Indonesia Revokes AOCs To Force Airline Consolidation

 - October 21, 2013, 10:20 AM
Runaway debt forced Indonesia’s Batavia Air to ground its 15 Boeing 737-300s and the rest of its 34-strong fleet in January. Meanwhile, the government is forcing smaller airlines out of the market in an effort to encourage consolidation.

Indonesia’s civil aviation authority plans to reduce the number of airlines operating in the country from 53 to 28 following the failure of most of its carriers to satisfy a minimum fleet-size requirement by January. The requirement calls for all airlines, including charter and cargo operators, to operate no fewer than 10 airplanes each, five of which they must own.

The ruling, introduced in 2009, originally called for implementation on Jan. 12, 2012. The government extended the deadline by another year when smaller carriers appealed for more time.

The ruling applies to 41 scheduled airlines, five charter operators and seven cargo carriers; seven scheduled airlines and three cargo operators have yet to start operations.

Its impetus stems from a desire to avoid a repeat of events in 1998 and from 2007 to 2008, when financial crises forced many Indonesian airlines to abruptly stop operating, creating service disruptions to many outlying communities. The Indonesian government hopes its mandate will encourage the country’s smallest airlines to merge, creating a network of stronger carriers more capable of surviving future crises and making regulatory oversight more manageable.

Twenty-two airlines now hold an air operator certificate (AOC) 121, which governs carriers operating aircraft fitted with more than 30 passenger seats, while 31 operate under AOC 135, which governs cargo carriers and airlines flying aircraft certified for 30 passengers or fewer. Seven of the 31 airlines holding an AOC 135 operate as cargo carriers.

According to a senior official at the Ministry of Transport (MOT) in Jakarta, Harry Budianto, the government introduced the requirement because too many airlines operate with small fleets, some even with only one aircraft.

Budianto cited lack of funds as the reason so many airlines failed to meet the minimum fleet-size requirement.

“Some airlines were also cautious about expanding,” Budianto said. Meanwhile, one of the big domestic and regional carriers, debt-ridden Batavia Air, ceased operations in January.

In 2007-2008 about 80 airlines operated across Indonesia. Spiking oil prices forced many out of the market. The Indonesian authorites revoked the AOCs of another 26.

Since then, the MOT has made a concerted effort to avoid hastily granting AOCs by more thoroughly examining applicants’ business plans and financial standings.