AirAsia acquisition of Batavia Air flies into turbulence, regulator threatens to annul deal (5099)

Indonesia wants full disclosure

JAKARTA: The Business Competition Supervisory Commission (KPPU) is demanding full disclosure from Malaysia-based AirAsia Bhd and PT Fersindo Nusaperkasa on their plan to acquire a controlling stake in Metro Batavia, the owner of Batavia Air, in a transaction worth US$80mil.

The anti-monopoly agency fears that the acquisition by the owners of Indonesia AirAsia (IAA) would create a business entity that would control more than 50% of the domestic market, which is in violation of the 1999 law on unlawful business practices.

“We will annul the acquisition if it has the potential to stop other carriers from growing in the aviation industry,” KPPU head Tadjuddin Noer said on Monday.

There is no official record on IAA's number of passengers for domestic flights as the airline predominantly serves international routes with domestic interconnections.


Passengers queue to board to a Batavia Air aircraft on the tarmac of the Soekarno Hatta airport in Jakarta July 26, 2012. Asia's largest low-cost carrier, AirAsia Bhd, is buying into Indonesia's Batavia Air to expand. - REUTERS/Beawiharta
Batavia Air domestic route passengers reached 6.75 million, or equals to 11.25% of the domestic share.

Tadjuddin said the agency would look into the composition of ownership in the parent companies of IAA, in which 49% is controlled by AirAsia and 51% by Jakarta-based Fersindo.

He urged AirAsia and Fersindo to disclose the details of ownership within the companies in 30 days so as to allowing the agency to precisely calculate their control over the domestic market.

“If they fail to notify the KPPU, they will be fined 1 billion rupiah (US$106,000) a day,” Tadjuddin said.

In an agreement signed last week, AirAsia and Fersindo would purchase 76% of Batavia some time this year while the remainder would be acquired in the second quarter of next year.

He further said that the KPPU wanted to determine whether the acquisition of Batavia was prompted by the possibility of the company going bankrupt or driven by AirAsia's intention to expand its Indonesian presence ahead of Asean's open sky policy in 2015.

“We are afraid that AirAsia is using Batavia Air as a vehicle to control our market ahead of the open sky policy.

“We can say the acquisition process is just camouflage, which would not be right,” Tadjuddin told reporters on Monday.

Tadjuddin said that such a practice would endanger business competition in the country's aviation industry, which would kill off other domestic carriers.

“It would create an unhealthy environment in the business, such as in pricing or creating what is called a cartel,” he said.

Contacted separately, the Transportation Ministry's air transportation director, Djoko Murjatmodjo, said the ministry had recently received a report from Batavia Air on its plan to sell their shares to the two companies.

However, he said the company had yet to further elaborate on how many of its shares would be sold to the Malaysian-based company and how many to its Indonesia unit, giving an unclear message to the government.

Similar to the KPPU, he said the ministry would look at the composition of shareholders of Fersindo as well as the acquisition process of Batavia Air.

“The KPPU has the right to annul the acquisition if Indonesia is not the majority shareholder,” Djoko said.

Previously, the ministry's air transportation director general, Herry Bhakti Gumay, said the ministry would not hesitate to “revoke Batavia Air's SIUAU (flight permit)” if the acquisition did not comply with Indonesian ownership rules.

The Batavia acquisition comes hot on the heels of Tiger Airway's takeover of Mandala Air earlier this year.

Fersindo Nusaperkasa president director Dharmadi was not available for comment when contacted by The Jakarta Post. - The Jakarta Post