VZCZCXRO1848
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2825/01 3000704
ZNR UUUUU ZZH
R 270704Z OCT 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 1588
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/TSA HQ WASHINGTON DC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

UNCLAS SECTION 01 OF 04 JAKARTA 012825 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EB/TRA/AN, EB/TRD, EAP/MTS 
SINGAPORE FOR TSA (SAHAGIAN) AND FAA (NESBITT) 
 
E.O. 12958: N/A 
TAGS: EAIR ECON ETRD ID
SUBJECT: INDONESIA - CIVAIR UPDATE 
 
 
¶1. (SBU) Summary.  Indonesian transportation officials are 
focusing on aviation and airport security as tens of 
millions of Indonesians travel to their home villages and 
back during the Idul Fitri holiday break.  A record 1.5 
million Indonesians will take to the skies during the week- 
long celebration.  With air travel booming, Government of 
Indonesia (GOI) officials are looking at a long-term plan 
for airport development across Indonesia including the 
eventual tripling of capacity at Jakarta's Soekarno-Hatta 
Airport.  Boeing continues to dominate the market for large 
passenger aircraft in Indonesia with the sale of 60 737- 
900NG to launch customer Lion Air in 2005-06, the first 
deliveries of which are set for March 2007.  Boeing has 
provided much-needed safety and maintenance training 
instruction for Indonesian airlines, and has defended the 
airworthiness of classic Boeing 737-200 aircraft following 
several safety incidents in 2006.  National carrier Garuda 
Indonesia continues to bleed red ink in the face of stiff 
competition from low cost carriers.  Officials at the Ngurah 
Rai International Airport in Bali are making slow progress 
improving security, but the Transportation Security 
Administration's (TSA) Public Notice issued in December 2005 
remains in place.  End Summary. 
 
Ramadan Caps Year of Double-Digit Growth in Air Travel 
--------------------------------------------- --------- 
 
¶2. (U) Minister of Transportation Hatta Rajasa announced on 
October 18 that 1.5 million Indonesians will travel by air 
to destinations across Indonesia during the late October 
Idul Fitri holidays, a ten percent increase over last year's 
13.6 million air passengers.  A total of 14.5 million 
Indonesians will be traveling by all modes of transportation 
during the week.  On October 12, Minister Rajasa and his top 
transportation officials toured several airports to examine 
safety and security readiness for the holiday celebrations. 
 
¶3. (U) Overall domestic air travel in 2006 should reach 32 
million passengers, an increase from 29 million in 2005, and 
23 million in 2004.  This compares to just 6 million in 
1999, the low point immediately after the financial crisis. 
Growth in international travel is more modest, from 13.5 
million passengers in 2005 to a projected 14.4 million 
passengers in 2006.  Officials attribute the slower growth 
in part to the tourism slump in Bali following the October 
1, 2005 terrorist bombings.  Tourist arrivals dropped in 
August 2006 to 343,000 compared with 392,000 in August 2005. 
 
Officials Plan Increase in Airport Capacity 
------------------------------------------- 
 
¶4. (U) In order to handle expected continued passenger 
growth, the GOI has a long-range plan to increase airport 
capacity nationwide.  The plan includes tripling the 
capacity of Jakarta's Soekarno-Hatta international airport, 
including development of a budget airline terminal. 
Soekarno-Hatta was constructed for a capacity of 18 million 
when it opened in 1985 but currently serves 29 million 
passengers a year.  The Ministry of Transportation (MOT) and 
airport operator Angkasa Pura II are resurrecting a 21-year 
old master plan designed to accommodate 60 million 
passengers a year, according to an October 16 announcement 
by M. Ikhsan Tatang, Director General for Air Transportation 
at the MOT.  The national airport infrastructure plan also 
includes construction of a new airport in Medan, a new 
terminal in Makassar, a new cargo facility at Soekarno- 
Hatta, and a rail connection between Soekarno-Hatta and 
central Jakarta projected to cost US$75 million. 
 
¶5. (U) Much of the passenger growth has come from the rise 
of low-cost carriers operating out of hubs at Soekarno- 
Hatta, most notably Indonesia's Lion Air and Adam Air, and 
Malaysia's Air Asia.  Another low-cost carrier may be set to 
join the fray.  On October 2, the U.S. private equity firm 
Indigo Partners finalized its purchase of a 49 percent stake 
in Mandala Airlines, with Indonesian firm Cardig 
International controlling 51 percent.  The new investors 
together have announced significant expansion plans for 
Mandala, including acquisition of an all Airbus A-320 
aircraft fleet.  Indigo is linked to the U.S. hedge fund 
Texas Pacific Group, which has a significant stake in 
America West Airlines. 
 
String of Incidents Raise Safety Concerns 
----------------------------------------- 
 
 
JAKARTA 00012825  002 OF 004 
 
 
¶6. (SBU)  According to contacts at the MOT, Indonesia's 
aviation safety incident rate is 26 times higher than in the 
United States, a statistic borne out by a list of safety 
incidents over the past year.  A Mandala Air crash of a 737- 
200 on September 5, 2005 in Medan killed 100 people, 
including the Governor of North Sumatra, and led to a MOT 
audit of safety operations at all Indonesian carriers in 
advance of last year's Ramadan travel season.  The GOI has 
not released a final investigation report, but preliminary 
reports indicate the airplane was not properly configured 
for takeoff. 
 
