Aviation - AHKindonesien.ahk.de/.../EIBN/EIBNSecRep2016_Aviation_FULL-49281.pdf · Director General...

Aviation

2016

EIBN Sector Reports

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This Sector Report was created by the EIBN unit at:

INA-Indonesian Benelux Chamber of Commerce

http://www.ina.or.id/

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Table of Contents

Methodology ......................................................................................................................... 4 I. Introduction ........................................................................................................................ 6 II. Airlines ............................................................................................................................ 10

II.1. Garuda Group .......................................................................................................... 12 II.2. Lion Air ..................................................................................................................... 13 II.3. Sriwijaya Air ............................................................................................................. 13 II.4. Indonesia AirAsia ..................................................................................................... 14

III. Air Traffic ....................................................................................................................... 14 IV. Airports .......................................................................................................................... 15

IV.1. Airport Authorities ................................................................................................... 16 IV.2. Airport & Aviation Safety and Security ..................................................................... 19 IV.3. Air Cargo ................................................................................................................ 22

V. Maintenance, Repair, and Overhaul (MRO) and Aviation Industry .................................. 23

V.1. Maintenance, Repair and Overhaul (MRO) .............................................................. 23

V.1.1. GMF AeroAsia .................................................................................................. 25 V.1.2. Lion Air .............................................................................................................. 26

V.2. Aircraft Industry ........................................................................................................ 27

V.2.1. PT. Dirgantara Indonesia (PTDI) or Indonesian Aerospace ............................... 27 V.2.2. PT. Regio Aviasi Industri (RAI) ......................................................................... 28

VI. Human Resources ......................................................................................................... 28 VII. Regulation .................................................................................................................... 29

VII.1. Negative List of Investment .................................................................................... 29 VII.2. Government Procurement ...................................................................................... 31 VII.3. Aviation Law No. 1 of 2009 .................................................................................... 31 VII.4. Other Related Regulations ..................................................................................... 32

VIII. Trends and Challenges ................................................................................................ 33 IX. Conclusion ..................................................................................................................... 34 Relevant Contacts ............................................................................................................... 35 Trade Fairs in Indonesia ..................................................................................................... 36 Abbreviations ...................................................................................................................... 37 References ......................................................................................................................... 38 About EIBN ......................................................................................................................... 44

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Methodology

The goal of this market study is to provide an overview of the potential of Indonesia’s aviation

industry. This desk research highlights the opportunities for European companies, and

contains the industry characteristics (e.g. market size, growth potential), the structure of the

market, key stakeholders and major providers, future trends, regulations, and existing

challenges.

While preparing this report, EIBN made use of a variety of literatures, data sources, and

methods. General information about aviation industry was gathered from publicly available

sources: news articles, official company websites, publications (e.g., the Statistics Indonesia,

Ministry of Transportation, and AirNav). In addition, we have also interviewed industrial

experts.

Mostly we made use the recent data in 2015 in the table and figure. Where the latest official

data was not available, we reverted to the latest data on hand. also use the forecast data as

the estimation in the future year. Sources are also mentioned to provide insight into where the

data was retrieved from.

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Executive Summary

With forecasted growth reaching 8 to 9 percent in 2016, the Indonesian aviation market is growing rapidly; the number of domestic passengers is predicted to double and international passengers is set to increase to 72 percent by 2020. Domestic flights are still in higher demand compared to international flights, since Indonesian citizens need to use air travel to get across the archipelago efficiently, with over 80 million domestic passengers and 14 million international ones in 2015. Indonesia is a home to 269 airports, of which 26 are commercial airports in big cities operated by Angkasa Pura I and Angkasa Pura II (State-Owned Airport Management) and the rest are the airports managed under the Directorate General of Civil Aviation. Aviation management and control is dominated by State-Owned Enterprises (SOE), including air navigation, which is fully managed by AirNav, the State-Owned Navigation Provider. Along with the other infrastructure development projects in Indonesia, the government focuses on the construction of new airports, as well as the renovation of the existing ones. There are currently nine airport management projects and five new airport projects that are offered to the private sector in Indonesia. Soekarno-Hatta Airport, Jakarta, is the busiest airport in Indonesia and is on progress to open Terminal 3 Ultimate, alongside plans to build a third runway in 2017, to address the overcapacity problem of the airport. The new concept of Airport City is also going to be introduced in Indonesia, offering a one-stop accommodation and tourism complex near to the Airport. Angkasa Pura I has also been planning to implement the Airport City concept at Hasanuddin and Kertajati Airport. Garuda Indonesia remains the five-star airline in Indonesia. The holding itself has seven subsidiaries and each of them dominates important sub-sectors of aviation, such as maintenance, repair and overhaul (GMF Aero Asia), cargo (Garuda Air Cargo), tourism (Aero Wisata), and local airlines (Citilink). However, the biggest Indonesian airline based on fleet size is Lion Air, with approximately 191 aircrafts as of January 2016. With the last amendment of EU banned airlines, now Lion Air, Indonesia Air Asia, Citilink, and Batik Air have been allowed to enter the EU. The increase of air traffic in Indonesia puts pressure on traffic management. Thus, in order to accommodate the growth of demand in aviation, the Government of Indonesia (GoI) needs to improve aviation safety and security. Recently the US Department of Transportation’s Federation Aviation Administration (FAA) had upgraded Indonesia’s Aviation Safety Standard to Category 1 which allows Indonesian airlines to fly to the USA. Indonesia still needs to update its air traffic control and ground handling, which can be a business opportunity for foreign companies, especially for European companies, to enter. The other great opportunities include the Maintenance Repair and Overhaul (MRO) industry. Only thirty percent of the MRO activities for Indonesian aircrafts are conducted in Indonesia, while the rest are still exported to other countries. Lack of skilled human resources is considered to be the biggest problem that should be addressed by the government. Despite the challenges, such as the domination of State Owned Companies and the complicated regulations, Aviation is a great sector that keeps on developing from year to year.

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I. Introduction The Indonesian aviation market is vast and growing. With 17,000 islands across 5,200km from east to west and 2,000km north to south, air transportation is the most efficient way to get around the archipelago. According to the International Air Transport Association (IATA)’s Director General and CEO; Tony Tyler, Indonesia is forecasted to be the sixth largest market for air travel in 2034 with 270 million passengers expected to fly annually, which is triple what it was in 2015.1 Indonesia’s aviation is estimated to grow by 20 percent per year, and has a large market for replacement parts and services. There is also high demand for airport construction and development services, air traffic control, airport logistics services, and technology providers.2 The World Bank estimates that in the next 20 years the Indonesian middle class with enough disposable income to use air travel, will grow from 130 million people to more than 240 million.3 The number of passengers in Indonesia using international flights has increased by 15.16%; from 5.9 million people in November 2015 to 6.8 million people in December 2015.4 Over the full year of 2015, the number of domestic air passengers increased by 16.7%, while the number of international air passengers increased by 0.3%.5 Indonesian air passenger growth was forecasted to reach 8-9 percent in 20166, which is slightly lower than the growth realized in 2015. Considering the economic slowdown, this growth number is positive. In comparison, IATA data shows that European air traffic in 2016 is forecasted to grow only by 4.9 year-on-year and North America by 4.0 year-on-year.7

Figure 1.1 below shows the significant growth in passenger numbers over the past five years. Domestic passenger numbers are estimated to double in 2020 and triple in 2025, compared to numbers in 2015. This confirms the trend of Indonesian domestic mobility by way of air travel from one city to another. Meanwhile, international passenger numbers are estimated to grow as well, yet not by the same rate as domestic air travel. From 2015 to 2020, the international passenger numbers are forecasted to grow by approximately 72 percent, while from 2020 to 2025 the growth is estimated at 35 percent.

1International Air Transport Association. IATA Developing the Potential of Indonesia’s Aviation Sector, IATA Press Release No 11, 12 March 2015. Available at: http://www.iata.org/pressroom/pr/pages/2015-03-12-01.aspx 2US Export. Doing Business in Indonesia. Export.gov website, 10 January 2016. Available at: http://www.export.gov/indonesia/doingbusinessinindonesia/index.asp 3Traveller. Indonesian airlines booming, but are they safe?.http://www.traveller.com.au/indonesian-airlines-booming-but-are-they-safe-23p23#ixzz47BffgPto 4Direktorat Jendral Perhubungan Udara. Tahun 2015, Jumlah Penumpang Udara Mencapai 82,5 Juta Orang. 4 February 2016. Available at: http://hubud.dephub.go.id/?id/news/detail/2829 5 Indonesia Investments. Garuda Indonesia Citilink Seek Global Domestic Expansion. Available at: http://www.indonesiainvestments. com/id/business/business-columns/garuda-indonesia-citilink-seek-global-domestic-expansion/item6453 6BeritaSatu. 2016 Pertumbuhan Penumpang Udara Stagnan. 16 Desember 2015. Available at: http://www.beritasatu.com/ekonomi/332030-2016-pertumbuhan-penumpang-udara-stagnan.html 7IATA. Factsheet Industry Statistics. Available at: http://www.iata.org/pressroom/facts_figures/fact_sheets/Documents/fact-sheet-industry-facts.pdf

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Figure 1.1 Air Transport Growth in Indonesia

Indonesia Air Transport Growth

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

2010 2015 2020 2025

Domestic Passengers

International Passengers

Year Domestic Passengers International Passengers

2010 51,775,656 6,614,937

2015 84,413,916 14,485,486

2020 167,418,603 51,058,246

2025 256,478,243 79,589,382 Source: Ministry of Transportation, U.S. Commercial Service

According to U.S. Commercial Service data in Table 1.1, total imports for the aviation sector increased in 2015 after a steady decline. Imports from U.S. consisted of more than 50 percent of total imports in 2012, but the number drastically decreased to 13 percent of total imports in 2013 and kept on decreasing in value both in 2014 and 2015 (see Table 1.1). This shows that, from 2013 onwards, the aviation market in Indonesia is no longer American-centric, as U.S. goods and services dominated the Indonesian aviation prior to this point. U.S. imports remained low in 2014 and 2015, at about 30 percent of total imports. One of the main reasons for this significant change is due to the Indonesian leading airlines’ tendency to purchase European-manufactured aircrafts, such as Airbus. Those airlines include; Garuda Indonesia, Citilink, and Air Asia, as well as the GoI’s plan to purchase Airbus military aircraft A400M.8 Types and origins of aircrafts will automatically influence the imports of spare parts, and other related goods and services, which, as is in this case, will favour European products.

Table 1.1. Indonesia’s Aviation Imports Overview (in USD Million)

2012 2013 2014 2015 (estimated)

Total Market Size

4,584 1,717 536 590

Total Local Production

300 350 450 495

Total Exports 210 164 95 105

Total Imports 4,494 1,531 581 639

Imports from The U.S.

