AirAsia in swoop for Indonesia’s Batavia Air
UPDATED @ 01:59:16 PM 26-07-2012
JAKARTA, July 26 — Asia’s largest low-cost carrier, AirAsia Bhd, is making its first major airline acquisition by buying Indonesia’s Batavia Air to expand in Southeast Asia’s biggest economy, the two groups said today.
The move will sharpen competition among low-cost carriers in Indonesia, a field already crowded with players like Lion Air, the nation’s biggest, Mandala Air, controlled by private equity firm Saratoga Capital, and Citilink, a unit of flag carrier Garuda.
“It’s an interesting move and it surely going to make the competition even tighter in an already competitive market,” Edward Sirait, a Lion Air director, told Reuters. “It also shows the recognition by foreign investors that Indonesia’s aviation market has a very huge potential.”
The acquisition will also help AirAsia compete against regional rivals like Tiger Airways Holdings Ltd and Singapore Airlines Ltd once the Southeast Asian open-sky policy comes into effect in 2015.
That policy will allow the budget carriers to fly more regional routes and removes various restrictions on passenger, cargo and charter services.
The purchase is somewhat of an about-face for AirAsia CEO and founder Tan Sri Tony Fernandes who said previously he was against acquisitions, calling them “value destroying” in an interview with Reuters a year ago.
Today, however, Fernandes called the acquisition a “huge step” and said on his Twitter feed that his airline was now a “major player in Indonesia.”
“This news in Indonesia will have a very positive effect on our earnings over the next few years,” Fernandes tweeted.
Batavia Air confirmed the acquisition, but declined to comment about details. Financial terms were not disclosed. AirAsia officials in Indonesia said a signing ceremony and press conference would be held later today in Jakarta.
Fernandes said in early May his group was looking to list its Indonesian operations by the first quarter of next year as it moves its regional base to Indonesia to focus on further expansion.
Fernandes is also expected to move to Jakarta to oversee the airline’s expansion plans in Southeast Asia.
“There will also be a positive impact on its Indonesian unit’s listing. The IPO will be helped by this acquisition,” said an aviation analyst with MIDF Research in Kuala Lumpur, who asked not to be named because he was not authorised to speak to the media.
AirAsia will benefit from Batavia Air’s strong agent network in Indonesia, said Ahmad Maghfur Usman, a Kuala Lumpur-based equity analyst with OSK Research.
“The Internet penetration in Indonesia AirAsia in terms of ticket bookings is not as great as Malaysia or Thailand. So that’s why AirAsia sees value through the purchase of Batavia Air,” he added.
AirAsia’s move is also seen as an extension of the global rivalry between Airbus and Boeing. Lion Air ordered 230 Boeing short-haul jets worth US$22 billion(RM70 billion) in November last year to take it its total orderbook to more than 400 planes.
AirAsia said in May that it is in talks with Airbus to buy 50 A320 passenger jets worth US$4 billion, only months after it placed a record order for 200.
Shares of AirAsia were unchanged at RM3.74 per share compared to Malaysia’s benchmark index which was down 0.37 per cent at 1.36pm. — Reuters