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| # INDONESIA: Aircraft & Parts                                         |
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| Author: Anasia Silviati                                               |
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| Date: February 2007                                                   |
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| ID:# 141262                                                           |
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####### Summary

The Indonesian aviation industry offers excellent prospects for U.S.
products since the current aircraft fleet consists largely of American
aircraft.  On the top of the list is leasing services, aircraft
spare-parts and maintenance services.

The total market for aircraft and parts was estimated at \$291 million
in 2006, with more than 95 percent coming from imports. U.S. products
accounted for \$58.1 million or 20% of the total market. End-users
(primarily the 18 scheduled airlines, approximately 35 non-scheduled
airlines, the police and the military) prefer to purchase directly from
original equipment manufacturers; however, it is advisable that U.S
suppliers partner with Indonesian companies. Indonesia will need
additional 254 units of aircraft in the next five years. With more new
aircraft in operation in the next five years, it is predicted that the
total market for aircraft and parts will increase by 20%, and the share
of U.S. products will grow by 20% annually.

####### Market Demand

Starting in 2000, the aviation industry in Indonesia experienced
tremendous development. In 1999, there were only five airlines
companies. As of end 2006, there are 18 scheduled and 35-chartered
airlines operating in Indonesia, with total fleet of 431 aircraft
serving more than 300 routes. Some of them are operating as budget
airlines, such as Adam Air, Lion Air/Wing Air, Indonesia Air Asia, and
Garuda City Link. Currently, there are four airline companies reapplying
for their licenses: Star Air, Jatayu Gelang Sejahtera, Seulawah Air and
Air Paradise International. Several airlines stopped their operations
due to increased operational costs such as Bouraq Airlines, Bayu
Indonesia, Indonesia Airlines, Bali International Air Services and Efata
Papua Airlines.

The increase in the number of airline passengers in the last three years
has been quite impressive. The number of domestic passengers reached
23.7 million in 2004 and 28.9 million in 2005. Based on data from
October 2006, the number of passengers was projected to reach 34 million
in 2006. In 2007, the Indonesia National Air Carriers Association
(INACA) predicted that the industry would grow by 15% and reach 39
million. International passengers reached 14.4 million in 2006, an
increased of 11% from 2005's figure. In 2007, international passengers
were predicted to reach 16.3 million.

There are 573 units of aircraft operating in Indonesia, of which 431
units are fixed wing and 142 rotary wing. Several airlines have more
than 15 units of aircraft such as Garuda (58 units), Lion Air (47
units), Merpati Nusantara (42 units), Batavia Air (23 units), and Adam
Air (19 units). Garuda owns the newest aircraft fleet with an average
age of 10 years, followed by Lion Air (17.3 years), and Adam Air (18.1
years). Merpati, Batavia and Mandala's fleets average more than 20 years
of age. In 2006, the Ministry of Communications issued a new regulation
(Permenhub No.KM5/2006) that restricts the use of aircraft which have
been used for more than 70,000 cycles or more than 30 years. The
Directorate General of Air Communications (DGAC) predicted that
Indonesia would need additional 254 aircraft until 2009 including the
largest order for 70 units of B-737-900ER by Lion Air.

Since 2001, there were 73 aircraft accidents in Indonesia, including the
recent Adam Air incident in January 2007. This situation forced the GOI
to review regulations regarding air safety. The Ministry of
Communications has adopted new regulations, which increases the
frequency for safety audits from once a year to twice a year. The GOI
will conduct the safety audit for operators and their aircraft,
including their pilots.

There are promising business opportunities in aircraft maintenance
services in Indonesia. Currently, around 65% of the total aircraft
operating in Indonesia are sent for maintenance service overseas.
According to the Indonesian Association of Aircraft Maintenance
Companies, the potential market for Maintenance, Repair and Overhaul
(MRO) is worth around \$240 million per year. The GOI is offering
foreign investors the opportunity to join with Indonesian companies to
establish aircraft maintenance facilities, aircraft leasing, and
training companies. By having those businesses in Indonesia, the GOI
believes there will be a reduced need to send aircraft for maintenance
or to send crews for training to other countries.

