Adam Air Loses Half Its Fleet After Default

March 17, 2008

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Indonesian budget carrier Adam Air may face temporary closure because a leasing firm seized more than half its fleet after the airline defaulted on payments, the airline's president said on Monday.

Adam Air, which like all other Indonesian airlines has been banned by the European Union because of safety concerns, was forced to cut back several scheduled flights on Monday because it did not have enough aircraft, causing delays for some passengers.

"Out of 22 planes, now we only have 10 because 12 of them have been declared in default. The other 10 have been declared in default as well, but I'm still trying to work out a way to restructure the payments," Adam Suherman, the airline's president director said.

Suherman later told reporters the firm needed a cash injection and faced a deadline later this week over insurance payments.

"There is a possibility starting on March 21 Adam Air will temporarily cease operations until there is a decision from the shareholders regarding the insurance premium," Suherman said.

"I have informed the shareholders that the company needs a cash injection," he added.

PT Bhakti, an investment firm which indirectly owns 50 percent of Adam Air, will sell its stake in the airline back to Suherman, the founding shareholder, for IDR100 billion rupiah (USD$11 million), according to Hotman Paris Hutapea, a lawyer acting for Bhakti.

In January 2007, an Adam Air plane crashed into the sea off Sulawesi island, with all 102 people on board presumed dead.

Bhakti, controlled by businessman Hary Tanoesoedibjo, invested in the airline soon after the disaster, hoping to benefit from a turnaround at the airline.

Bhakti has injected IDR157 billion in the airline, Hutapea said, since it agreed in April 2007 to buy a 50 percent stake.

Indonesia's airline industry has grown rapidly in the past decade following liberalization, with the launch of new players and a wider choice of routes across the sprawling archipelago.

However, the world's fourth-most populous country has suffered a string of airline disasters in recent years, raising concerns about safety standards and prompting the European Union to ban all Indonesian airlines from its airspace.

While the cause of the Adam Air disaster is still under investigation, the budget airline has faced other safety issues.

On March 10, a Boeing 737-400 operated by Adam Air with more than 170 people on board overshot the runway at Batam island airport, causing damage to the plane and injuring five people.

Following that incident, state media reported Indonesia's transport minister had warned Adam Air it could be forced to halt its operations after a series of accidents involving the carrier.

(Reuters)