Indonesia's Adam Air facing possible closure
Updated
Indonesia's low cost airline Adam Air is facing closure just a year after announcing major expansion plans. It appears the troubled carrier has just two days to meet financial obligations or be closed down.
Presenter: Karon Snowdon
Speaker: Tom Ballantyne, Chief Correspondent with Orient Aviation magazine; Peter Harbison, Chairman Centre for Asia Pacific Aviation
SNOWDON: There have been no official company statements, the web site didn't take an online booking when I tried, and the phone isn't being answered. But according to local press reports, Adam Air company president, Adam Suherman, has effectively said the company is broke. Quoted by several local newspapers, he's reported stated that the company is in default on debt repayments and insurance policies due in two days can't be paid in full.
Under international law, only air craft with insurance cover can fly. On top of financial worries, safety concerns have plagued the budget airline, after a crash killed all 102 people on board in 2007.
Last week, a plane skidded on landing at Batam airport, injuring one person.
Tom Ballantyne is chief correspondent with Orient Aviation magazine.
BALLANTYNE: Well it does have a tainted reputation, as to the number of airlines in Indonesia. There's definitely a lack of safety systems within the Indonesian airline industry. You have to ask questions about performance.
The Indonesian government is working closely with international authorities to try and increase safety, but it certainly is not a surprise that this has happened to Adam Air.
SNOWDON: And the consortium that last year bought 50 per cent of Adam Air and now has withdrawn quite suddenly. I mean that would be a shock to any business, but do we know much about the reasons behind that?
BALLANTYNE: Well, we don't know what the reason behind it. I mean what we do know is that these people have become suspicious of the way that Adam Air was being run, but we don't know a lot of detail, because this these private airlines don't put out a lot of the details of their finances. So it's very difficult to know precisely what's happened.
SNOWDON: The Buckti Investaman Consortium of private investors, including GTS or Global Transport Service in bright star Percussa poured in 17 million US dollars last year for a 50 per cent shareholding in Adam Air. But as of last week, the consortium has withdrawn its support, claiming financial mismanagement according to the Jakarta Post.
Peter Harbison, the chairman of the Asia Pacific Centre for Aviation, says Adam Air lacked the experience to survive the cut throat competition of Indonesia's rapidly expanding airline industry.
HARBISON: Because it is very hard to keep all the necessary security and marketing and commercial controls over an airline that is growing as fast as that. Then I think last year after its accident followed not very long afterwards by the Garuda crash, then in turn followed by the European Union blacklisting, and, as part of that process of over rapid expansion, perhaps lost sight of some of the necessary security and safety issues that it should have been watching more closely.
SNOWDON: Well, the Australian government entered into a 24 million dollar safety assistance package with the Indonesian government back in January this year. Would you say in your view that's money well spent?
HARBISON: I think so. I mean it's very important to us to make sure that Indonesia's economy goes well, and for a country of several thousand islands, if it doesn't have a decent aviation system, it's not going to have a decent economy.
SNOWDON: Indonesia's transport minister has given a three week deadline for Adam Air to prove it's financially viable and to improve its safety procedures, or its permit will be revoked. The airline has been reducing its fleet and the number of destinations in the country. Now to its 3,000 employees face uncertainty. If the airline folds, its place will be quickly filled by the large number of airlines remaining in Indonesia, many of them low cost.
Tom Ballantyne.
BALLANTYNE: It is a vast market, in fact about 50 airlines operating in Indonesia, lots of ticket discounting, lots of competition, which makes it tough to survive.
