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NEWS UPDATES Asean Affairs    1 August  2012

AirAsia's takeover of Batavia hits turbulence


Malaysian budget airline AirAsia's planned takeover of Indonesia's Batavia Air has run into turbulence.

Officials here have questioned the legality of the union and have vowed to look into whether it has breached foreign ownership rules.

The turn of events has again raised the spectre of economic nationalism in booming Indonesia, with foreign investments in some key sectors being viewed increasingly with suspicion.

AirAsia announced last Thursday that it would pay US$80 million (S$100 million) to acquire Batavia Air. Under the terms of the deal, AirAsia would own 49 per cent of the Indonesian carrier.

AirAsia's Indonesian unit, Fersindo Nusaperkasa, would control the remaining 51 per cent to comply with Indonesian ownership rules.

Aviation rules demand that the majority of shareholders in Fersindo Nusaperkasa are Indonesian but officials now say that is not clear.

"We demand that Fersindo disclose details of their ownership, such as shareholder information, in 30 days for us to calculate exactly what control foreigners have over this deal," said Tadjuddin Noer Said, chairman of the antimonopoly agency Business Competition Supervisory Commission (KPPU).

"If they fail to notify the KPPU, they will be fined 1 billion rupiah (US$105 million) a day," he told reporters.

The transport ministry has also said it had not been properly notified about the deal.

"We are going to cancel the acquisition process if Indonesia is not the majority shareholder," said Herry Bhakti Gumay, director-general of the transport ministry.

He also said the ministry could revoke Batavia Air's flight permit if the acquisition did not comply with Indonesian ownership rules.

"The KPPU has the right to annul the acquisition if Indonesia is not the majority shareholder," the ministry's air transportation director, Djoko Murjatmodjo, said separately.

Corporate lawyer Rahmat Bastian, who specialises in anti-competition law, said the KPPU had the legal right to revoke licences.

"If it is found that a majority of shares under the deal would be held by foreigners, AirAsia has to change their percentage of the takeover if they want it to go through," he said.

Representatives of AirAsia and Fersindo Nusaperkasa were not available for comment on the latest developments.

Indonesia's aviation industry is seen as a lucrative one as the sprawling archipelago makes flying the easiest option for domestic travel.

Demand for air travel has soared because of a burgeoning middle class that has emerged on the back of the country's strong economic growth in recent years.

Domestic airlines carried more than 60 million passengers last year, and the Indonesia Air Carriers Association predicts a 52 per cent increase in passenger numbers by 2015.

AirAsia's move therefore is likely to see competition heat up in the sector.

Fearing a shakeout in the industry, some people have urged the government to review laws that allow large-scale acquisitions by foreigners.

"It is only a matter of time before airlines will be bought and controlled by foreigners, and the only claim (we) have is that they are Indonesian in origin, but owned by foreigners," former air chief marshal Chappy Hakim wrote in an opinion piece in local daily Sinar Harapan on Monday.

Such views were reminiscent of those that emerged when Singapore's DBS Bank made a multibillion bid for Bank Danamon in April.

That bid led to regulators at the central bank reviving proposals for tighter curbs on foreigners' ownership of banks.

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