JAKARTA - AirAsia has dropped its plans to acquire Batavia Air, two months after
it made the offer as part of a long-term expansion plan in one of the world's
most lucrative markets, from which it planned to become a dominant player in
Asean.
AirAsia's chief executive Tony
Fernandes cited "too many risks" as the reason for the about-turn,
but maintained it was not a setback.
Instead, both carriers will
revise their agreement to collaborate on operational areas like ground
handling, distribution and inventory, as well as pilot training.
Indonesia's sprawling archipelago
of 17,000 islands, large domestic market and rising affluence has fuelled an
aviation growth that is among the fastest in the world, spurring foreign
players to aim for mergers to get a slice of the pie.
The US$80 million (S$98 million)
acquisition plan announced in late July was billed as a "perfect
marriage" - a way for AirAsia to increase its market share in Asean and
for Batavia Air to claw out of its debt load, estimated at US$40 million.
The Malaysian low-cost carrier
was to own 49 per cent of Batavia Air, while its Indonesian partner, Fersindo
Nusaperkasa, was to control 51 per cent, in order to comply with Indonesian
ownership rules.
But the plans were scuttled,
partly due to AirAsia's request to lower its offered price, which Batavia Air
refused, according to local business daily InvestorDaily, citing a source.
Batavia Air's commercial director
Sukirno Sukarna said the company had held a meeting with AirAsia and Fersindo
late last week. The discussion touched on measures to lower costs, such as
cutting the number of flights.
He said the failed deal was not
"the end of the world" for the carrier, as it would continue its
business.
Yesterday, Mr Fernandes said:
"The company's decision was based on a thorough evaluation by many parties
into Batavia Air. In our minds, the timing was perhaps not appropriate as it
would have induced too many risks and would ultimately be earnings dilutive to
our shareholders.
"Our aggressive focus in
Indonesia remains, and we will push our Indonesian IPO (initial public
offering) plans while still maintaining close cooperation with Batavia
Air," he added. Its launch target is early next year.
Despite this turbulence, the
former music industry executive tweeted: "We have learnt a tremendous
amount, and feel very confident that we will be a market leader in
Indonesia."
Mr Shukor Yusof, an aviation
analyst at Standard and Poor's equity research, said AirAsia would find it
tough to realise its goal in Indonesia.
Local airlines in the low-cost
sector like Lion Air command over half the domestic market, and foreign players
have partnered with local carriers to tap and grow the local market, for
example, Tiger Airways has tied up with Mandala Airlines.
AirAsia's share of the domestic
market is around 8 per cent, but it is Indonesia's biggest player on
international routes, with a market share of 42 per cent.
Batavia Air has an 11 per cent
market share, and nearly 4 per cent share of international routes out of the
country.
"Batavia Air might stand to
lose more as it has lost a strong partner that could help increase dominance
and resolve its debt issues," said Mr Yusof.
AirAsia's fleet has grown from
two planes in 2001 to 115, flying over 100 routes across Asia and Australia.
Mr Dharmadi, who heads AirAsia
Indonesia, said the carrier will now focus on fleet expansion next year.
"We are looking to more than triple our fleet size in the next five years
to accommodate an average annual passenger growth rate of 24 per cent and 28
per cent in the international and domestic markets respectively."
The Straits Times
Business & Investment Opportunities
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