Aerospace Investment in Indonesia

The aerospace industry in the Asia-Pacific region has shown robust growth in recent years. This region is one of the world’s fastest growing regions for air travel.

  • Indonesia has 237 airports and 22 airlines.
  • Indonesia’s air traffic is predicted to grow 7 percent annually for the next 20 years
  • The liberalization of air travel between the ASEAN countries started in 2015.
  • Local companies AirAsia and Lion Air have become Boeing’s and Airbus’s biggest customers.
  • The number of plane crashes in Indonesia showed a downward trend and it is still below the global average.

 

Indonesia has 22 airlines that operate commercial flights and 35 for charter flights. These airlines fly 400 domestic and international flights, which connect 121 cities in Indonesia with 21 countries. Sadly, this airline growth has not been matched by growth in airport capacity.

In the next 20 years, air traffic is expected to grow an average of seven percent annually. Indonesia, the current engine of economic growth in Southeast Asia and one of the largest economies in the Asia-Pacific region, is home to a burgeoning middle class that is increasingly using airplanes for domestic and international transportation. Because Indonesia is the world’s largest archipelago, containing 17,ooo islands, air travel is a logical option for fast travel across the country. Moreover, Indonesia’s investment grade status makes it cheaper for domestic companies to finance expansion.

Moreover,  political development will provide new opportunities in Southeast Asia’s aviation sector from 2015 onward. The establishment of the ASEAN Economic Community, which aims for member countries to become a more cohesive political and economic unity, stipulates the liberalization of air travel between its member countries beginning in 2015.

 

Aerospace at ASEAN countries

As other ASEAN countries have competitive airline companies, such as Malaysia’s AirAsia and Singapore Airlines, it will be vital for Indonesian airlines to be fully prepared to meet this competition. Matters that are frustrating the efficiency of Indonesia’s aviation business are shortages of human resources.  Also the inadequate air traffic management and infrastructure for air travel. The latter includes the lack of appropriately sized airports (including runways) and tollways or railway tracks to and from airports. Another stumbling block is that tough competition has seriously reduced profit margins for airlines, while capital investments remain high. In 2011 Indonesia officially had 187 airports, but only seven with runways over three kilometers in length.

Currently Indonesia has 237 airports, of which 27 are international airports. Of these, 13 airports are managed by PT AngkasaPura I and 13 airports managed by PT AngkasaPura II.  The rest are managed by the Technical Executing Unit of the Directorate General of Civil Aviation. In the coming years, the government will build 62 new airports.

Aerospace Growth

Indonesia’s domestic market grew by 16 percent in 2011 to 60 million passengers and is expected to reach 100 million passengers in 2015. Since June 2011, AirAsia, which has a 40 percent share of Indonesia’s international market, and Lion, which has a 45 percent share of the domestic market. Thus they have become Boeing’s and Airbus’s biggest customers. In total, Lion and AirAsia have ordered 664 planes worth US$64.4 billion at list prices. Closely held Lion has ordered 232 planes from Boeing and the same number from Airbus. For this reason, many construction projects for new airports are underway, along with renovations to older airports and systems to help local airlines strengthen their market position.  In November 2011, Lion Air ordered 230 aircraft from Boeing for US$21.7 billion. Then in March 2013, Lion Air ordered a record-breaking 234 airplanes from France-based Airbus for a total price of US$24 billion.

Past seven years, the number of plane crashes in Indonesia showed a downward trend. In 2007, there were six aircraft accidents, which decreased to two accidents in 2012. In 2012 the total number of scheduled flights exceeded 1 million flight hours. This means that the accident rate for the year was 2 for every 1 million flight hours. According to the International Civil Aviation Organization (ICAO), the average global accident rate is eight in 1 million flight hours. It is four times that of Indonesia’s total accident rate. This shows that the rate of airline accidents in Indonesia falls well below the global average.

 

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