Foreign investors eye airports as Indonesia rolls out its welcome mat, report Randy Fabi and Andjarsari Paramaditha of Reuters

Indonesia's need for more and better airports is drawing strong interest from foreign transport and construction companies, hungry for a slice of the action in one of the world's fastest-growing markets for air travel.

This month Indonesia is expected to ease regulations to allow foreign companies, like India's GVK Power & Infrastructure and South Korea's Incheon International Airport Corp, to manage and operate airports in what is already the world's fifth-largest domestic air travel market.

"After this [change in the] law in Indonesia, all airport operators will be showing an interest," says Turkish airports operator TAV Havalimanlari Holding.

Indonesia's airports, many of which are operating at two to three times above their designed capacity, are crying out for investment after years of scant government funding, inefficient bureaucracy, and unending disputes over land rights.

Its nearly 200 public airports are barely coping with a travel boom and could lose market share to Singapore, Malaysia and other regional hubs if it doesn't expand quickly, industry officials warn.

Years of robust economic growth in the world's fourth-most populous country has led to a surge in air traffic, as many Indonesians pick planes for travelling between the archipelago's myriad islands instead of ferries.

The country's main airport, Soekarno-Hatta International Airport in Jakarta, is expected to handle 64.4 million passengers this year, nearly triple its designed capacity of 22 million, according to its owner, Angkasa Pura II.

The country's newest international airport, located in northern Sumatra's provincial capital of Medan, is already operating at capacity after opening just four months ago.

Budget carrier Lion Air, which has ordered more than 500 planes for delivery in the next decade, warned its new aircraft could be diverted to its affiliates in Thailand or Malaysia if Indonesia is not able to accommodate its plans to expand into the international market, says Edward Sirait, the firm's director of general affairs.

Indonesia's flag carrier Garuda Airlines , which has announced plans to double its fleet to between 350 and 400 aircraft by 2025, is also being forced to move many of its new planes to Batam and Medan airports due to the lack of capacity in Jakarta.

"Garuda's fleet is quite flexible, so we can park our aircraft in airports around Indonesia," the company's chief executive, Emirsyah Satar, told Reuters. "It's a pity if we can't fulfill the needs for transportation due to a lack of infrastructure."

In August, Garuda was forced to announce a delay in the launch of its first Jakarta-London service by six months to May 2014 due to the capital's ageing airport.

Satar said the company's expansion plan was based on the government's development programme to start building 24 new airports and significantly expand current ones by 2017. An additional 21 airports are to be built within a decade.

Soaring demand

Overseas interest in Indonesia has been rising for years.

France's Vinci, Germany's Fraport AG, South Korea's Incheon, Japan's Mitsubishi Corp and Sojitz Corp have recently approached Indonesian companies about possible investment opportunities, say two senior officials with state-owned air operator Angkasa Pura I.

But no foreign firm has been able to grab a major stake in any of Indonesia's major airports due to restrictive government regulations and land acquisition issues. The country's airports are currently operated by either the government or state-owned companies.

"Many foreign companies have come to us. They are asking and waiting for their opportunity," Tommy Soemoto, president director of Angkasa Pura I, told Reuters last month. "It is up to the government now."

Indonesia's airports are on a "negative investment list,” which limits foreign involvement in areas deemed sensitive. Under the regulations, foreign companies are limited to owning no more than 49 percent of domestic airports.

Indonesian officials have proposed removing airports, ports and airport services from this list to help revive a slowing economy. The measures need the approval of President Susilo Bambang Yudhoyono.

Indonesia's investment chief Mahendra Siregar told Reuters minor details of the proposal were still being finalised, and should be approved in early December.

India's GVK Power & Infrastructure said Indonesia's plan to allow 100 percent foreign direct investment in airport development would "facilitate not only capital infusion, but also the much-needed management, technical and operation expertise."

India's largest private airport operator is expected to become the first foreign company to hold a major stake in an Indonesian airport when it teams up with Angkasa Pura I next year to build a second airport in the central Java city of Yogyakarta.

The $700 million project is expected to be finalised next year with operations starting as early as 2017.

Angkasa Pura I also hopes to spin-off five of its most profitable airports, including the Ngurah Rai International Airport in Bali, next year to enable foreign investment for its expansion plans, Yudhaprana Sugarda, head of corporate planning, told Reuters last month.