####### Market Data

The size of Indonesia's total market of aircraft and spare-parts was
estimated at \$291 million in 2006, from \$243 million in 2005. More
than 95 percent of aircraft and parts are imports. Imports of aircraft
and parts for 2005 amounted to \$242 million, with imports from the
United States reaching \$48.4 million. In 2006, the total imports were
estimated at \$290 million and U.S. imports at \$58.1 million. The
actual import value of US products could be higher than was recorded,
since many Indonesian companies import U.S. products through Singapore
intermediaries. With more new aircraft in operation in the next five
years, it is predicted that the total market for aircraft and part will
increase by 20%, and the share of U.S. products will grow by 20%
annually.

####### 

####### Best Prospects

-   There are opportunities for small aircraft for serving regional or
    pioneer routes. Many airports in remote areas have short runways.
    Many existing Casa 212 and Twin Otter aircraft have to be replaced,
    and some airlines intend to buy Skytruck or Y-12.

-   As previously mentioned, in order to cover expanding routes, some
    additional aircraft will be needed by new or existing airlines.
    Although not all of these firms intend to buy new aircraft, there
    are excellent opportunities for U.S. aircraft leasing companies to
    lease their aircraft to Indonesian airlines. In addition, with more
    aircraft in operation in Indonesia, there will also be a greater
    need for more aircraft spare-parts and maintenance services in the
    near future

-   With the new USG policy for exporting defense equipment to
    Indonesia, there are opportunities for U.S. defense manufacturers to
    export fighter aircraft parts and other defense related equipment to
    the Indonesian military.

####### Key Suppliers

PT Indonesian Aerospace, previously named PT IPTN, is the only aircraft
manufacturer in Indonesia. The company manufactures the CN-235.  PT IA
had restructured the company by changing the board of directors and
cutting its employees from 9,670 to 4,000. The GOI, through the
Indonesian Bank Restructuring Agency, agreed to hold a 92.9% share in PT
IA. In November 2006, PT IA signed an MOU with EADS for producing 60
units of CASA 212-400 worth of \$480 million for a 5-year period. PT IA
is also working on several orders to deliver CN-235 to the Pakistani Air
Force, Malaysian Air Force, and the Government of Thailand.  In
addition, PT IA has to deliver three Marine Patrol Aircraft (MPAs) and
16 Super Puma helicopters to the Indonesian Air Force and six MPAs and
five helicopters to the Indonesian Navy. Besides manufacturing an
aircraft, PT IA has contracts to manufacture parts for BAE and Airbus
Industries.

U.S. exporters hold 20% of the aircraft and parts market in Indonesia.
Imports from U.S. suppliers are particularly strong in the following
areas: airplanes and other aircraft, parts, aircraft launch gear and
parts, engines, engines parts, instruments and appliances for
aeronautical use, and aircraft electrical wiring sets. 

Other major suppliers of aircraft and parts are Singapore, Switzerland,
France, Japan, Germany, United Kingdom, South Korea and Spain. Many
Indonesian companies import U.S. products through Singapore
intermediaries. Among the reasons mentioned are delivery time, price and
cost for delivery since most of the Singapore companies are stockists.

####### Prospective Buyers

Commercial airlines:

The GOI expects that there will be an additional 31 units of aircraft
operating in Indonesia this year. Among the airlines that have submitted
proposals for expanding their fleets are Garuda Indonesia with 2 units
of B-737-800NG, Lion Air with 7 units of B-737-900ER, Batavia Air with 3
units of B-737series, Mandala Airlines with 4 units of Airbus A320 and
Merpati Nusantara Airlines with 15 units of B-737 series and MA-60.