2,943 270 176 194

Source: BPS, Trade States Express USA, U.S. Commercial Service9

8Reuters. Indonesia to buy Airbus A400M military transport planes: minister. 11 May 2016. http://www.reuters.com/article/us-indonesia-defence-idUSKCN0Y211X 9 U.S Commercial Service. 2015 Country Commercial Guide for U.S. Company. Available at: http://www.export.gov/indonesia/build/groups/public/@eg_id/documents/webcontent/eg_id_089369.pdf

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As the ASEAN countries become more integrated, ASEAN has been pushing for the ASEAN Open Skies program, launched in January 2016, to be fully realized. Due to the geographical area and the steady growth of the middle class, Asia-Pacific has been one of the world’s fastest growth regions for air travel.10 By realizing the ASEAN Open Skies and ASEAN Single Aviation Market (ASAM), these ASEAN member countries expect to have better connectivity and this will help increase the number of tourists across the Southeast Asia region. The policy comprises all ten ASEAN member countries and will unite their skies into one aviation market. Through Presidential Regulation No. 12/ 2016, Indonesia has finally confirmed its participation in the ASEAN Open Skies policy.11There are five designated Indonesian airports which can be accessed through this policy namely; Soekarno-Hatta International Airport (near Jakarta), Kualanamu International Airport (North Sumatera), Juanda International Airport (East Java), Ngurah Rai International Airport (Bali), and Sultan Hasanuddin International Airport (South Sulawesi).12 In terms of the number of international airports, as of 2012, Indonesia has 29 international airports, which is the largest number amongst ASEAN member countries. The Philippines has the second largest number with 10 international airports, while Singapore and Brunei Darussalam only have 1 international airport, without any local flights.13 Indonesia also has agreements with 65 countries, and one horizontal agreement was established with European Union (EU) in 2011, which applies to EU member states establishing bilateral agreements with Indonesia. This agreement provides provisions on air services between EU members and Indonesia, as well as allowing any EU carriers to operate flights between Indonesia and the EU.14

Figure 1.2 Indonesian Aircraft Traffic – Domestic and International

Source: Directorate General of Civil Aviation15

10Indonesia-Investments. Indonesia Confirms Participation in ASEAN Open Sky Agreement. 18 April 2016. Available at: http://www.indonesia-investments.com/news/todays-headlines/indonesia-confirms-participation-in-asean-open-sky-agreement/item6727 11Ibid. 12 Ibid 13Batari SARASWATI and Shinya HANAOKA. Aviation Policy in Indonesia and Its Relation to ASEAN Single Aviation Market. Eastern Asia Society for Transportation Studies, Vol.9, 2013 14 Ibid. 15Director General of Civil Aviation. Aircraft Traffic Statistics. Available at: http://hubud.dephub.go.id/?id/llu/index/filter:category,2;tahun,0;bulan,0;airport,0

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The table above details Indonesian aircraft traffic from 2011 to 2015, both local and international. It shows the increase of departed and arrived aircrafts in Indonesian airports, from year to year. According to the data, 74,368 aircrafts arrived and 74,519 departed from Indonesia in 2015, decreasing around 20% from its number in 2014.16 The decrease that happened in 2015 was due to the global economic slowdown. According to KPMG, the key annual air statistics of Indonesia in February 2015 is as follows; 173 million passengers, 1,160,818 tons of cargo, and 1.7 million aircraft movements, both domestic and international. Over the past five years, the growth of passengers, cargo, and aircraft movements were 13.7%, 10%, and 11% respectively.17 There is an urgent need for new/extended runways and terminals to accommodate the growth in passenger numbers. Jakarta Soekarno-Hatta International Airport, the busiest airport in the country, is running far above its intended capacity; serving 58 million passengers in 2012 instead of the 22 million capacity that it was designed for. Currently, Soekarno-Hatta airport is planning on building a third runway in 2017 and has just opened the new Terminal 3 Ultimate.18

Figure 1.3 Jakarta Soekarno-Hatta Airport International and Domestic Passenger

Traffic (in millions) and Year on Year Growth: 2008 to 2015

Source: CAPA

The Government of Indonesia is focusing on projects to build new airports and expanding the runways for old airports across the archipelago. According to the plan, there are 19 new airport

16 Ibid. 17 KPMG Indonesia. Investing in Indonesia 2015. Available at: http://www.kpmg.com/ID/en/IssuesAndInsights/ArticlesPublications/Documents/Investing%20in%20Indonesia%20May%202015.pdf. P. 13 18BeritaSatu. Akhir 2017, Runway Ketiga Bandara Soetta Rampung. Available at: http://www.beritasatu.com/ekonomi/357147-akhir-2017-runway-ketiga-bandara-soetta-rampung.html

http://www.kpmg.com/ID/en/IssuesAndInsights/ArticlesPublications/Documents/Investing%20in%20Indonesia%20May%202015.pdf


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projects to be built and 35 runway expansion projects.19 Now, projects to build new airports such as Kertajati (Majalengka)20, MuaraTeweh (North Barito)21, Letung (Anambas Islands), are currently being carried out and expected to be finished in 2016 or 2017.

Table 1.2 The Airport Renovations for Infrastructure Development Planning in

Indonesia

Field Total Investment (in million USD)

Status Remarks

Soekarno-Hatta Airport

2,200 Work on the new terminal has progressed since 2013

Expansion of main airport in capital (New Terminal and third runway)

Karawang Airport, West Java *)

1,500 to 2,000 (estimated)

In Planning phase. Expected construction starts in 2015/2016

Expansion to annual passenger capacity of 70 million. Japanese interests.

Kertajati Airport, West Java *)

700 In Planning phase expected opening: 2020

Airport with 20 million annual passenger capacities. Interest shown from Samsung.

New Bali Airport 500 In Planning phase Additional airport in the north (Buleleng)

Kulonprogo Airport, Yogyakarta

500 In Planning phase New airport in Central Java

Angkasa Pura 500 Construction has started. 2014/2015

New and expansion of Terminals in Bali, Surabaya, Balikpapan, Semarang, Banjarmasin, and Yogyakarta.

Source: BKPM as Cited from Sorotan first edition in 2015

II. Airlines Due to the increase of tourism, international trade, and a growing number of middle income households, Indonesia’s aviation industry is booming, making commercial aviation a victim of its own success. The International Air Transport Association (IATA) stated that Indonesia will be the world’s fifth largest domestic market for air transport.22 According to World Bank data, the number of airline passengers in Indonesia increased from 71 million in 2011 to 95 million in 2014, for both domestic and international flights.23 Consequently, the Indonesia National Air

19Hakim, Chappy. Tinjauan Industri Penerbangan. CSE Aviation Media Gathering 2015. Available at: http://www.cse-aviation.biz/wp-content/uploads/2015/01/Tinjauan-Industri-Penerbangan-Chappy-Hakim.pdf 20Sindo News. Bandara Kertajati Majalengka Ditarget Rampung 2017. 14 January 2016. http://ekbis.sindonews.com/read/1076895/34/bandara-kertajati-majalengka-ditarget-rampung-2017-1452741817 21Tempo. Proyek Bandara Muara Teweh Dirampungkan 2016. 2 September 2015. https://m.tempo.co/read/news/2015/09/02/090697253/proyek-bandara-muara-teweh-dirampungkan-2016 22 The Jakarta Post. Lion Air Welcomes New Boeing 737 in Massive Expansion. http://www.thejakartapost.com/news/2015/08/20/lion-air-welcomes-new-boeing-737-massive-expansion.html 23 The World Bank. Air Transport, Passenger Carried. http://data.worldbank.org/indicator/IS.AIR.PSGR

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Carrier Association (INACA) expects that the number of airline passengers will increase by about 8% – 9% in 2016.24 However, the growth of passenger airlines in Indonesia has been impacted by several challenges, which have caused growth to slow significantly. Most of the decrease in the number of passengers occurred due to the depreciation of Indonesian Rupiah, which lead to an increase in ticket price. But, the Indonesian airline market also slowed down in 2014 due to the political instability during the presidential elections, but the stability was soon restored. That condition also occurred in 2015, due to the impact of the government regulation which revised the ticket price floor for every airline in response to the Indonesia AirAsia crash in late 2014. In running their business, not all Indonesian airlines buy new aircraft, some use aircraft leasing services. Aircraft leasing provides airlines with new aircrafts in order to make passengers comfortable, while reducing their maintenance costs. Some of the airlines like Garuda Indonesia, Batik Air, and Lion Air leased from the following leasing, financing, and management companies; Pembroke Group Limited (Standard Chartered subsidiary), Royal Bank of Scotland (RBS) Aviation Capital, General Electric Capital Aviation Services (GECAS), and Sumitomo-Mitsui Banking Corporation (SMBC) Aviation Capital. Since 2014, AirAsia opened their subsidiary company for aircraft leasing, AirAsia Aviation Capital. At the current stage of development, AirAsia is looking for a potential co-investor for their leasing subsidiary.25 The competition in the aviation industry in Indonesia has jumped sharply in the last decade, where airlines are competing to seize the domestic and international markets. Many companies are failing because of their weak management and performance, such as PT Mandala Airlines that ceased all services in early 2011 and PT Metro Batavia that was declared bankrupt by the Jakarta Commercial Court and ceased all operational activities on 31 January 2013.26

Table 2.1 Four Main Indonesian Airline Groups Ranked by Fleet Size

Source: CAPA – Centre for Aviation & ACI

Meanwhile, there are only two large groups dominating the aviation industry in Indonesia; Garuda Group and Lion Group, followed by Sriwijaya Air Group and Indonesia AirAsia. Both

24 Indonesia Investment. Air Passenger Growth in Indonesia Single- Digit in 2016. http://www.indonesia-investments.com/news/todays-headlines/air-passenger-growth-in-indonesia-single-digit-in-2016/item6296 25Kontan. Bisnis Leasing AirAsia Sudah DitawarRp 13 T. Available at: http://m.kontan.co.id/news/bisnis-leasing-airasia-sudah-ditawar-rp-13-t 26 VOA Indonesia. Kompetisi Maskapai Penerbangan di Indonesia Memanas. http://www.voaindonesia.com/a/kompetisi-maskapai-penerbangan-di-indonesia-memanas/1598808.html

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Garuda Group and Lion Group have expanded their fleets over the last three years. Garuda Group has planned to add up to 250 aircraft by 2025 to rejuvenate its fleet in order to improve their service quality.27 As well as Garuda Group, Lion Group also has a target to order around 1,000 aircraft by 2027 to be operated in the Asia Pacific region.28 It has to be noted that, while the US Department of Transportation’s Federal Aviation Administration (FAA) had upgraded Indonesia as a Category 1 nation, thus enabling Indonesian airlines to fly to the USA29, there are still many Indonesian airlines that are included in the list of EU-banned airlines, with the exception from Garuda Indonesia, Airfast Indonesia, Ekspres Transportasi Antar benua, Indonesia AirAsia, Citilink, Lion Air, and Batik Air.30

II.1. Garuda Group Garuda Group is the national and five-star airline in Indonesia which provides domestic and international flights, both for passengers and cargo. This company was established on 26th January 1949 and owns several key subsidiaries, such as Citilink Indonesia, Maintenance Facility Aero Asia, Aero Wisata, Gapura Angkasa, Cargo Garuda Indonesia, and Aero Systems Indonesia. In late 2014, Garuda underwent a remarkable transition and was recognized as a five-star airline by Skytrax, as the airline that provides a high standard and was awarded the world’s best cabin crew in 2015.31 Garuda serves around 57 domestic destinations and catered for 19 destinations to Europe, Middle East, Southeast Asia, East Asia, and Australia in 2014. The Garuda Group fleet continues to grow by 69 percent from its 106 aircrafts at the beginning of 2013, to 179 aircraft at the beginning of 2016. This expansion also happened to its subsidiary; Citilink, their low cost carrier, which has plans to increase their frequency of flights and new routes in eastern Indonesia and ordered eight new A-320 aircraft in 2016.32 According to the data, Citilink carried 9.75 million passengers as of December 2015 and estimates that the number of passengers will increase by 30 percent as the result of expanding its fleet in 2016.33

27 Jakarta Globe. Garuda Indonesia Plans to Double Fleet by 2025. http://jakartaglobe.beritasatu.com/business/garuda-indonesia-plans-to-double-fleet-by-2025/ 28BeritaSatu. Industri Penerbangan yang Kian Kompetitif. http://www.beritasatu.com/fokus/106479-industri-penerbangan-yang-kian-kompetitif.html 29 FAA Upgrades Indonesia’s Flight Safety Rating, Enabling Garuda to Fly to US Available at: http://atwonline.com/open-skies/faa-upgrades-indonesia-s-safety-rating-enabling-garuda-fly-us?NL=ATW-04&Issue=ATW-04_20160815_ATW-04_199&sfvc4enews=42&cl=article_1&utm_rid=CPEN1000001735607&utm_campaign=6717&utm_medium=email&elq2=7408214c2784463f812ed773ee02c719 30European Commission. List of Air Carriers Which are Banned From Operating Within the Union, with Exception. Available at: http://ec.europa.eu/transport/modes/air/safety/air-ban/doc/list_en.pdf 31 Garuda Indonesia. “The World’s Best Cabin Crew” 2015 Award was presented by Skytrax during the Paris Airshow 2015. 16 June 2015. Available at: https://www.garuda-indonesia.com/other-countries/en/news-and-events/garuda-indonesia-cabin-crew-once-again-voted-worlds-best-cabin-crew-2015.page 32Liputan 6. Citilink Tambah 8 Pesawat Baru di 2016. http://bisnis.liputan6.com/read/2404482.5 /citilink-tambah-8-pesawat-baru-di-2016 33 The Jakarta Post. Citilink Aiming for 30 Percent Passengers Growth. http://www.thejakartapost.com/news/2016/01/06/citilink-aiming-30-percent-passenger-growth.html

