Plane Makers Rake in Spoils From Indonesia Bonanza
Buoyed by rapid economic growth, Indonesia has become a bonanza for international plane makers who are booking some of the world’s biggest sales as Western airlines suffer a downturn.
Europe’s Airbus and US manufacturer Boeing have secured billions of dollars in orders over the past year as Southeast Asia’s largest economy experiences a travel boom and looks to link its archipelago of more than 17,000 islands.
Indonesian carrier Lion Air placed the single largest contract in commercial aviation history during a November visit by US President Barack Obama, ordering 230 Boeing aircraft for a whopping $22.4 billion.
Last week, Airbus bagged a $2.5 billion contract for 11 A330-300s to national carrier Garuda International during a visit to Indonesia by British Prime Minister David Cameron.
“There’s a major transformation going on, not just with Garuda but with the whole aviation industry in Indonesia,” industry analyst Gerry Soejatman told AFP.
“Around 60 million, or a quarter the population, travel domestically by air annually. That number could easily double if the price is right,” he said.
The deal with Airbus was part of Garuda’s plans to expand services less than two years after the European Union lifted a ban on the airline from entering its airspace, citing the country’s poor safety record.
“We’re seeing two things meeting harmoniously — first a rise in economic power spreading across the demographic. Many more people have reached an economic threshold that allows them to fly,” Sydney-based Center for Asia Pacific Aviation Chairman Peter Harbison told AFP.
“At the same time, more airlines are coming in, and are basically flying to your doorstep at a much lower price. Put those two things together and you have a recipe for enormous growth.”
Western airlines meanwhile have faced a downturn, with the aviation industry in Europe taking a hit from the 2008-09 financial crisis.
Air travel demand in Europe has started to creep up again, but Fitch Ratings said in a statement earlier this year it expected poor demand in 2012 and European airlines focusing on minimizing losses.
It forecast “significant retrenchment for the largest European network airlines” such as Air France-KLM, which lost 700 million euros ($925 million) in 2011.
In Indonesia, the economy is projected to grow 6.5 percent this year and per capita income surpassing $3,000. More of its 240 million people are paying for the convenience of air travel over tiresome and often unsafe ferry rides.
Earlier this month, defunct airline Mandala made a comeback with significant investment from Singapore’s Tiger Airways.
New carrier Pacific Royale Airways, flying domestic and some international routes, is expected to take off later this month.
Indonesia’s aviation industry exploded after the year 2000, with domestic air travel increasing by about 500 percent, Harbison said, adding that the industry has marked steady progress since then.
“One of the interesting things about Lion’s order was that other airlines in the region were talking big orders to fly across Asia. In Lion’s case, they were primarily looking to its domestic market.”
Indonesia’s domestic airlines carried 60 million passengers last year, marking a 15 percent growth from the previous year, government figures show.
That is forecast to almost double by 2015, said Indonesia’s official association for all airlines, the Indonesian Air Carriers Association, which works closely with the transport ministry.
But analysts are concerned that the country’s infrastructure may not be able to keep up with the aviation boom, urging the government to expedite plans to expand the Soekarno-Hatta International Airport in the capital Jakarta.
The airport handles more than 44 million passengers a year, and 60 million are expected to come through by 2014.
“Beyond infrastructure, there are two important questions: Where are we going to park all these new planes, and who’s going to fly them?” Soejatman said.
“It’s all well and good to say Indonesia’s aviation industry is growing, but we have to make sure we have the space for it all by the time these extra flights begin. I think it could be a close call.”
Indonesia is also slowly repairing its reputation for poor aviation safety, with six airlines now allowed back in the EU after Brussels slapped a ban on all 51 of the country’s commercial airlines from its airspace in 2007.