Manufacturers See Indonesian Aviation Market As A Goldmine

Includes: BA, ERJ, IDX
by: Emerging Money

By Randall Mah

With 240 million people - the world’s fourth largest population, spread across more than 17,500 islands and a growing middle class, Indonesia (NYSEARCA:IDX) is an aviation market that relies on aircraft to move its citizens more than most.

Consequently, it is increasingly being eyed by foreign aerospace companies seeking to sell aircraft to the numerous domestic airlines that have popped up in recent years.

Russia’s Sukhoi brought its Superjet-100 to Jakarta last month, the first new Russian passenger jet since the fall of the Soviet Union more than 20 years ago, in an attempt to wow Indonesian airlines such as Kartika Airlines, Sky Aviation and Queen Air, which had expressed interest in the relatively inexpensive aircraft.

With a capacity of up to 98 passengers, the $35 million plane is cheaper than comparable aircraft manufactured by Canada’s Bombardier and Brazil’s Embraer SA (NYSE:ERJ).

While the Sukhoi demonstration flight tragically crashed into a volcano, killing all 45 passengers on board, (the cause of which is still being investigated) it highlighted the fierce competition to enter the Indonesian aviation market.

This month, budget carrier Lion Air, the archipelago’s largest airline, ordered five Boeing 787 Dreamliners (NYSE:BA) for its newly launched premium carrier Batik Air. In April, Airbus secured a $2.5 billion contract for 11 A330-300s with national carrier Garuda Indonesia during a trade mission to Jakarta by British Prime Minister David Cameron.

“There’s a major transformation going on, not just with Garuda but with the whole aviation market in Indonesia,” said industry analyst Gerry Soejatman, according to AFP. “Around 60 million, or a quarter the population, travel domestically by air annually. That number could easily double if the price is right.”

With Indonesian airlines like Pacific Royale Airways beginning operations earlier this month, demand for aircraft look set to increase in the future.

Malaysian budget carrier AirAsia (OTC:AIABF) is so confident in the expanding Indonesian aviation market that its chief executive officer, Tony Fernandes, has announced he will move to Jakarta to expand regional operations from there.

“Shifting AirAsia’s emphasis to a regional strategy is, we believe, not just good business, but also a move that will keep us ahead of the inevitable competition that is heading our way,” Fernandes said.

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