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Most of the aircraft types used by Garuda Group are; ATR 72-600 (72-212A), Boeing 737-83N, Boeing 737-8AS, Boeing 737-86N, Boeing 737-8U3, Boeing 737-8BK, Boeing 737-81D, Airbus A330-343, Boeing 777-3U3, Airbus A330-341, Airbus A330-243, Airbus A330-343, Bombardier CL-600-2E25 Regional Jet CRJ-1000ER, Boeing 747-4U3.34 Garuda Indonesia also has added 29 regional aircraft, including 18 Bombardier CRJ1000 regional jets, and 11 ATR 72-600 turboprops in 2012.35 Garuda Indonesia recognized that the average age of their fleet is 5.4 years as of April 2015.36

II.2. Lion Air Lion Air (PT Lion Mentari Airlines) is the largest private airline in Indonesia. This airline was founded in 1990 by Rusdi Kirana and started to fly in 2000. As a group, Lion owns two other subsidiaries; Wings Air and Batik Air. Lion Air Group operated with 179 aircraft in late 2014, up from 135 aircraft in late 2013. Their aircrafts consist of; Airbus A330-343, Boeing 737-9GP, Boeing 747-412, Boeing 737-8GP, Airbus A320-214, ATR 72-500 (72-212A), and ATR 72-600 (72-212A).37 Lion Air is the biggest airline in terms of domestic market share in Indonesia, with a 32% growth in its fleet in 2015.38 Their largest market share is proved by the total number of carrying passengers, which is bigger than that of the Garuda Group; while there were 34,516,939 Lion Group passengers, Garuda Group’s total number of passengers was 29,341,422. 39 This airline serves more than 60 destinations, with domestic flight almost covering all of Indonesia from Sabang to Merauke and international destinations such as Singapore, Malaysia, Saudi Arabia, and China.

II.3. Sriwijaya Air PT Sriwijaya Air is the third largest airline in Indonesia in terms of domestic market share and had its first flight in 10 November 2003. Sriwijaya has captured about 3.2% in terms of international market share, and 12.3% in terms of domestic market share.40 Even though this airline provides low cost air travel to the growing middle class consumer, their service levels are up above the budget airlines since they also provides passengers with food and beverages, as well as entertainment services. In 2015, Sriwijaya and NAM Air (as its LCC subsidiary) has catered for almost 8.5 million passengers, flying to 41 domestic destinations and 13 international destinations.41 As a result of improvements to their service, Sriwijaya is also expanding their market to China and Malaysia. Most of Sriwijaya’s aircrafts are Boeing products; namely Boeing 737-33A, Boeing 737-3Q8, Boeing 737-3Y0, Boeing 737-3L9, Boeing 737-36N, Boeing 737-86N, Boeing 737-524, Boeing

34 Planes Potters. Operator Aircraft List Indonesia. Available at: https://www.planespotters.net/country/operators/Indonesia 35 Airline Leader. Indonesia: Slower Growth in the World’s Fifth Largest Domestic Airline Market. http://www.airlineleader.com/categories/regions/indonesia-slower-growth-in-the-worlds-fifth-largest-domestic-airline-market-270806 36 Garuda Indonesia. Fleet Revitalization. https://www.garuda-indonesia.com/sa/en/garuda-indonesia-experience/fleets/fleet-revitalization.page? 37Ibid. 38 CAPA. Lion Air Signs Largest Ever Border in Boeing History. http://centreforaviation.com/news/lion-air-signs-largest-ever-order-in-boeing-history-129241 39Angkasa. Lion Air Juara Angkut Penumpang Domestik. http://angkasa.co.id/info/lion-air-juara-angkut-penumpang-domestik/ 40 The Jakarta Post. Sriwijaya Receives Two New Planes. http://www.thejakartapost.com/news/2015/08/22/sriwijaya-receives-two-new-planes.html 41 Forbes Indonesia. Flying in Between. http://forbesindonesia.com/berita-1008-flying-in-between.html

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737-81Q, Boeing 737-8K5, Boeing 737-86Q, Boeing 737-85P, Boeing 737-809, Boeing 737-86J, Boeing 737-9LP, Boeing 737-8BK, and Boeing 737-85F.

II.4. Indonesia AirAsia PT Indonesia AirAsia was established in 2005 as the part of the larger AirAsia Group Malaysia. This airline provides low cost options for the middle class consumer in Indonesia. Skytrax recognized AirAsia Group as the world’s best low cost airline and Asia’s best low cost airline for the seventh consecutive year in June 2015.42 Compared to the other airlines, Indonesia AirAsia’s domestic market share is smaller than its international market share, which secures nearly 15% of market share in Indonesia. It is in line with Indonesian tourist numbers, which show an increase over the last five years. Most of Indonesia’s tourists are most likely to visit Singapore, Malaysia, and Australia, which are some of the destinations served by Indonesia AirAsia. However, in 2015 after the AirAsia accident at the end 2014, the number of passengers of Indonesia AirAsia decreased to around 6.52 million passengers compared with the previous year (2014) where they carried 7.85 million passengers.43 In the terms of fleet size, Indonesia AirAsia should be able to improve their utilization rates, since they are planning to reduce the size of their fleet in 2015. Most of AirAsia’s aircrafts are Airbus products; namely Airbus A320-216 and Airbus A320-214.

III. Air Traffic Prior to 2012, air traffic control was performed by three parties, PT. Angkasa Pura I (AP I), PT. Angkasa Pura II (AP II), and the Government Operated Air Traffic Service (ATS), under the Directorate General of Civil Aviation (DGCA). Under the Government Regulation No. 77, 2012, AirNav Indonesia took over air traffic management from those companies. AirNav Indonesia handles the airspace across the Indonesian archipelago, which is divided into two Flight Information Regions (FIR) which are; Jakarta FIR (handling about 5,625 movements/day) and Ujung Pandang FIR (handling 4,262 movements/day), with a total area of 2,219,629km2, operating in 18 districts.44 AirNav Indonesia manages five business cores for Indonesian aviation; air traffic services, air telecommunication services, aeronautics information, flight meteorology information, as well as Search and Rescue Information. AirNav Indonesia owns integrated navigation equipment that includes communication, navigation, and surveillance (CNS) which covers the whole Indonesian archipelago.45 In their third year of being established, AirNav Indonesia is making progress to improve Indonesian air navigation, which is considered dated. They are currently using imported radars from France, Spain, and United States for the management units previously under AP I, AP II, and DGCA, since Indonesia hasn’t been capable of making its own radar technology for aviation needs. AirNav Indonesia also uses foreign air traffic management systems to handle their aviation radar. For example, they use Comsoft (German company) for Jakarta Air Traffic Service Centre (JATSC) and Thales (French company) for Makassar Air Traffic Service

42 AirAsia. AirAsia Named Asia & World’s Best Low Cost Airline for 7th Consecutive Year. 16th June 2015. Available at: http://www.airasia.com/id/en/press-releases-2015/june/skytrax-7-airasia.page 43 The Star. Air Asia Group Carried 11% More Passengers in 2015. http://www.thestar.com.my/business/business-news/2016/02/15/airasia-group-carried-11pc-more-passengers-in-2015/ 44AirNav. Airspace. Available at: http://www.airnavindonesia.co.id/id/page/about/type/airspace 45AirNav brochure

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Centre (MATSC).46 Currently, MATSC uses the latest system from Thales, which is Top Sky to replace the Eurocat-X system. This upgrade was also followed by replacements of 47 workstations, 30 servers and interface networks, which was launched in January 2016.47 AirNav Indonesia has been rejuvenating their old radars, which will enhance the tracking system for aircrafts during their journey. They have bought four new radars worth IDR 117 Billion (about USD 8.6 million) and those new radars will be set at Soekarno-Hatta International Airport, Adisucipto Airport, and Sultan Syarif II Airport. They will invest around USD 171 billion to renovate engine facilities and the radar equipment, since the present engines are considered old and should be replaced with new ones. However, the auction for the project’s procurement had reached 90 percent in the first quarter of 2016.48

IV. Airports Currently Indonesia is home to 29649 airports, 26 of them are commercial airports in big cities, managed by state-run airport operators PT Angkasa Pura I (AP I) and PT Angkasa Pura II (AP II). The others fall under government institutions. According to the Indonesia Investment Coordinating Board (BKPM), there are currently nine airport management projects offered to the private sector and five new potential airport projects, as shown in the figure below:

Figure 4.1 Airport Development Plan

Source: BKPM

46 Interview with Mr. Nyoman at Indonesia Infrastructure Week 2015 47AirNav. Menteri Perhubungan Resmikan Air Traffic Control System TOP SKY DI Makassar Air Traffic Service Control (MATSC). Available at: http://www.airnavindonesia.co.id/id/page/newsDetail/528?title=Menteri+Perhubungan+Resmikan+Air+Traffic+Control+System+TOP+SKY+Di+Makassar+Air+Traffic+Service+Center+(MATSC) 48Antara News. AirNav Investasi Rp 2,27 TriliiunTahun Ini. Available at: http://www.antaranews.com/berita/558877/airnav-investasi-rp227-triliun-tahun-ini 49Directorate General of Civil Aviation. Airports Data. Available at: http://hubud.dephub.go.id/?id/bandara/index/filter:category,0

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IV.1. Airport Authorities Angkasa Pura I and Angkasa Pura II are State-Owned companies under the authority of Ministry of Transportation, each of them manages 13 airports.

IV.1.1 Angkasa Pura I

The airports which fall under AP I are; Juanda (Surabaya), Ngurah Rai (Denpasar), Sultan Hasanuddin (Makassar), Sepinggan (Balikpapan), Adisutjipto (Surakarta), Lombok (NTB), Sam Ratulangi (Manado), Syamsuddin Noor (Banjarmasin), Ahmad Yani (Semarang), El Tari (Kupang), Pattimura (Ambon), Adi Sumarmo (DI Yogyakarta) and Frans Kaisiepo (Biak). As mentioned earlier, Indonesia is currently focusing on infrastructure development, including air transportation projects, by expanding and renovating airports. According to the Head of Corporate Planning and Performance Angkasa Pura I Airports, they are developing eight out of 13 airports with an investment of approximately USD 2 million. The development has been running since 2014 and is expected to be completed in 2020. This development projects are to better prepare Indonesian airports for the implementation of the ASEAN Open Sky policy.50 Meanwhile under the AP I, they have been developing the concept of Airport City with the formation of five subsidiaries, namely; Angkasa Pura Supports, Angkasa Pura Property, Angkasa Pura Hotel, Logistics, and Retail. In 2015, Angkasa Pura Airport began cooperating with a Dutch company; Kenbri Fire Fighting B.V, in order to support airport services and infrastructure.51 AP I also carries a renovation project for Sultan Hasanuddin International Airport in Makassar, which will be the first Airport City in Indonesia. The total investment for this project has reached USD 910 Billion. Later, this airport city will also have a hospital, a convention centre, shopping area, theme park, and finance area.52 Besides Sultan Hasanuddin, AP I also plans to renovate Sam Ratulangi Airport in Manado to expand its capacity from 2.3 to 4 million passengers per year. AP I provides a budget of around USD 7 million, and the construction will potentially start as soon as the first quarter of 2016.53 Frans Kaisiepo Airport in Papua will also be renovated in 2016, with a total investment worth more than USD 15 million. The renovation includes the expansion of runway, facilities for the disabled, and VIP lounge.54

