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Troubled Skies at Indonesia Airlines

Service Interruptions, Threatened Lawsuits, and Unpaid Bills Plagues New Budget Airline.

(5/15/2003) One of the newest members of the growing circle of start-up Indonesias air carriers, Indonesia Airlines (IA) is having to deal with operational and legal challenges from those who lease them aircraft, from travel agents, and the company contracted to maintain its fleet.

The carrier, which operates daily flights from Jakarta to Surabaya and Denpasar (Bali), stopped all flight operations from May 5 13, a move that caused speculation in some circles that IA was nearly bankrupt. Meanwhile, IA's President Director, Rudy Setyopurnomo, has been quick to dismiss such rumors saying the shut down period of 8 days was necessary to consolidate operations and revise their ticket tariffs upwards.

On May 14th IA managed to resume its schedule of 3 flights per day from Indonesia's capital to Surabaya and Bali using B727-200 aircraft.

Shrinking Fleet

A report carried in the Indonesian-language Bisnis Indonesia indicated that, due to an inability to pay charter fees, two B737-400's on lease from Lufthansa and two B747-200 designated to fly haj pilgrims have been taken back by their owners, compeling IA to commence an urgent search for replacement aircraft.

11 Travel Agents Take Steps to Bankrupt IA

Eleven Indonesian travel agents have appointed a local law firm to file suit against the airline claiming Rp. 8.4 billion in damages (approximately US$ 988,000) resulting from the stranding of 2,111 haj pilgrims who had purchased packages from their agencies utilizing the flights offered by the troubled airline. According to the lawyer representing the agents, the religious pilgrims were unable to depart as promised during the last haj season when IA failed to obtain the necessary air operating permits form the Saudi Arabian government.

The suit filed by the travel agents seeks to declare the airline bankrupt due to its inability or refusal to settle the outstanding claims for damages rsulting from the cancelled flights.

Problems With Maintenance Facility

Problems on yet another front are developing between IA and its contracted provider of maintenance services PT Garuda Maintenance Facility Aero Asia, who claim they are owed US$ 300,000 for past maintenance service. IA has answered the claim from the Garuda subsidiary by counter claiming that the maintenance provider has failed to adequately care for spare parts and equipment entrusted to their custody.

An End to Cheap Fares

IA received widespread attention when they burst onto the domestic air market with prices of 50% or more less than some of its competitors on the same routes. These included Jakarta-Surabaya fares of only US$ 23 and Jakarta-Bali stand-by fares of around US$ 70 prices substantially below those offered by Garuda Indonesia.

Since the recommencement of service by IA on May 14th, the fares being offered by IA are reported to have risen substantially as part of the airline's consolidation program.