Most airline companies have a small inventory of parts that they buy
from their registered suppliers. For example, Adam Air has an agreement
with Singapore Technologies Aerospace (ST Aero) to supply parts and
maintenance services. In addition, Adam Air signed an agreement with PT
Garuda Maintenance Facility Aero Asia for maintenance, repair and
overhaul services. Lion Air has an agreement with Scandinavian Air
System from Denmark to supply parts. Garuda Indonesia and Merpati
Nusantara Airlines have their own maintenance facilities.  Garuda
Maintenance Facilities is the biggest provider of various maintenance
services in Indonesia.

Air-charter services:

There are 35 air-charter airlines operating in Indonesia. Most of them
are serving mining, oil and gas exploration companies using rotary wing
and smaller types of fixed aircraft. Other customers for air-charter are
tourists, business, and medical evacuation. The top five chartered
companies in this industry are Pelita Airlines, Deraya, Airfast, Travira
and Indonesia Air Transport. Additional players are planning to operate
this year such as PT Global Angkasa, and PT Gading Sari Indonesia. The
market for this industry is estimated at \$40 million per month. The
industry players predicted that the demand for air-charter services
would increase during the preparation for the 2009 Indonesia\'s general
election.

Government and Military:

On March 22,2006, the U.S. Department of State issued the Public Notice
No. 5354 which stated that the U.S. government would consider on a
case-by-case basis application for the export of lethal defense articles
and related defense services to Indonesia. The new regulation brings
opportunities for U.S. defense manufacturers to export their products to
Indonesia again.

The Indonesian Air Force has 259 aircraft of which only 48.65% are
airworthy.  The fleet consists of various type of aircraft such as
Hercules C-130, F-16A/B, F-5E/F, L-100-300, Bae Hawk Mk-53-100/200, Bell
Helicopters, Skyhawk, C-47 Dakotas, Sikorsky, Su-27SK/30SK, B-707,
CN-235, F-27, and F-28.  Most of the aircraft are 10 - 20 years old.  
For the next five years, the Indonesian Air Force would like to spend
US\$2.7 billion to purchase additional Sukhoi, Super Puma Helicopter
NAS-332 and its simulator, CN-235, C-130H, and KT-1B.

The Indonesian Police recently added 3 units of Dauphin AS 365N3 for
long-range patrol activities and 2 units of Diamond DA-40TDI for
training. They plan to have 16 units of Dauphin AS 365N3. Currently, the
Indonesian Police fleet consisted of NBO-105 (15), Enstrom 480B (18),
PZL W-3 Sokol (10), Nbell-412 (1), Nbell-206 (1), NC-212-200 (2), PZL
M28 Skytruck (4), Beech raft 1900D (2), and Beechcraft 18CH (1).

Both the Indonesian Military and Police operate their own maintenance
facilities for routine or simple scheduled maintenance and service. For
major maintenance, repair and overhauls, they send engines to
manufacturers' approved repair stations in Indonesia or abroad.

####### Market Entry

Many airlines companies prefer to buy directly from aircraft and parts
manufacturers. However, it is advisable for foreign companies to appoint
agent/distributors for selling their products in Indonesia. Airline
companies always announce their procurement tenders internally so
registered suppliers should check regularly at their offices. When
evaluating a potential agent/distributor, U.S. firms should be sure to
select one that can also deal with challenges related to communications,
bureaucratic procedures, local business practices and marketing.
Networking is key to success in Indonesia and the local agent should
work to build strong relationships.

The Presidential Decree No.80/2003 regulates the procurement process for
government agencies, which include the state-owned companies, the
Indonesian military and the Indonesian Police. Although it may be
possible in some cases to sell directly to the Government, there is good
reason to use the services of an agent or distributor for the early
stages of project development, delivery, installation and service needs.
Traditionally, most government procurement decisions have been based on
long-established relationships. This does not necessarily mean illegal
payments are involved, but these relationships often exclude
participants not well known in the market.