IV.1.2. Angkasa Pura II

The airports that fall under AP II are: Sultan Iskandar Muda (Aceh), Kualanamu (Medan), Sultan Syarif Kasim II (Pekanbaru), Raja Haji Fisabillah (Tanjung Pinang), Sultan Thaha (Jambi), Sultan Mahmud Badaruddin II (Palembang), Depati Amir (Pangkal Pinang), Minangkabau (Padang), Soekarno-Hatta (near Jakarta), Halim Perdanakusuma (Jakarta), Husein Sastranegara (Bandung), Supadio (Pontianak), and Silangit (Tapanuli Utara). Under Angkasa Pura II, the airport expansion projects in Soekarno-Hatta and Supadio airports are planned to be finished in 2016 and 2017, while the projects for Depati Amir, Sultan Thaha,

50Angkasa Pura Airport, Sub Portal BUMN. Available at: http://www.bumn.go.id/angkasapura1/berita/3138/Pembenahan.Infrastruktur.Bandara.Indonesia.Harus.Jadi.Prioritas 51 Op, cit. Angkasa Pura Airport, Sub Portal BUMN 52Hasanuddin Airport Official Website. Airport City Telan Rp 2 T. Available at: http://hasanuddin-airport.co.id/detail/berita/airport-city-telan-rp-2-t 53Indo Aviation. AP I Akan Tambah Kapasitas Penumpang di Bandara Sam Ratulangi. Available at: http://indo-aviation.com/2015/12/31/ap-i-akan-tambah-kapasitas-penumpang-di-bandara-sam-ratulangi/ 54Indo Aviation. Angkasa Pura I Bakal Poles Bandara Frans Kaisiepo Biak. 10 December 2015. Available at: http://indo-aviation.com/2015/12/10/angkasa-pura-i-bakal-poles-bandara-frans-kaisiepo-biak/

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Husein Sastranegara, and Sultan Mahmud Badaruddin II (Palembang) airports are soon to be finished and launched in 2016.55 Soekarno-Hatta International Airport was anointed by Airport Council International (ACI) and is the tenth busiest airport in the world, with total passenger numbers of 60.1 million people annually.56 It handles approximately 72 aircrafts per hour and a total of 1200 aircrafts per day with two runways, while the actual capacity was 52 aircrafts per hour. In comparison, Changi Airport in Singapore only has 900 aircrafts to handle per day with the same number of runways. Soekarno-Hatta airport is overcrowded with current traffic, therefore AP II has been working on the planning project for a third runway, which is currently in the land acquisition process. The third runway is expected to be ready for construction in 2017, and is estimated to be finished within three years.57Soekarno-Hatta’s third runway will require a land area of 173.19 hectares, under the administration of four districts (two urban villages and two rural villages).58 As mentioned earlier, this airport is currently undergoing a large project of renovation and expansion; the programs are mainly aimed at raising the capacity, either from air capacity, terminals or other supporting infrastructures. The projects are listed below:

Table 4.1 Soekarno-Hatta Airport Projects On Progress

No Project Area Existing Target To be Finished

1 Runaway Capacity II 72 Movement/Hour 86 Movement/Hour July 2017

2

Airside Development 2 Taxilane (West Cross)

133 Apron Capacity 14 rapid Exit Taxiway

4 Taxilane (West + East Cross) 171 Apron

18 rapid Exit Taxiway Extended TW

July 2017

3 Third Runaway 68 Movement/Hour 100 Movement/Hour 2018

4

Terminal 1 Capacity 144.635 m2

9 million passengers/year

204.445 m2 18 million

passengers/year December

5



168.546 m2 19 million


6



168.546 m2 19 million


7 Inter-terminals Transportation

Shuttle Bus Automated people

mover system June 2017

Source: Angkasa Pura II

Besides those aforementioned projects, Soekarno-Hatta airport is improving its Terminal 3 to become Terminal 3 Ultimate, boosting its capacity to 62 million passengers. The first phase

55Angkasa Pura II Brochure 56 Op, cit. US Commercial Service. 57 Op, cit. BeritaSatu. 58Angkasa Pura II. Pengumuman Detail Penetapan Lokasi Pembangunan Runway 3 Bandar Udara Soekarno-Hatta. Availabe at: http://www.angkasapura2.co.id/id/informasi/pengumuman-detail/penetapan-lokasi-pembangunan-runway-3-bandar-udara-internasional-soekarno-hatta-1153

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of the Terminal 3 Ultimate was opened in August 2016 for all Garuda domestic flights, and all international flights are set to be moved to Terminal 3 Ultimate by the end of 2016.59 This terminal will also be equipped with a monorail, environmentally friendly energy, and a state-of-the-art baggage handling system.60 The development of Airport City or Aero City has a lot of potential in Indonesia, since Indonesia has become one of the most promising business and tourism destinations in the world. The need to develop Aero Cities comes from the need of business-people to stay and conduct activities near to airports, without having to travel far to the city centre. Besides of Sultan Hasanuddin, a new airport in Makassar, Sulawesi, Kertajati on the northeastern coast of West Java is also being prepared to be one of the Aero Cities in Indonesia with several zones: general service and social zone, office, trade, and service zone, housing zone, green space zone, blue space zone, mixed zone, and road.61 In addition to the Airport/Aero City concept, there is a current trend towards innovating in Indonesian airports and increasing the connectivity of the airports to the regions. One of the examples is the cooperation between AP II and an Indian company, GVK airport to build a connectivity of Kualanamu airport. Kualanamu is being planned as a regional hub airport that will be connected with Silangit airport (near Toba Lake), and will serve flights to India, Sri Lanka, and the Middle East. This approach has also been taken to boost the number of visitors to Toba Lake.62 Investment in infrastructure is also another way for Indonesian airports to improve their quality, for example Kualanamu airport established a cooperation with PT. Adhi Karya and PT. Pertamina Gas to build power plants to provide the airport with 15 MW power supply. Each year, AP II invested no less than USD 400 million for electricity, of which 160 million went on electricity bills and 240 million for investment.63

IV.1.3 Government Institutions

Besides the 26 big commercial airports managed under AP I and AP II, the remaining airports in Indonesia are under the management of government institutions. The governments’ ownership is divided into three, under the DGCA’s Airport Management Unit, under the Local Governments, and the Military. These airports are mostly small, in rural areas and have short runways. Due to its limited area, they can only serve domestic routes or pioneer flights, reaching small regions or remote areas. One of the examples is Amenggaru Laga Airport which is located in Ilaga District, Puncak Jaya Regency of Papua. The airport’s runway is only 400 to 600 meters and the flights from this airport only go to the Peak area of Puncak Jaya Mountain. Most of the DGCA’s airports are classified as Class III airports (1200 m <= aeroplane reference field length (ARFL) < 1800 m) while most the airports under Military and Local Governments are classified as Class I (ARFL < 800 m) or even unclassified. The construction and renovation of airports does not only happen to the airports under AP I and AP II; the Ministry of Transportation officially opened two airports in Sulawesi, Andi Jemma

59 BeritaSatu. Soekarno-Hatta Airport’s Terminal 3 Ultimated Officially Opened. 9 August 2016. Available at: http://jakartaglobe.beritasatu.com/news/soekarno-hatta-airports-terminal-3-ultimate-officially-opened/ 60 Liputan 6. Semegah Bandara Changi, Ini Kelebihan Terminal 3 Ultimate. 10 Juni 2016.. Available at: http://bisnis.liputan6.com/read/2528025/semegah-bandara-changi-ini-kelebihan-terminal-3-ultimate 61Kontan. Indonesia Berpotensi Kembangkan Aero City. 5 Juni 2016. Available at: http://industri.kontan.co.id/news/indonesia-berpotensi-kembangkan-aerocity 62Kontan. Demi Danau Toba AP II Gandeng GVK Airport. 30 Mei 2016. Available at: http://m.kontan.co.id/news/demi-danau-toba-ap-ii-gandeng-gvk-airport 63Kontan. AP II Bakal Bangun Pembangkit di Kualanamu. 11 Mei 2016. Available at: http://m.kontan.co.id/news/ap-ii-bakal-bangun-pembangkit-di-kualanamu

http://bisnis.liputan6.com/read/2528025/semegah-bandara-changi-ini-kelebihan-terminal-3-ultimate


http://www.google.com/url?q=http%3A%2F%2Fm.kontan.co.id%2Fnews%2Fdemi-danau-toba-ap-ii-gandeng-gvk-airport&sa=D&sntz=1&usg=AFQjCNHGLBEBUn5FDW5QHIteVQByqNtLdg

http://www.google.com/url?q=http%3A%2F%2Fm.kontan.co.id%2Fnews%2Fap-ii-bakal-bangun-pembangkit-di-kualanamu&sa=D&sntz=1&usg=AFQjCNEu93IaPYqtZZT2MTE56zzHbsbvhA

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airport and Bua Airport, in June 2016. Both of them are managed under the Management Unit of Class III Airports from the Ministry of Transportation. The government has previously opened several airports in Eastern Indonesia, including Arung Palakka in Bone, Pangtiku in Tana Toraja, and Sangia Nibandera in Kolaka.64

IV.2. Airport & Aviation Safety and Security Despite the growth of aviation market, airport security in Indonesia is lagging behind. According to IATA, between 2005 and 2010 Indonesia recorded a total of 33 accidents. This number means that Indonesia has contributed to four percent of the total accidents in 2010. IOSA (International Operational Safety Audit), which is the global standard for airline operational safety management, has 372 airlines worldwide and only Garuda Indonesia is registered among the Indonesian airlines. IATA’s Director General and CEO, Tony Tyler also urged Indonesian airports to undertake the IATA Safety Audit for Ground Operations (ISAGO) to show Indonesian awareness in increasing airport security.65 According to Aviation Safety Director of Ministry of Transportation, Indonesia’s aviation security system is lacking due to the limited human resources, technology, and obedience in following the SOPs.66 This fact motivated the Government of Indonesia to establish the National Aviation Security System Integration/NASSI 2014-2024, the integrated security system for all airports in Indonesia. As the first step, NASSI will be implemented in five Indonesian airports, which are Soekarno-Hatta, Kualanamu, Juanda, Ngurah Rai, and Sultan Hasanuddin. NASSI is expected to be implemented in all Indonesian airports by 2024.67 The main focus for aviation security is still on land/airport security, which includes the in - and out flow of passengers from one place to another. Aviation security and immigration officers are the frontline, thus GoI plans to abolish outsourcing of workers in the aviation sector, to ensure that the workers in airports and other aviation facilities are only those who are recruited as permanent staff. For on-board security, Indonesia has not deemed it urgent to hire Air Marshals, (the special task force to secure flights) in each aircraft.68 As a comparison, the use of air marshals has been common by Singapore in their ASEAN flights, namely their airlines Singapore Airlines and Silkair.69 Airport and aircraft security in Indonesia is regulated by Law No. 1 of 2009. Based on this regulation, the arrangement, control, and supervision of design, building, operation sectors and aircraft maintenance, flight navigation services, airport operations, and also its flight personnel, including its safety, all fall under the responsibility of the Ministry of Transportation. Policies for all elements in aviation will be decided by the Minister. The most recent Ministry of Transportation Regulations (PM) Number 127 of 2015 on the National Aviation Security Programme, outlines which persons are responsible for aviation security and how to provide

64 Ibid. 65IATA. Indonesia Safety and Infrastructure Challenges. 22 September 2011. Available atL http://www.iata.org/pressroom/pr/Pages/2011-09-22-01.aspx 66Angkasa Pura Airports Official Web. RI Bangun Sistem Keamanan Penerbangan. 13 May 2014. Available at: http://www.bumn.go.id/angkasapura1/berita/1360/RI.Bangun.Sistem.Keamanan.Penerbangan 67Ibid. 68Ibid. 69Singapore-Window. Armed Air Marshalls on Singapore Airline flights: report. 1 October 2003. http://www.singapore-window.org/sw03/031001af.htm

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aviation security. 70 The Standard Operating Procedures on how the security shall be conducted are also mentioned in the abovementioned regulation. Recent failures in airport security happened in early May 2016 when the passengers of Lion Air JT 161 arriving from Singapore were brought to the domestic gate instead of the international one.71 As the result, those passengers almost missed the immigration check. Only a week later, AirAsia made the same mistake by bringing international passengers from Singapore to the domestic gate. 72 Both mistakes were considered a matter of miscommunication between the airport security and the bus operator. The incidents highlighted the unpreparedness of aviation security to improve their service to secure the main gateway to the country. Nevertheless, according the Ministry of Transportation, Indonesia scored 93.6 in the UN’s International Civil Aviation Organization (ICAO) audit in November 2015.73 In August 2016, the FAA upgraded Indonesia from a Category 2 to a Category 1 nation based on their March 2016 FAA assessment. A Category 1 rating means the country’s civil aviation authority complies with ICAO standards. With the International Aviation Safety Assessment (IASA) Category 1 rating, Indonesian air carriers that are able to secure the requisite FAA and DOT authority, can establish service to the United States and carry the code of U.S. carriers74.. The development of Indonesian airports, navigation, maintenance facilities, and flight schools has not kept pace with the rapid growth of the aviation industry. On the most recent scoring from the UN’s International Civil Aviation Organization (ICAO) on safety, Indonesia’s results, although improving, were still below the world average.75 The ICAO’s audit was not intended to oversee commercial airlines, but to see how well the government is managing aviation as a nation.

