Indonesia Air Asia still in business

Whatever the problem Indonesia's transport ministry saw with Indonesia Air Asia's balance sheet, the Jakarta Globe reported yesterday that the government had given them an extension on their capital requirement and that now they need to comply by September 30.

This is good news. Although, perhaps "good news" is a bit of a strong term to use when the government avoids scoring an obvious own goal like this, we'll take what we can get.

Why exactly is Indonesia Air Asia at risk of being shut down?

Reports last week have indicated that AirAsia and 12 other airlines may be forced to shut down their Indonesia operations due to an interpretation of the regulations that says that their license may be revoked if they have negative equity. CNBC quotes Maybank-Kim Eng airline analyst, Mohsin Aziz, as describing it as a "black swan event", further stating the "no country in the world has ever done this."

The airlines affected include: Indonesia Air Asia, Cardig Air, Transwisata Prima Aviation, Eastindo Services, Survai Udara Penas, Air Pasifik Utama, Johnlin Air Transport, Asialink Cargo Airlines, Ersa Eastern Aviation, Tri-MG Intra Airlines, Nusantara Buana Air, Manunggal Air Service, and Batik Air.

The reporting on the matter indicates that the government's concerns with negative equity are safety-related. I don't see the direct link, but perhaps they think that if a company is unprofitable, it may be skimping on safety. Personally, I would rather that the regulator's efforts on enhancing safety are focused on the nuts and bolts, and standard operating procedures of the airlines. Leave the questions of solvency to the airlines' creditors and shareholders.

I'm not that familiar with the aviation law in question. I had quick look through it, but didn't see anything there that specifically dealt with negative equity. It might be some sort of indirect implication that being in negative equity might have. Perhaps something to do with foreign ownership restrictions*, but I'm just speculating here.

Does anyone have any theories as to what article of the law the 13 airlines are supposedly in breach of?

*Any air transportation business must have at least 51% of shares owned by a local shareholder under Indonesia's Negative Investment List.