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    Southeast Asia
     Jan 24, 2007
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Falling skies for Indonesian aviation
By Bill Guerin

JAKARTA - The rise and fall of Adam Air, until recently Indonesia's most popular budget airline, has cast a harsh light on the country's weak regulatory regime and reaffirmed already entrenched foreign-investor perceptions about the private sector's often corrupt and careless business practices.

The January 1 disappearance of an Adam Air flight carrying 102 people and the government's erratic response have left Indonesia's entire airline industry - dozens of new private airlines have taken

to the skies since deregulation of the sector began in the 1990s - in disarray.

Adam Air was Indonesia's fastest-growing low-cost carrier before this month's tragic crash. Founded in 2002 and flying by 2003, the politically connected airline, which referred to itself in its promotional materials as a "boutique" carrier, had made its mark in one of the fastest-growing aviation markets in the world, expanding from 5 million to 25 million passengers over the past seven years.

According to the Sydney-based Center for Asia Pacific Aviation, that figure was expected to double to 50 million passengers yearly by the end of this decade. Those projections are now arguably primed for a major downgrade in the wake of the Adam Air accident and the various revelations that have since emerged about the industry's safety standards.

It seemed the sky was the limit for the profit-making budget carrier, co-founded by Agung Laksono, Speaker of the House of Representatives, and Sandra Ang, a wealthy ethnic-Chinese businesswoman who earned her family fortunes through trading in West Java. Prior to the January 1 crash, the airline's 19-aircraft fleet carried an average of 15,000 passengers and flew 73 flights per day, representing a high 90% average load factor.

The airline was acknowledged by the Asia Pacific and Middle East Aviation Outlook Summit as the Low Cost Airline of the Year in Singapore in November - two months before the fatal crash. Adam Air's management was in the process of spreading the airline's wings regionally, expanding its current international destinations to Singapore and Malaysia's Penang with new flights to Kuala Lumpur, Bangkok and Perth and new one-stop services to India and Vietnam via Singapore.

From the start, Adam Air was very much a family affair. Laksono's son, David Laksono, served as the airline's vice president in its early days and is still reportedly on the company's board of directors. Meanwhile, Ang's son Adam Adhitya Suherman, 26, is now president director and his elder brother, Gunawan Suherman, is chief executive officer. Another brother, Yundhi Suherman, is chief commercial officer.

Some well-placed local sources requesting anonymity claim that Agung Laksono never actually invested his own capital in Adam Air, but rather contributed to the enterprise's value through his official government position, helping to smooth the way for receiving hard-to-get licenses and airport landing rights. The same sources also point out that the Ang family had no business experience in aviation before starting up Adam Air.

Still, Adam Air rose quickly. The airline first took to the skies in December 2003 with just two Boeing 737s it leased from GE Capital Aviation Services. Yet early on, the airline showed a penchant for exaggeration and even obfuscation. For instance, Adam Air's early promotional campaign invited passengers to take to the skies with its "new Boeing 737-400s" when in fact its aircraft were used and more than 15 years old.

Still, the strong growth potential of Indonesia's aviation industry piqued the interest of some major foreign investors, including more established international airlines. Last February, the Ang family was reportedly in talks with several different parties, including Australia's Qantas Airways Ltd, about the possibility of selling a 20% strategic stake to an outside investor.

In October, US-based Texas Pacific Group, a private-equity fund, was spurned in its approach to acquire Adam Air outright, reportedly because of the Ang family's desire to maintain managerial control. More recently, Adam Air managers planned in either 2007 or 2008 to issue an initial public offering in Singapore, a move designed simultaneously to raise capital for new aircraft purchases and lift the airline's international prestige.

Crashing halt
Those heady days, however, have come to a crashing halt. After the still-unresolved January 1 accident that killed more than 100 people, revelations and allegations about Adam Air's safety record, suspect maintenance standards and questionable management practices now threaten to ground the once-respected budget carrier permanently.

Former Adam Air pilots have in recent days given a series of press interviews accusing senior management of putting profits before safety. Sutan Salahuddin, a former Adam Air pilot who flew 18 months for the airline, last week told the local and international press that on at least two occasions senior management had ignored his objections to flying aircraft that he deemed unsafe.

Specifically he said that one of Adam Air's owners telephoned him with a direct order to fly an aircraft to Padang in West Sumatra despite the pilot's voiced concerns about a malfunctioning navigational backup system. Salahuddin also claimed that on another occasion he was coerced into signing an aircraft-maintenance log without a mandatory check by engineers before a scheduled two-hour flight from Jakarta to Medan.

Feisal Banser, another former Adam Air pilot, said in press interviews that he was grounded for a week by senior management over his refusal to fly after he had exceeded the regulation limiting pilots to five daily takeoffs. "Every time you flew, you had to fight with the ground staff and the management about all the regulations you had to violate," Banser was quoted as saying by the Associated Press.

Both Salahuddin and Banser have also claimed in recent interviews that spare parts were recycled from other aircraft to save costs, that pilots were put under pressure to break international safety regulations, and that the company bribed aviation officials to look the other way. Notably, the former pilots' allegations do not come out of the blue.

Last February, an Adam Air flight destined for Makassar after three hours aloft made an emergency landing with 145 passengers on board in remote West Sumba, East Nusa Tenggara, after disappearing from traffic control's radar on an international flight path. Upon landing 525 kilometers from their planned destination, the pilots blamed a malfunctioning navigation system. Adam Air insisted the system was working properly and called the police in to arrest the pilots on charges of endangering passenger safety, according to news reports at the time. (One of 

Continued 1 2 

Ups and downs for Indonesian airlines (Jan 3, '07)

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