Figure 4.2 Safety Audit Information 2016

70 Ministry of Transportation. Peraturan Menteri Perhubungan Indonesia No PM 127 Tahun 2015. http://jdih.dephub.go.id/assets/uudocs/permen/2015/PM_127_Tahun_2015.pdf 71Republika. Salah Terminal, Lion Air Dilaporkan Loloskan Penumpang dari Imigrasi. 14 May 2016. Available at: http://nasional.republika.co.id/berita/nasional/umum/16/05/14/o766ab382-salah-terminal-lion-air-dilaporkan-loloskan-penumpang-dari-imigrasi 72Kompas. Kronologi Penumpang AirAsia dari Singapura Salah Masuk Terminal Domestik. 17 Mei 2016. Available at: http://bisniskeuangan.kompas.com/read/2016/05/17/222837326/kronologi.penumpang.airasia.dari.singapura.salah.masuk.terminal.domestik 73 Dephub. Nilai Keamanan Penerbangan Indonesia Mencapai 93,6. 24 February 2016. Available at: http://hubud.dephub.go.id/?id/news/detail/2845 74 FAA. Press Release-FAA Announces Aviation Safety Rating for Indonesia. 15 August 2016. Available at: https://www.faa.gov/news/press_releases/news_story.cfm?newsId=20634 75 ICAO Safety. Safety Audit Information. Available at: http://www.icao.int/safety/pages/usoap-results.aspx

http://nasional.republika.co.id/berita/nasional/umum/16/05/14/o766ab382-salah-terminal-lion-air-dilaporkan-loloskan-penumpang-dari-imigrasi


http://bisniskeuangan.kompas.com/read/2016/05/17/222837326/kronologi.penumpang.airasia.dari.singapura.salah.masuk.terminal.domestik


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Source: ICAO – Safety

In 2014, in five categories Indonesia scored below 40 percent and only came close to the global average in two categories. The worst category of all is “organization” with 17.6 percent for effective implementation, far lower than the global average of 64.8 percent. The highest one is “airworthiness” with 61 percent, close to the global average of 73.9 percent. 76 In the ICAO 2016 audit, as shown above, the scores have improved in all eight categories. As a response, the GoI plans to invest 20 percent of the state budget, USD 3.57 billion to renovate the air, land, and sea transportation of Indonesia in 2016. The GoI also has a commitment to freeze the route of any airline that is involved in an accident or crash, a restriction that is in line with the Federal Aviation Administration (FAA) committee, which stated that Indonesia still lacked the Standard Operating Procedure for law enforcement in relation to airlines. The GoI’s intention to fix Indonesian aviation safety was demonstrated through the signing of a grant from US Trade and Development Agency (USTDA) worth USD 700,000 to Indonesia’s Ministry of Transportation. This grant was given in order to build an aviation safety system in Papua and Maluku region. 77 Some factors that might hinder Indonesian aviation’s safety are; the over capacity of airports, maintenance problems, lack of experienced staff, communication problems, weather problems, and numerous areas with high mountain peaks.78 Among those factors, the most crucial in aviation safety is human resources training, especially the pilots, engineers, and

76The Jakarta Post. Govt Finishes ICAO Recommendations Aviation Standards. 9 November 2015. Available at: http://www.thejakartapost.com/news/2015/11/09/govt-finishes-icao-recommendations-aviation-standards.html and http://www.wsj.com/articles/indonesia-struggles-with-air-safety-oversight-1420506169 77The Jakarta Post. Economy Brief US RI Ink Aviation Safety Cooperation. Available at: http://www.thejakartapost.com/news/2016/06/06/economy-brief-us-ri-ink-aviation-safety-cooperation.html 78Skift. Indonesians Aviation Safety Can’t Keep Pace With Its Rapid Growth. Available at: https://skift.com/2015/12/07/indonesias-aviation-safety-cant-keep-pace-with-its-rapid-growth/

51

56

32

68

46

35

26

59

57

58

54

75

67

72

66

68

0 10 20 30 40 50 60 70 80

Aerodromes

Air Navigation Services

Accident Investigation

Airworthiness

Operations

Licensing

Organization

Legislation

Safety Audit Information (%)

Global Indonesia

http://www.thejakartapost.com/news/2015/11/09/govt-finishes-icao-recommendations-aviation-standards.html


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navigators. Indonesia needs to ensure that the gap in human resources for aviation is filled with qualified people.79 Despite of the low score from ICAO, Indonesia’s accident rate has actually decreased; the 2014 aircraft accident rate for Indonesian airlines fell to 0.82 per million flights from 2.94 per million in 2007. Statistically saying, Indonesian aviation safety is actually not that bad. However, it needs continuous oversight and control to catch up with global standards, especially considering Indonesia is an archipelagic nation that has a huge population where many of the residents are frequent flyers. The carriers transported more than 80 million passengers in 2015 and this high number of flights mean there is also a bigger chance for an unwanted incident to occur. However, other countries with an average GDP similar to Indonesia are in worse conditions than Indonesia, with one incident per 90,000 flights and one death per 515,000 passengers, whereas Indonesia is still on the rate of one incident per 120,000 flights and one death per 1.2m passengers.80

IV.3. Air Cargo Even though the cargo industry in Indonesia still prefers to use sea transportation rather than the air, the Indonesian air cargo industry grew in the first quarter of 2016. According to data by AP II, the air cargo industry grew by seven percent with a total volume of 185,263 tons. Meanwhile, the airports under AP I experienced an increase of five percent, with total volume of 81,000 tons.81 This growth was predicted to be in line with the massive growth of e-commerce consumers, as well as the development of airports and aviation facilities in Indonesia. The total increase of cargo volume is predicted to reach 1.54 million tons in 2016. Currently, there are five airports with the biggest air cargo in Indonesia; Soekarno Hatta, Soewondo, Ngurah Rai, Juanda, and Hasanuddin.82 Compared to its ASEAN counterparts, Indonesia has the highest air cargo service charge at USD 150 per ton, while Singapore only charges USD 15, Malaysia USD 90, Vietnam USD 70, and Thailand USD 15. The high cost is due to the charges for warehouses, cargo services, and handling charges.83As the result, the development of the air cargo industry in Indonesia is not at its maximum. Garuda Indonesia Cargo (GIC) dominates the air cargo industry in Indonesia with a 51 percent market share in 201484; they managed to increase the load factor by 47 percent in March 2016

79SEA Globe. Eyes on The Skies: Indonesia and Aviation Safety. Available at: http://sea-globe.com/indonesia-air-aviation-safety-southeast-asia-globe/ 80The Economist. Par for the course. 19 August 2015. Available at: http://www.economist.com/blogs/graphicdetail/2015/08/aviation-safety 81Bisnis Indonesia. Angkutan Udara Arus Kargo Udara Menguat. 13 Mei 2016. Available at; http://koran.bisnis.com/read/20160513/450/546985/angkutan-udara-arus-kargo-udara-menguat 82Bisnis Indonesia. Marak Belanja Online, Kargo Udara Diprediksi Tumbuh 5%. 7 Maret 2016. Available at: http://industri.bisnis.com/read/20160307/98/525900/marak-belanja-online-kargo-udara-diprediksi-tumbuh-5 83Bisnis Indonesia. Biaya Mahal Kualitas Pelayanan Kargo Udara Mesti Ditingkatkan. 3 Maret 2015. Available at: http://industri.bisnis.com/read/20150303/98/408287/biaya-mahal-kualitas-pelayanan-kargo-udara-mesti-ditingkatkan 84Berita Trans. Garuda Kuasi 51% Pangsa Kargo Udara Nasional. 11 November 2014. Available at: http://beritatrans.com/2014/11/11/garuda-kuasai-51-pangsa-kargo-udara-nasional/

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after hitting a low point of 42 percent in January and February 2016 due to the public holiday85. CardigAir is one of the biggest players in air cargo industry, it manages a total of 6,000 tons of cargo with an income of USD 20 million per year. In June 2015, GIC and CardigAir signed an MOU, which in the earliest phase allows them to be a marketing party for each other’s operations.87 Beside GIC and CardigAir, AirAsia takes their cargo business seriously with a new innovation in door-to-door business delivery, called RedBox. This new project is expected to increase the company’s income by 20 percent. The airport operator company - AP II also launched their air cargo service operator under the name PT. Angkasa Pura Cargo, which currently manages a single warehouse in Soekarno-Hatta International Airport. They intend to open for a Joint Venture, while targeting Garuda Indonesia as an SOE partners with the most potential.88

V. Maintenance, Repair, and Overhaul (MRO) and Aviation Industry

V.1. Maintenance, Repair and Overhaul (MRO) Despite the growing market in the aviation sector and the increase of air traffic in Indonesia, the country lacks international certified Maintenance, Repair, and Overhaul (MRO) players. Most Indonesian MRO companies are not approved by the FAA (Federal Aviation Administration) and/or the European Aviation Safety Agency (EASA). There are only five companies that have been approved by FAA and/or EASA, which are; Garuda Maintenance Facility Aero Asia (GMF Aero Asia), Merpati Maintenance Facility (MMF), Nusantara Turbin Propulsi (NTP), Muladatu, and JAS Aero engineering. FAA and/or EASA approval is important since some of the airlines in Indonesia leased aircrafts from leasing companies, whose MRO should be conducted only by FAA and/or EASA registered MRO facilities.89 Presently, the national MROs are only able to take control of around 30 percent of domestic aircraft maintenance, while the rest is still under control of foreign MROs. About 80 percent of the domestic maintenance is done by the GMF AeroAsia.90According to IAMSA, Indonesia has a shortage of technicians and maintenance experts. This shortage has become a core

85 Bisnis.com. Awal Maret Load Factor Kargo Udara Membaik, 7 March 2016. Available at: http://industri.bisnis.com/read/20160317/98/529090/awal-maret-load-factor-kargo-udara-membaik 87 CNN Indonesia. Optimalkan Bisnis Kargo Garuda Indonesia Gandeng Cardig Air, 26 June 2015. Available at: http://www.cnnindonesia.com/ekonomi/20150626131223-92-62577/optimalkan-bisnis-kargo-garuda-indonesia-gandeng-cardig-air/ 88 Indo Aviation. AP II Serius Kembangkan Bisnis Kargo. 5 February 2016. Available at: http://indo-aviation.com/2016/05/02/ap-ii-serius-kembangkan-bisnis-kargo/ 89 US Commercial Service. Doing Business in Indonesia: 2015 Country Commercial Guide for US Companies. Available at: http://www.export.gov/indonesia/build/groups/public/@eg_id/documents/webcontent/eg_id_089369.pdf 90Australia Trade. Aviation to Indonesia. Available at: http://www.austrade.gov.au/Australian/Export/Export-markets/Countries/Indonesia/Industries/aviation

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problem for the country’s aircraft maintenance service sector.91 With current developments, Indonesia requires more than 4,700 technicians per year, while the available number of technicians in Indonesia is only 300 to 400 people a year. There is a huge gap between the growth of the aviation market in Indonesia and the human resources available, especially in the MRO sectors.92

