretary of Papua Indonesia Air System.

Besides lower leasing prices, pride is seen by some analysts as another reason for the regional governments to engage in the business.

"They are proud of having an airline," said a middle-ranking official at the ministry who asked for anonymity.

The official said the regional governments should be prudent and careful in running the business, pointing out that the country's airline industry had become very competitive and that price wars could erupt.

"Airline passenger numbers have not yet reached the precrisis level," he said

Ministry data shows that domestic airline passengers reached nine million last year, as against 13 million in 1996, the year prior to the start of the economic crisis.

However, Melly said lower leasing prices and regional pride were not the major factors for regional administrations to enter the airline business.

Before deciding to establish an airline, the Papua administration thoroughly studied the potential benefits and losses and realized that there was a huge potential market in the province.

"We established a business plan before the Sept. 11 attacks," Melly told the Post.

"People need to use airplanes to travel here, due to the poor condition of roads and the mountainous terrain of Papua," she said.