Operating as the low-cost arm of AirAsia (AirAsia Berhad), Indonesia AirAsia, based in Jakarta, is facing potential grounding if new financial regulations introduced by the Indonesian government become enforceable. The government has been increasingly concerned over the state of finances of 13 Indonesian airlines and as a consequences has given them all until the 31st July to make good stretched balance sheets. However Mohshin Aziz, an analyst with Maybank Kim Eng, stated that “This ruling is so onerous, chances are all 13 airlines will be suspended so thousands of jobs will be lost. No government in the world wants that.” Instead he suggested negotiations between the airlines and the Indonesian government could well resolve the matter.
AirAsia has been beset with problems recently, including the crash of flight QZ8501 in December last year which killed all 162 passengers and crew on board. Licenses for the Surabaya-Singapore and Medan-Palembang routes have been suspended for Indonesia AirAsia as of January 2015 as a result of suspected licensing breaches. Until July 2010 the airline was banned from flying to Europe owing to safety concerns, while last week a military transport plane crashed killing 140 persons on board. Consequently tighter scrutiny on finance has become part of a concerted drive by Indonesia to improve its air safety credentials.
Shares in AirAsia have already fallen by 30% as a result of a report released by Hong Kong-based GMT Research who claimed that AirAsia uses transactions with loss-making associate carriers to increase its earnings. Someone familiar with AirAsia’s strategy and who chose to remain anonymous stated that AirAsia has known “for a while” that there has been a need for the airline to raise funds and it has been exploring options, including a stock market listing for Indonesia AirAsia, to tap into the debt market or to get current investors to inject more cash.
If Indonesia AirAsia did lose its permit to fly in Indonesia, a rethink by its 51% majority shareholder, Tony Fernandes, may see the airline cease trading altogether.
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