Table 5.1Maintenance, Repair, and Overhaul (MRO) Providers in Indonesia

Company City

Third-Party

Maintenance Base

Engine Components Corporate

Aircraft Maintenance Services Indonesia Jakarta Yes Yes Yes

Dirgantara Indonesia – Indonesian Aerospace Bandung Yes Yes Yes Yes

Focus AngkasaAbadi

Bogor Yes Yes Yes

Aero Nusantara Indonesia93 Jakarta Yes Yes Yes

GMF AeroAsia

Jakarta Yes Yes Yes

Indopelita Aircraft Services Jakarta

JAS Engineering

Jakarta

Pyramid AngkasaSentosa

Bogor

Sapta Jaya Utama

Jakarta

Yes

UMC – Aero Engine Service Division –UMCNTP Bandung

Yes Yes

Source: Airline Update94

Indonesia’s MRO market is valued at USD 850 million, divided into USD 680 million for jet engines and USD 160 million for Turboprop Engines in 2015. The aircraft maintenance cost in Indonesia reached USD 900 million and is predicted to reach USD 2 billion by 2020. 95

91Antara News. Indonesia Can Become an Aircraft Maintenance Center: Minister. 1 Mei 2014. Available at: http://www.antaranews.com/en/news/93840/indonesia-can-become-an-aircraft-maintenance-center-minister 92Op, cit. Hakim, Chappy. 93Aero Nusantara Indonesia, PT Official Website. Available at: http://www.ani.co.id/portal/index.php 94Airline Update. Airline and Engine MRO Indonesia. Available at: http://www.airlineupdate.com/content_subscription/mro/index/indonesia.htm 95Aviation MRO Indonesia 2016. Market Insights. Available at: http://amroi2016.com/

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Recently, as part of an economic policy package to boost the economy, the government removed import duties from 21 aircraft parts and components, pending the issuance of the implementing regulation.96 There are some opportunities in some sectors of the Indonesian MRO market, which include component services, material services, and learning services.

V.1.1. GMF AeroAsia

This is the only MRO in Indonesia which has certification from EASA and FAA. In Aviation Week in 2015 – which is the barometer for commercial aviation aftermarket - GMF was listed in the “almost top ten” world’s best MRO category97, with total third-party MRO revenue at USD 264.0 million, and total third-party and airframe maintenance hours at 1.2 million and 1.6 million respectively. GMF has in-house facilities and capabilities for performance of D-check on B747-100/200/300/400/SP aircrafts. About 65 percent of GMF’s revenue comes from their work on Garuda’s fleet.98 GMF clients come, not only from domestic airlines, but also the foreign ones across the globe; among them are those from Australia, France, Germany, USA, Cameroon, South Africa, and ASEAN member countries. GMF AeroAsia’s site is located in Soekarno-Hatta International Airport, with total area of 972,123 square meters it is one of the biggest in Southeast Asia. The site has four hangars and other supporting facilities. Hangar 1 functions as a purpose-built docking platform for heavy maintenance of wide body aircrafts, Hangar 2 is dedicated to minor maintenance up to “A” checks, Hangar 3 is equipped with a purpose built docking platform for narrow body aircraft, and Hangar 4 is for painting, and can contain up to 16 narrow body aircrafts. The facilities include spare part stores, engine and component workshops, utility buildings, ground support, chemical stores, engine test cells, a vast apron for aircraft parking, and a learning centre.99 GMF will build a fifth hangar in Soekarno-Hatta, with investments worth USD 30 million. This hangar is designated to contain two wide body aircrafts.100 The construction will begin in 2017 and this could be a great opportunity for companies who wish to join the procurement for the construction. GMF also signed a partnership with a Singaporean company – Gallant Venture Ltd, to build a MRO hub in Bintan Island. The construction began in 2012 and is expected to be completed in third quarter of 2018. This MRO unit is planned to be part of a special economic area, serving the integrated plane maintenance services. In February 2015, Gallant Venture Ltd and

96 Jakarta Post. Bintan Aerospace park to Boost Aviation Industry. Available at: http://www.thejakartapost.com/news/2016/04/21/bintan-aerospace-park-boost-aviation-industry.html 97Aviation Week Network. Aviation Week Announces Top 10 Airframe MRO Providers. Available at: http://aviationweek.com/mro/aviation-week-announces-top-10-airframe-mro-providers 98Avi Trader. The Asian MRO Industry. Pp. 11-12. Available at: http://www.avitrader.com/wp-content/uploads/2012/02/AviTrader_MRO_e-magazine_2012-02.pdf 99GMF Aero Asia Official Website. Availabe at: http://www.gmf-aeroasia.co.id/about-gmf/ 100Bisnis Indonesia. GMF Siap Bangun Hanggar ke-5 Awal Tahun Depan. 11 April 2016. Available at: http://industri.bisnis.com/read/20160411/98/536565/gmf-siap-bangun-hanggar-ke-5-awal-tahun-depan

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GMF signed a MoU to develop Bintan Aerospace Industrial Park (BAIP) with the early investment worth USD 135 million.101 GMF has a target to own a 70 to 80 percent share of the MRO industry in Indonesia. Thus, to achieve this goal, GMF plans to build other facilities besides the one in Soekarno-Hatta. They want to aim at small airplanes which are used by the private sector or missionaries, especially in the eastern part of Indonesia.102

V.1.2. Lion Air

Lion Group established its first hangar in Surabaya in 2010 and the MRO’s do the heavy airframe checks on Boeing 737-900ERs. The Surabaya single hangar is only able to handle two narrow-body aircraft, and will not be able to manage the flow of new aircraft deliveries which will take place soon. Lion intends to conduct more third-party maintenance services in their new hangar facility, since currently they only do a limited amount of third-party work.103 Due to the overwhelmed operation in its Surabaya’s hangar, Lion Air Group currently has a project to build another MRO facility in Batam - the Indonesian outer island near to Singapore and Bintan Island, Indonesia. The new Batam facility will be the first fully-owned facility and will become the MRO centre for Lion Air Group. Under their subsidiary, PT. Batam Aero Technic (BAT), Lion Group will be expected to have its MRO facility in operation by 2020-2022.104 Lion Group has invested as much as IDR 7 trillion (around USD 538 million) on 28 hectares of land in Batam. The Batam facility will have four large hangars, and the first phase is already complete, occupying four hectares of land. This finished hangar can maintain up to 12 narrow body aircrafts, meanwhile the second phase will occupy 12 hectares, with an engine shop; the first in South East Asia, and maintenance. By the time the third phase is finished, BAT is expected to be able to handle up to 50 aircrafts.105 The hangars will also have an engine and component shop in cooperation with US-based General Electric Aviation, Lufthansa for ATR, Triumph Aviation106and Canada-based Pratt&Whitney.107 Lion Air is planning to develop full MRO capabilities on PW 127 turboprop in cooperation with Lufthansa Technik under BAT, such engines power the ATR72-600 aircrafts which are operated by Lion Air, its joint venture partner, Malindo, and its subsidiary, Wings Air. So far, Lion Air has 47 ATR72-500s and -600s in service. Lufthansa will help BAT to build the ATR

101Batam Pos. Garuda Bangun Bengkel Pesawat dan Pusat Logistik Bintan.14 April 2016. Available at: http://batampos.co.id/2016/04/14/garuda-bangun-bengkel-pesawat-dan-pusat-logistik-bintan/ 102 Op, cit. Bisnis Indonesia. 103Aviation Week. Lion Air MRO Facility Expansion Track. 28 October 2013. Available at: http://aviationweek.com/awin/lion-air-mro-facility-expansion-track 104Kompas Bisnis Keuangan. Bisnis MRO Lion Air Terganjal Sewa Lahan di Batam. 11 March 2016. Available at: http://bisniskeuangan.kompas.com/read/2016/03/11/081500226/Bisnis.MRO.Lion.Air.Terganjal.Sewa.Lahan.di.Batam 105 Ibid. 106 Ibid. 107The Jakarta Post. Lion Air Picks Batam S Hang Nadim Airport MRO Base. 4 April 2013. Available at: http://www.thejakartapost.com/news/2013/04/04/lion-air-picks-batam-s-hang-nadim-airport-mro-base.html

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facility and while the construction is taking place, the maintenance of the aircrafts will be held in Lufthansa Technik Aero Alzey, its regional aircraft MRO arm.108 Besides Lufthansa, BAT also signed an agreement with Triumph Aviation Services Asia, which will be valid for ten years. Triumph will provide repair services, tooling, training, auxiliary power unit (APU) test cells and certification assistance, and will conduct all APU maintenance during the construction phase of the BAT facility.109 For engines, Lion’s Batam facility has signed material support and MRO consultancy agreements with CFM in 2014. This long-term agreement will cover nearly 1,000 CFM engines which Lion Air has in service or on order.110 With this agreement signed, CFM will support the MRO facility plan in Batam.111

V.2. Aircraft Industry Back in 1937, before Indonesian independence, a group of Indonesian youth led by Tossin built PK.KKH aircraft at their workshop in Bandung. The aircraft managed to fly to the Netherlands and mainland China, which surprised the aviation world at the time. However, it was only in 1976, when PT Industri Pesawat Terbang Nurtanio (PT IPTN) was established by former President Habibie, that Indonesia has an aircraft industry by manufacturing the under licensed NC212-200 from CASA, Spain.112

V.2.1. PT. Dirgantara Indonesia (PTDI) or Indonesian Aerospace

Indonesian State Owned Company, PT. Dirgantara Indonesia (PTDI) is the first and the biggest manufacturer of aircrafts in Indonesia. PTDI was established in 1976 as PT IPTN in Bandung and has delivered 362 aircrafts to 49 operators. PTDI has competence in aircraft design and development, aircraft structure manufacturing, aircraft assembly, and aircraft services for both civilian and military light to medium aircrafts. Aircraft Service Business Units of PTDI also provides MRO, alteration, and logistic for certain types of aircraft: CN235, NC-212-100/200/400, NC212i, Bell412EP, BO-105, NAS332 Super Puma, B737-.200/300/400/500, A320, Fokker 100 and Fokker 27. It produces several aircrafts and helicopters namely; N219, NC212i, NC212-200, C212-400, CN235-220MPA, CN235-220M, CN 295 as well as helicopters NAS-332 C1, AS725-Cougar, and AS365N3+. 113 PTDI also manufacture aircraft components, tools, and fixtures mainly for Airbus products, such as wing components of A380, A350, A320-A321. PTDI is a reliable sub-contractor for Bell Helicopter Textron Incorporated, KAI, Spirit Aero System UK. They also supply components for F-16 and Fokker 100. Currently, PTDI is developing their new aircraft, N219, which is customized for pioneer flights that fit with Indonesia’s mountainous terrain. This aircraft is designed for extreme geographical characteristics in isolated areas, where airfields are limited.

108 MRO Network. Batam Gain PW127 Capability. 22 February 2016. Available at: http://mro-network.com/news/2016/02/batam-gain-pw127-capability/7851 109 MRO Network. Triumph Inks Batam APU Support Contact. Available at: http://mro-network.com/news/2016/05/triumph-inks-batam-apu-support-contract/10591 110CFM Aero Engines. Lion Group signs material support & MRO consultancy agreements with CFM International. 15 October 2014. Available at: http://www.cfmaeroengines.com/press/lion-group-signs-material-support-mro-consultancy-agreements-with-cfm-international/780 111Ibid. 112 Dirgantara Indonesia Official Website. About us. Available at: http://www.indonesian-aerospace.com/aboutus.php?m=aboutus&t=company 113Ibid.