Financing is an important factor when selling to the government.
Government agencies finance their procurements through the state-budget
and export credit. Export credit will be used to finance major
procurement such as buying new aircraft. It is important to offer good
credit terms since other foreign governments offer soft loans to
Indonesia. For example, the Russian government has agreed to give a \$1
billion credit export in the next five years to finance Indonesia\'s
procurement for military aircraft and defense equipment.

####### Market Issues & Obstacles

There are no non-tariff barriers inhibiting the importation of aircraft
and parts. Import duties have been progressively reduced over the years
in a number of deregulation measures by the government. The import
tariffs on aircraft and parts are 0 -- 10 percent. In addition, a Value
Added Tax (VAT) of 10 percent is imposed on all imported products. The
Directorate General of Air Communications, Ministry of Communications
controls the registration of aircraft operating in Indonesia and safety
regulations.

Decree No.96/2000 restricts foreign investors to ownership of a maximum
49 percent of an airline company in Indonesia. The government said it
took the measure because it feared foreign investors, if allowed to
control a domestic airline, might decide to discontinue services on
unprofitable routes, thus affecting transportation services. Airlines
must also have the international standard Air Operator's Certificate
(AOC). But, a company in Indonesia may be granted a local license
without having the AOC.

######## 

GOI recently announced its decision to stop issuing new licenses for
airlines. According to Minister of Transportation Hatta Radjasa, the
decision was made in order to create a healthy business environment in
the airline industry. In addition, the government will tighten the
requirements for establishing a new airline company, increasing the
minimum investment to US\$5.6 million and 5 units of aircraft (2 owned
and 3 leased). Previously, the minimum requirement for investment was
only \$1.1 million and 2 aircraft. However, the GOI would encourage the
establishment of new airlines, which are serving the international
routes or pioneer/feeder routes.

####### Trade Events

Name: Indo Aerospace 2008 and Indo Defense 2008

Date: 19 -- 22 November 2008

Location: Halim Perdana Kusuma Air Force Base, Jakarta

Website: www.napindo.com

####### Resources & Contacts

Mr. Budhi Muliawan Suyitno

Director General

Directorate General of Air Communication

Ministry of Communications

Jl. Medan Merdeka Barat 8

Karsa Building, 5th Floor

Phone: (62-21) 350-5137

Fax: (62-21) 350-5139

Jakarta 10110

Website: www.dephub.go.id

Commercial airline companies:

PT Garuda Indonesia:
[www.garuda-indonesia.com](http://www.garuda-indonesia.com/)

PT Merpati Nusantara: [www.merpati.co.id](http://www.merpati.co.id/)

PT Lion Mentari Airlines: [www.lionair.co.id](http://www.lionair.co.id/)

PT Pelita Air Services: [www.pelita-air.com](http://www.pelita-air.com/)

PT Adam Air: [www.adamair.co.id](http://www.adamair.co.id/)

Chartered airlines:

PT Indonesia Air Transport: [www.iat.co.idd](http://www.iat.co.idd/)

PT Travira Air: [www.travira-air.com](http://www.travira-air.com/)

PT Deraya Air: [www.deraya.co.id](http://www.deraya.co.id/)

PT Airfast Indonesia:
[www.airfastindonesia.com](http://www.airfastindonesia.com/)

PT Pelita Air: [www.pelita-air.com](http://www.pelita-air.com/)

Maintenance service company:

PT Garuda Maintenance Facility:
[www.gmf-aeroasia.co.id](http://www.gmf-aeroasia.co.id/)

####### For More Information 

The U.S. Commercial Service in Jakarta, Indonesia can be contacted via
e-mail at: Anasia.Silviati@mail.doc.gov; Phone: 62-21 526-2850; Fax:
62-21 526-2855; or visit our website: www.buyusa.gov/indonesia

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