"Up to 900 new planes will be delivered into Indonesia in the next decade," Sugarda said. "We must seek cooperation to improve our infrastructure to be ready."

Vietnam airlines plan fleet boom as roads and rail fail

By Ho Binh Minh of Reuters

Vietnam's fledgling airline industry is poised for a boom as local competition heats up with fleet expansions, new routes and planned share offers that are set to make it one of the world's three fastest- growing markets.

Even as the local economy chugs along at about 5 percent growth, its slowest pace in 13 years, demand for domestic air travel is growing by double digits. That is translating into a surprisingly robust new source of business for Boeing Co, Airbus and regional aircraft makers such as Mitsubishi Aircraft Corp, Bombardier Inc and Embraer SA.

The International Air Transport Association expects Vietnam to become the world's third-fastest growing market for international passengers and freight next year, and the second-fastest for domestic passengers. Vietnam's Aviation Department expects 15 percent growth in domestic passengers this year, more than double last year's 7 percent rise.

Though starting from a low base, Vietnam's carriers will boost their fleets in the next few years, doubling or tripling them to serve a domestic market of 90 million people and tourist arrivals growing on an average of 20 percent annually.

VietJet Aviation Joint Stock Co, Vietnam's first private airline, agreed has to a provisional order for up to 92 Airbus jets worth $9 billion at list prices.

The low-cost carrier is aiming for a stock market listing in either Hong Kong or Singapore in 2015 to fund the expansion, which would start with flights to Tokyo, Beijing, Singapore, Kuala Lumpur and South Korea, then eventually, China, Russia and Australia and beyond, Managing Director Luu Duc Khanh said.

"Further, it could be the United States, where four million people of Vietnamese origin live. They're waiting for VietJet anxiously," he told Reuters in an interview.

VietJet plans to double its fleet by 2015 to 20 jets, and is speeding up work to get three joint ventures in the air, including one with an undisclosed carrier in Myanmar and another agreed upon with Thailand's KanAir, to operate in early 2014.

Shakeup for state carrier

VietJet's bold expansion after less than two years in business could raise the stakes not only at home but in Southeast Asia's fast-growing low-cost market, dominated by Malaysia's AirAsia Bhd and Indonesia's Lion Air.

Those ambitious plans may have shaken state-run flag carrier Vietnam Airlines (VNA) into expediting its long-awaited initial public offering and fleet expansion.

VNA dominates the local market and will increase its fleet by 28 percent to 101 aircraft by 2015. It has been preparing for an IPO in the second quarter of 2014.

"The project is right on schedule," says its spokesman, Le Truong Giang.

Its fleet includes both Airbus and Boeing jets, and it has ordered the Boeing 787 Dreamliner and the Airbus A350. According to Boeing, VNA has existing orders for eight 787s and 11 more through leasing companies.

The airline also has its hand in the low-cost market through a stake in JetStar Pacific, a joint venture with Australia's Qantas Airways. JetStar plans to more than triple its fleet of five Airbus A320s to 16 in the next few years, a spokesman says.

The airlines and industry experts say the growth potential comes mainly from Vietnam's topography and what Khanh of VietJet calls a "fortune location.”

Vietnam is 1,650 kilometres (1,025 miles) in length, its biggest cities and tourist resorts are far apart, and it has poor road and rail infrastructure.

It is also within a few hours of Japan, South Korea, Hong Kong, Thailand and China and tourist arrivals are on the up, with 5.5 million in the first nine months of the year; a 10 percent rise from the same period in 2012.

Khanh says expansion will be gradual as the carrier takes delivery of five to 10 Airbus jets each year until 2022.

"It's insufficient," he adds.

VietJet's joint venture plans were, therefore, a smart move, says Timothy Ross, an air transport analyst at Credit Suisse in Singapore.

"I can't imagine they have much on their balance sheet ... so in terms of building a new business, it's far better to give away some of the potential upside and invest less," he says.

JetStar had not been profitable and was likely to struggle as competition increased, Ross says, while VNA had not done itself any favours delaying privatisation.

"We should have seen the Vietnam Airlines IPO three to five years ago, but it sat on its hands," he says. "Competition in the airline industry is inevitable."

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