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V.2.2. PT. Regio Aviasi Industri (RAI)

PT. Regio Aviasi Industri (RAI) is planning to conduct a project to develop commercial aircraft, Regio 80 (R80). The company has been commissioned by the son of former Indonesian President B.J Habibie, Dr Ilham Akbar Habibie. It is said that the firm needs investment amounting to USD 700 million to build the assembling facility in Kertajati Airport (Majalengka, West Java). Previously R80 was known as the brain child of RAI and Dassault Systemes.114 The location is the result of an agreement between its parent company - PT Ithalbi Rekatama and the local government administration company - PT Bandara Internasional Jawa Barat (BIJB). The assembly plan is projected to produce 24 airplanes in a year. PT Dirgantara Indonesia (PTDI), will manufacture the plane’s materials to reduce future production costs. Each aircraft will have a passenger capacity of 80 to 90 people and is planned to be able to fly for 1,000 miles. The planes are expected to conduct their maiden flight in 2018. The production consumes so much time because it has to comply with the strict air regulations. Three airlines, namely Kalstar, Trigana Air, and NAM Air have ordered 155 airplanes from RAI, each priced between USD 22 to 25 million.115 Currently, RAI has not been able to conduct its production due to the financial burden, it is expected to produce full scale and to gain certification by 2020. The company is now conducting research and development and the finalization of its design. PT GE Technology is cooperating with RAI to conduct research on propeller engines and other things.116 The aircraft’s production is currently in Phase 2, which is the full scale development; including detailed design and prototype development, flight and ground testing for certification, product support plan and development, as well as industrialization.

VI. Human Resources As Indonesia has become the fastest growing aviation market in Asia, the Government needs to take concrete actions to increase the number of Indonesian pilots, as one of the key human resources in the aviation sector. In addition, the Government should ensure the operating pilots in Indonesia are better trained, better-informed, and adequately tested. Most of the major challenges in the Indonesian aviation market comes from the lack of local pilots, which means local airlines hire foreign pilots. This lack of pilots will escalate following the emergence of ASEAN Open Sky in 2015 to the ASEAN single market aviation in 2020, which will require at least 4,000 pilots, 1,000 traffic controllers, and 4,500 technicians.117 Referring to the data from the Ministry of Transportation, Indonesia needs about 900 pilots per year, while it can only provide 300 pilots per year in 2015.118 As a result, the Ministry of Transportation, through the Human Resources Development in Transportation Agency and

114 The Jakarta Post. Aircraft maker RAI teams up with Dassault Systemes. Available at http://www.thejakartapost.com/news/2014/04/08/aircraft-maker-rai-teams-with-dassault-systemes-r80-project.html 115 The Jakarta Post. Regio Seeking Investors Support R80 Jet Project. 12 September 2015. Available at: http://www.thejakartapost.com/news/2015/09/12/regio-seeking-investors-support-r80-jet-project.html 116 Ministry of Industry. GE Berminat Kerjasama dengan Regio Aviasi. Available at: http://kemenperin.go.id/artikel/11657/GE-Berminat-Kerja-sama-dengan-Regio-Aviasi 117Ririn Indriani, Pemerintah Bangun Sekolah Pilot Negeri di Banyuwangi, 14 June 2013. Available at: http://www.beritasatu.com/nasional/119665-pemerintah-bangun-sekolah-pilot-negeri-di-banyuwangi.html 118 M. Clara Wresti, Maskapai Cari Pilot Indonesia Terbaik, 8 September 2015. Available at: http://print.kompas.com/baca/2015/09/08/Maskapai-Cari-Pilot-Indonesia-Terbaik

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Air Transportation, are increasing their support by enhancing educational programs, cooperation and accreditation, in order to develop the quality and quantity of Indonesian pilots. In 2013, the Government indicated their commitment by building a new flying school in Banyuwangi, Jawa Timur.119 To fulfil pilot demands and performance, the government will build a new building which will be 76,000 square meters and also add three training aircrafts which are imported directly from USA; PK-BHI, PK-BHY, and PK-BHJ.120 For air navigation management, AirNav employs 1,336 air traffic controllers, 647 air traffic service supports, 611 engineers, 671 specialist and business supports, who handle 193 working units across Indonesia. However, considering how large an area that Indonesian air navigation must cover, this number is not enough. According to CSE Aviation, Indonesia needs at least 200 new personnel in Airport Traffic Control (ATC) annually, while the available personnel only between 40 and 60 people a year.121 On April 2016, AirNav signed an agreement with a French-based training institution, ÈcoleNationale De L’aviationCivile (ENAC), to establish a Master Degree and Short Course on International-scale Air Navigation Services Management. The education and training is based on standards and recommendations from ICAO. The agreement will last for three years.122 Based on our interview with officials of the Ministry of Transportation, the government has several training centres related to transportation. There are five related to aviation, namely: Aviation Academy (Sekolah Tinggi Penerbangan Indonesia (STPI) Curug, Academy of Engineering and Flight Safety (Akademi Teknik dan Keselamatan Penerbangan (ATKP) in Surabaya, Medan, and Makassar, and lastly, Pilots Training in Banyuwangi.123 Education and training programs for aviation personnel could be one of the promising sub-sectors in Indonesia, since there is still lack of qualified human resources, despite the growing market.

VII. Regulation

VII.1. Negative List of Investment It is worth noting that some sectors in Indonesia were closed to investment, as mentioned in the newest Indonesia Negative Investment List (Daftar Negatif Investasi - DNI). The current Negative Investment List from the government was issued through Presidential Regulation No. 44 of 2016 on the List of Business Fields Which Are Closed and Conditionally Open to Investment. The DNI has been in force since 18th May 2016 and replaced the 2014 DNI. The main aim of the DNI is to attract more investment to Indonesia and to increase the country’s

119Sindo News, Perusahaan Penerbangan di Indonesia Kekurangan Pilot, 29 November 2013. Available at: http://ekbis.sindonews.com/read/811615/34/perusahaan-penerbangan-di-indonesia-kekurangan-pilot-1385724006 120Masuki M Astro, Sekolah Pilot Banyuwangi Siap Bangun Kampus Baru 2016, 21 December 2015. Available at: http://www.antaranews.com/berita/536295/sekolah-pilot-banyuwangi-siap-bangun-kampus-baru-2016 121Op, cit. Hakim, Chappy. 122Tribun News. AirNav Gandeng ENAC Tingkatkan SDM. 28 April 2016. Available at: http://www.tribunnews.com/nasional/2016/04/07/airnav-gandeng-enac-tingkatkan-sdm 123 Ministry of Transportation Badan Pengembangan Sumber Daya Manusia. http://bpsdm.dephub.go.id/statics/sipencatar

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competitiveness, in terms of both the ASEAN economic community as well as the global economy. In order to offer better protection for strategic economic sectors and domestic small and medium scale enterprise (UKM, Usaha Kecil dan Menengah) competitiveness, the 2016 DNI revises various components of the previous 2014 DNI under the Presidential Regulation No. 39 of 2014.124 The aviation sector is also included in the newest DNI, below is the list of some sub-sectors which are closed or conditionally open to investment: Table 7.1 The Negative Investment List for Aviation Sector (according to Presidential

Regulation No. 44 of 2016)

Sub-Business Field Foreign-Investment Cap (2016 DNI)

KBLI (Indonesian Standard Industrial

Classification)

Navigation of Aviation Services

Close 52230

Supporting businesses on terminals

Maximum 67% 52211

Airport services Maximum 49% 52230

Aviation support services (computer based reservation, ground handling, aircraft leasing)

Maximum 67% 51102

Inland services for passenger and cargo and aircraft leasing

Maximum 67% 51202, 52240, 77304

Airport-related services Maximum 67% 52230

General Sales Agents Foreign Air Carrier Companies

Maximum 67% 79112

Air Cargo Expedition Services

Maximum 67% 52294

Non-Commercial Carriers Maximum 49% The total of national investment should be bigger than foreign investment (single majority)

51109

Non-Scheduled Commercial Carriers

Maximum 49% The total of national

investment should be bigger than foreign investment (single

majority)

51104 51105

International Scheduled Commercial Carriers

Maximum 49% The total of national investment should be bigger than foreign investment (single majority)

51101 51102 51103

Domestic Scheduled Commercial Carriers

Maximum 49% The total of national investment should be bigger than foreign investment (single majority)

51101 51102

Sources: Presidential Regulation No. 44 of 2016

124 Indonesian Legal Brief: Presidential Regulations No. 44 of 2016. Hukum Online.

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VII.2. Government Procurement Indonesia’s public procurement rules were reformed to improve the procedures and to accommodate the increased fiscal authority of the regional governments. The procurement was regulated by the Presidential Regulation No. 4 of 2015 and Presidential Instruction No. 1 of 2015 as the update to Presidential Regulation No. 52 of 2010. According to the most recent regulations, it is obligatory for ministries or government institutions to conduct e-procurement for all goods/services which are already listed in the e-catalogue. The regulation also limits foreign companies from bidding on projects valued at less than IDR 100 billion (USD 8.5 million) for construction, less than IDR 20 billion (USD 1.7 million) for goods, and less than IDR 10 billion (USD 850,000) for consultancy services. The government grants these special preferences to encourage domestic sourcing and to maximise the use of local content in government procurement, while encouraging the use of domestic goods and services to the maximum extent feasible. The planning period for the national state and regional budgets is a good source of insight into public procurement projects to be launched in the following year. Because Indonesia's official communication flow can sometimes prove complex to penetrate without considerable degree of familiarity, finding a local partner is the best step towards accessing this information. All public tenders are published, but there are often listed specifications that require the knowledge and support of a local company to maximize the chances of success in a given procurement process. In any case, in order to apply for public tenders, a company must register at the government’s Procurements Portal INAPROC (https://inaproc.lkpp.go.id/v3/daftar_lpse) to be eligible to submit applications for any ongoing selection procedures. After the submission of digital documents and the registration form is complete, there is a verification process of the original documents. The company is considered to be a verified tender applicant once the information and documentation is verified and certified, which can be done on-site at any government institution. The applicant may then bid in any tender related to its field. It is useful to note that most tenders require that the company has been established for a minimum of two years. Again, having an established local partner is advisable in this respect. The air navigation SOE, AirNav also collaborates with LKPP to handle its procurement system. Every procurement conducted by AirNav will be processed through E-Proc (LPSE) set up by LKPP, website for AirNav’s E-Proc is http://eproc.airnavindonesia.co.id/eproc/.

VII.3. Aviation Law No. 1 of 2009 Since 12 January 2009, GoI enacted the Aviation Law No. 1 of 2009. The law was issued to revise Law No. 15 of 1992; the regulation was also based on the Chicago Convention 1944. The scope of discussion in this regulation is about commercial and non-commercial flights, national sovereignty in the sky, registration and nationality of aircraft, aircraft search and rescue, accident investigation, aviation documents, and international civil aviation role of Indonesia. Regulation No. 1 of 2009 stipulated that aviation development will be carried out by the government, which includes regulations, controlling, and monitoring. Under this law, GoI will impose sanctions for the airlines whose staffs and elements do not comply with the safety regulations. The aviation law also implements provisions of the Cape Town Convention, which assures lenders protection of their interests in mobile aircraft

http://eproc.airnavindonesia.co.id/eproc/

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equipment, it is also allows private companies to compete with AP I and II in becoming airport operators.125 Article 14 stipulates that the design of aircraft, machines, and propellers of the aircraft should obtain an agreement letter and type certificate based on initial airworthiness. Article 16 states that every aircraft, machine, and propeller which is produced in a foreign country and will be imported to Indonesia must obtain the type certificate validation based on bilateral cooperation; in which the imported products should pass the inspection and test. The type certificate and its validation are both issued by the DGCA. Article 26 of this regulation stipulates that the civil aircraft owned by foreigners or foreign institutions, which are operated by Indonesian citizens or institutions for two consecutive years, or controlled by Indonesian institution for leasing, storage, or trade based on an agreement, must obtain the registration certificate. Moreover, article number 37 stipulates that every aircraft which is operated in Indonesia should also hold an initial airworthiness certificate for their first time operation and continuous airworthiness certificate after the first airworthiness standard. In the maintenance subsector, it is stated in Article 47 that the units that have authority to conduct a maintenance service of the aircrafts are; airlines which own an aircraft operator certificate, organizations or institutions of aircraft maintenance with the approved maintenance organization, and expert personnel of aircraft with an aircraft maintenance engineer license.

