Indonesian Airline Industry Undergoes Shake-up

Indonesian air tour company Sky Aviation aims to fill the void left by the recent collapse of Riau Airlines.

Sky Aviation has been operating air tours to tourist areas such as Bali and Lombok using four-seat Cirrus aircraft. But it plans to move into scheduled operations using larger aircraft and has been evaluating Fokker 50s and ATR-72s, say industry executives. Aircraft it is considering include three ex-KLM Cityhopper aircraft owned by EADS, says an industry executive familiar with the situation. Another says Sky Aviation is considering ATR aircraft on offer from Nordic Aviation Capital. Sky Aviation plans to operate in Sumatra, the market that Riau Airlines exited.

Riau Airlines, which is owned by the Riau provincial government and some local governments, shut down in November, although it is hoping to restart with a Boeing 737-200 leased from Aero Nusantara Indonesia, say industry executives.

But it is also embroiled in a legal dispute with AeroCentury, the U.S. firm from which it had been leasing two of its five Fokker 50s. AeroCentury has taken legal action to recoup money the carrier allegedly owes. Riau bought, rather than leased, its other three Fokker 50s, although these three aircraft were then mortgaged to Bank Muamalat, says one industry executive. The three Fokker 50s are now parked and will need some work because the aircraft were cannibalized for spares, adds the executive. Before its collapse, Riau Airlines was also leasing two BAE Avro RJ100s from BAE Systems. Industry executives say Riau Airlines also owes BAE Systems money for outstanding lease payments.

While AeroCenury and BAE Systems have issues with Riau Airlines, the two are continuing to do business in Indonesia.

AeroCentury has been speaking to Aviastar and TransNusa Air Service about leasing its two Fokker 50s. TransNusa Air Service recently bought an ex-Japan Air Central Fokker 50 from Nordic Aviation Capital.

BAE Systems, meanwhile, is busy pitching its BAE 146-200/300 to Aviastar, which operates mostly in eastern Indonesia. This carrier is in the market to secure more BAE 146s, say executives inside and outside of the airline. It already operates two aircraft of this type as well as one Fokker 50 and five de Havilland Canada Twin Otters, says an Aviastar executive. It acquired its Fokker 50 from Nordic Aviation Capital in October, he adds.

Industry executives say Indonesia’s smaller carriers are rapidly expanding in an effort to satisfy Indonesian laws which stipulate that all airlines must have at least 10 aircraft by 2012, of which five must be owned. This could be a boon for those offering cheaper aircraft for sale, such as the Fokker 50, which can be bought for about $2 million. But the new laws will also lead to market consolidation because there are some airlines that have insufficient capital to own five aircraft.

Executives from Sky Aviation were unavailable for comment.