VII.4. Other Related Regulations Based on the most recent Ministry of Transportation Regulation (Peraturan Menteri Perhubungan - PM) Number 7 of 2016 on the Rejuvenation of Commercial Aircrafts and Commercial Air Carriers, the maximum age of every passenger aircraft in the normal category operating for the first time in Indonesia is ten years, and the maximum age of an aircraft is 30 years. The 2016 Regulation amends the 2015 Regulation on the age of cargo carriers or freighters; the maximum age for operating for the first time in Indonesia has increased from 15 years to 25 years, and the maximum age has changed from 30 years to 40 years. The change was deemed important because about 70 percent of cargo carriers are converted from passenger aircraft, and they are usually converted once they are 15 to 20 years old, so the Ministry of Transportation hopes that the amendment will maximize the efficiency in the air cargo industry.126 The other related regulation is the Ministry of Transportation Regulation (PM) Number 21 of 2015 which compiles the regulatory framework on aviation safety and creates a checklist to make it easier for aviation companies to ensure compliance with the prevailing laws and regulations. It classifies the obligations under the following categories; human resources, facilities and infrastructure, standard operational procedures and environment. Besides that, the Ministry of Transportation also issued Regulation (PM) Number 9 of 2014 containing the decision to increase the lower threshold for domestic airfares, which was taken to improve national safety and prevent low cost carriers from reducing their operating cost by reducing expenditure on safety. The decision was criticized by LCC, transportation expert, and public. The new airfare floor is set at 40 percent of the upper threshold fare for each flight route. As a result, airlines can’t sell cheap tickets for promotion.127

125 Indonesia Business Success Guide. 2015, IBP, Inc. p. 160. 126Ministry of Transportation. Batas Usia Pesawat Udara Kargo Diperpanjang. Available at: http://www.dephub.go.id/welcome/readPost/batas-usia-pesawat-udara-kargo-diperpanjang 127Hukum Online Indonesian Legal Brief. Issue 2559 12/1/2015. Govt Updates Airfare Price Floors to Improve Aviation Safety.

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The Ministry of Transportation Regulation (PM) Number 77 of 2015 covers points, such as the required standards for facilities inside and outside airports and the procedures to secure certificates evidencing compliance with the prescribed standards. Those standards were determined by the Director General of Air Transport. To ensure compliance with the standards, airport facilities must undergo certification procedures to examine the facilities prior to first time operation and later on as extension of the compliance certificates.

VIII. Trends and Challenges Compared to the rest of the world, Indonesia is predicted to be in the top five for highest air passenger growth by 2034, based on a forecast made by IATA. The top five in descending order are: China, US, India, Indonesia, and Brazil. Indonesia is forecasted to have 219 million air passengers in 2034, which means there will be 132 million new passengers in a twenty year period. According to IATA, Indonesia is also going to be one of the five major domestic markets in the world, along with the same countries mentioned above. This growth will be possible to attain due to the growth of middle income families and the trend of tourism.

Figure 8.1 World Top Ten Passengers Market Growth Forecast (2014 to 2034)

2014 2034

China 438 1196

US 633 1156

India 103 378

Indonesia 87 219

Brazil 98 202

0

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sen

gers

World Top Ten Passengers Market (in Million)

Another interesting figure by Price Waterhouse Cooper mentions that the number of Indonesian residents’ trips is projected to significantly increase from 2013 to 2020. In 2013, Indonesian residents’ trips reached only to 77 million and thus placed Indonesia in eighth position among the other countries. Meanwhile in 2020, Indonesia is predicted to be placed fifth, with 117 million people taking trips over the year. These kinds of projections show how big the aviation market in Indonesia actually is. According to the aforementioned source, there are several factors that might be influencing the propensity to fly; economic health, demographic changes, market maturity and geographical features.

Source: IATA Air Passenger Forecast

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Furthermore, according to data by Boeing, Indonesia has the third largest backlog in 2014.128 There are approximately 800 aircrafts on order to be delivered to Indonesia.129 With such a big number of orders, the Indonesian sky will be busier than ever. The increase of air traffic will most likely put pressure on traffic management, especially with the amount of upcoming aircrafts on order. Therefore, there are lots of market opportunities in Indonesia for the aviation sector to support the growing market. Besides the airport developments by the government, there are several other promising sub-sectors, such as refurbishment of air traffic control assets and ground handling, in which demand for new equipment will be considerable130 Among all other aspects, safety remains the top priority and of biggest concern for the Indonesian aviation industry. There is at least one hull loss from Indonesian aircraft every year since 2010. The safety and security facilities like air traffic control assets and personnel should be updated, including the management, equipment, software and other elements. Additionally, the growing market in emerging countries throughout ASEAN, including Indonesia, has made competition for passengers more intense and the market is more likely to be price sensitive. Market forecasts by Bombardier stated that competition has put a downward pressure on yields, load factors, and airline profitability. The growth of low cost carriers is uncertain, but the trend of introducing modern regional jets, turboprops and new-generation single-aisle aircraft with low seat-kilometre costs will be more likely to happen. These regional jets and turboprops will provide more opportunities and will engage the secondary and tertiary market in travel across the region, since these short range specialty turboprops will be able to reach remote areas.131

IX. Conclusion Indonesian aviation sector is accelerating fast due to economic health, demographic changes, market maturity and geographical features. The government has initiated to expand and renovate its infrastructure to create better connectivity within the country. The rapid growth is being hampered, however, with several problems that need to be tackled in order for the aviation sector to reach its full potential Shortcomings in terms of human resources, as well as technology, are becoming key problems in the Indonesian aviation industry. Aviation safety and security is also an issue to overcome, since Indonesia needs to escape the low-ranking evaluation by international bodies. Most importantly, these challenges have actually opened up great opportunities for European companies to tap into the Indonesian aviation market by providing applicable solutions.

128 Boeing Current Market Outlook 2014. Available at: http://www.boeing.com/assets/pdf/commercial/cmo/pdf/Boeing_Current_Market_Outlook_2014.pdf. P. 16. 129 IATA. Developing of Potential of Indonesia’s Aviation Sector. Available at: http://www.iata.org/pressroom/pr/Pages/2015-03-12-01.aspx 130 Price Waterhouse Cooper. Propensity to Fly in Emerging Economies. Available at: https://www.pwc.com/gx/en/capital-projects-infrastructure/pdf/pwc-propensity-to-fly-in-emerging-economies.pdf 131 Bombardier Commercial Aircraft. Market Forecast 2014-2033. Available at: http://www.bombardier.com/content/dam/Websites/bombardiercom/supporting-documents/BA/Bombardier-Aerospace-20140717-Commercial-Aircraft-Market-Forecast_2014-33.pdf. P. 37

http://www.boeing.com/assets/pdf/commercial/cmo/pdf/Boeing_Current_Market_Outlook_2014.pdf


http://www.bombardier.com/content/dam/Websites/bombardiercom/supporting-documents/BA/Bombardier-Aerospace-20140717-Commercial-Aircraft-Market-Forecast_2014-33.pdf



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Relevant Contacts Ministry of Transportation – Directorate General of Civil Aviation Contact: JI. Medan Merdeka Barat No. 8 Gd. Karsa Lt.4, Jakarta Pusat 10110 Telp. (021) 3505006, (021) 3505133, (021) 3840694 Fax (021) 3505139 Email: [email protected] Website: www.http://hubud.dephub.go.id/

INACA - Indonesia National Air Carriers Association Contact: Terminal Building 2/F - Room A 23 PK Halim Perdanakusuma Airport Jakarta 13610 Telp. (021) 8088 7376, (021) 7031 5568 Fax (021) 8088 7257 Email: [email protected] Website: www.inaca.id

Angkasa Pura I, PT Contact: Kota Baru Bandar Kemayoran Blok B12 Kav. 2, Jakarta Pusat Jakarta 10610 Telp. (021) 541961 ext. 2116 Email: [email protected] Website: http://www.angkasapura1.co.id/

Angkasa Pura II, PT Contact: Soekarno-Hatta International Airport Building 600, PO BOX 1001/BUSH Jakarta 19120 Telp. (021) 1500 138 Email: [email protected] Website: www.angkasapura2.co.id

AirNav Indonesia Contact; Jl. Ir. H. Juanda No.1 Tangerang 15121 Banten Telp. (021) 5591 5000 Fax: (021) 5591 5100 Email: [email protected] Website: www.airnavindonesia.co.id

Indonesian Logistics and Forwarder Associations (ILFA/ALFI) Contact: Perkantoran YosSudarso Megah Blok A/8, Jl. YosSudarso No.1 TanjungPriok Jakarta 14320 Phone : (021) 4391 2283/84 Fax : (021) 4391 2285 Email: [email protected] Website: http://www.ilfa.or.id/

http://hubud.dephub.go.id/

mailto:[email protected]

http://www.angkasapura1.co.id/


http://www.angkasapura2.co.id/

http://www.airnavindonesia.co.id/

http://www.ilfa.or.id/

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Indonesia Aircraft Maintenance Services Association (IAMSA) Contact: Kompleks Universitas Suryadarma (UNSURYA) Halim Perdanakusuma Airport Jakarta 13610 Phone: (021) 8016997 / (021) 70656213 Fax: (021) 8016997 Email: [email protected] / [email protected] Website: http://www.http://iamsa.or.id/

Trade Fairs in Indonesia Indo Aerospace Expo and Forum 2016 Venue: JIExpo Kemayoran Jakarta Date: 02 – 05 November 2016 Indo Aerospace Expo and Forum 2016 is supported by the Ministry of Transportation, the Ministry of Trade, the Ministry of Industry, Indonesian Aircraft Maintenance Shop Association (IAMSA) and Indonesian Exhibition Companies Association. Held concurrently with the Expo, is the Indonesian Aerospace Industry Conference which is expected to attract over 400 top decision makers from both Government and commercial sectors. Over 800 companies are expected to showcase the latest technology and systems when the show opens its doors on the 2nd November 2016. For four action-packed days, you can also attend the international conference, many free technical presentations, see live product demonstrations and network with industry experts. Airport Solutions Venue: Jakarta Convention Center Date: 09 - 11 November 2016 The 4th Annual Airport Solutions Indonesia event is now part of a worldwide portfolio of events held in Dubai, Indonesia, Mexico and Turkey. Developed in partnership with aerospace global leaders and organizers of The Dubai Airshow (DAS), this forum is hosted by the Ministry of Transportation (MOT) and Indonesia Transport Society (MTI) and is coordinated with Indonesia’s key stakeholders and trade associations, including Angkasa Pura I, Angkasa Pura II and AirNav. Being part of Indonesia Infrastructure Week (IIW), Airport Solutions Indonesia also benefits from a huge cross-over audience across the infrastructure chain. More than 13,500 leading infrastructure stakeholders, including 288 exhibiting companies and 969 conference delegates visited IIW 2015 to discuss, plan and deliver against the Indonesian national infrastructure agenda.



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Abbreviations AP I & II Angkasa Pura I & II ASAM ASEAN Single Aviation Market ASEAN Associations of South East Asian Nations BAT Batam Aero Technic BIJB Bandara Internasional Jawa Barat BKPM Badan Koordinasi Penanaman Modal (Indonesia Investment Coordinating

Board) BPS Badan Pusat Statistik (Indonesian Statistics) DNI Daftar Negatif Investasi – Investment Negative List EASA European Aviation Safety Agency ENAC EcoleNationale De L’AviationCivile EU European Union FAA Federal Aviation Administration GDP Gross Domestic Product GIC Garuda Indonesia Cargo GMF Garuda Maintenance Facility ICAO International Civil Aviation Organization IATA International Air Transport Association IOSA International Operational Safety Audit JATSC Jakarta Air Traffic Service Center MATSC Makassar Air Traffic Service Center MMF Merpati Maintenance Facility MRO Maintenance, Repair, and Overhaul NTP Nusantara Turbin Propulsi RAI Regio Aviasi Industri UKM Usaha Kecil dan Menengah – Small and Medium Enterprises

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About EIBN

The EIBN is a partnership project between five European bilateral chambers of commerce in

Indonesia (BritCham, EKONID, EuroCham, IFCCI, INA) and two counterparts in Europe

(EUROCHAMBRES, CCI Barcelona). The EIBN’s aim is to promote Indonesia and ASEAN

as high potential trade and investment destinations among companies from allEU28 member

states – especially SMEs – and support them in their endeavor to explore the full market

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