¶7. (SBU) Other recent incidents include the following: 
 
--On a February 11, 2006 Adam Air flight to Makassar, pilots 
claimed to have lost all navigational and radio contact for 
several hours.  The 737-300 with 145 persons on board 
conducted a visual search for an airport for several hours 
before landing safely on the remote island of Sumba.  The 
pilots were ultimately arrested and charged with criminal 
breach of safety regulations. 
 
--On May 6, 2006, a Batavia Air 737-200 skidded off a runway 
in Jakarta, injuring three persons. 
 
--On October 3, 2006, another Mandala 737-200 skidded off a 
runway into a swamp after landing in Tarakan, Kalimantan. 
There was poor visibility at the time because of smoke from 
brush fires blanketing Kalimantan and parts of Sumatra.  MOT 
officials closed the airports in Jambi and Pontianak on 
October 18, until visibility improved. 
 
Boeing Maintains Firm Grip on Market with Lion Air Deal 
--------------------------------------------- ---------- 
 
¶8. (U) Boeing remains the dominant player in Indonesia's 
large passenger aircraft market, despite Mandala Air's plans 
to operate an all-Airbus fleet.  Lion Air's 2005-06 purchase 
of 60 737-900NG aircraft valued at US$3.9 billion represents 
the largest ever aircraft purchase by an Indonesian carrier 
as well as the largest ever commercial sale by a U.S. 
company in Indonesia.  More than 30 high-ranking Indonesian 
officials and parliamentarians attended a July roll-out 
ceremony in Seattle that feted Lion Air as the launch 
customer.  Delivery of the aircraft will average one per 
month for five years beginning in March 2007, and should 
give Lion the newest and largest fleet by far in Indonesia. 
U.S. exports to Indonesia should jump by more than 20 
percent once Boeing begins deliveries.  The rise of low cost 
carriers like Lion Air, Adam Air, and Air Asia has driven 
down ticket prices in Indonesia, with Jakarta-Singapore 
tickets now costing as little as $100 round trip. 
 
Garuda Strapped by Airbus Debt - Seeks Capital and Partner 
--------------------------------------------- ------------- 
 
¶9. (SBU) In contrast to high-flying Lion Air, national flag 
carrier Garuda Indonesia continues to bleed red ink. 
Although the airline reduced its losses by 17% in 2005 to 
$73 million under new President Emirsyah Satar, Garuda still 
required a Government bailout.  Parliament approved a Rp 1 
trillion ($109 million) "capital injection" in early 
September.  Satar told us later in September that the GOI 
"wants to save Garuda", but that "the question is how to do 
it?"  Satar said that Garuda needs more direction from the 
GOI on where the airline can make necessary cuts.  He listed 
his priorities as raising efficiency of operation in order 
to reduce costs by 5-10%, streamlining management, and 
locating a strategic partner.  Satar noted the unique 
constraints Garuda faces as a state-owned enterprise 
operating in the competitive and dynamic airline market. 
For example, any policy or major operational changes require 
consultation with four separate Parliamentary commissions. 
Garuda is also a revered national symbol, Satar said, and 
"people are very protective of this". 
 
¶10. (SBU) Garuda's main financial woes are tied to its 
US$500 million debt with the European Credit Agency (ECA) 
stemming from the purchase of six wide-body Airbus A-300s. 
Garuda drastically cut its international routes following 
the 1997-98 financial crisis, including flights to Los 
Angeles and all flights to Europe except Amsterdam.  As a 
result, long-haul aircraft are now more burden than benefit 
to the airline.  Satar said selling a portion of the company 
remains a possibility, but may not be politically 
acceptable.  Garuda has discussed a strategic partnership 
 
JAKARTA 00012825  003 OF 004 
 
 
with "several" airlines, Satar said, but wants to find one 
willing to use Jakarta as a hub city.  A key political 
constraint, however, is relinquishing any significant 
operational control to the partner airline.  Satar also said 
that merging with Merpati (Indonesia's other state-owned 
airline) "is a possibility" to reduce operational costs, 
although he did not elaborate. 
 
¶11. (SBU) Satar noted that the high maintenance and 
operation costs on the Airbus A-300s are a "core issue" for 
Garuda, in contrast to the Boeing equipment with GE engines 
he described as "comfortable and reliable".  Garuda still 
hopes to complete a purchase of 18 Boeing 737NGs and six 787 
Dreamliners.  These purchase orders date back to 1996 and 
1998 respectively.  They were restructured in 2005 to newer 
models, and confirmed by a signing ceremony with President 
Yudhoyono in New York in 2005.  Garuda has a $20 million 
deposit on the order. 
 
Improving Safety Training and Oversight 
--------------------------------------- 
 
¶12. (SBU) Double digit growth in airline travel and a large 
number of new airlines are straining Indonesia's aviation 
safety system.  The number of MOT aviation safety inspectors 
has not increased since 2000, according to Christian Bisara, 
Director of Safety and Airworthiness at the Directorate 
General for Civil Aviation (DGCA) in the MOT.  Bisara told 
us in mid-October that the insufficiently trained inspectors 
remain a problem, especially in the face of competition for 
engineers from higher-paying airlines. 
 
¶13. (SBU) DGCA and airline officials have attended a series 
of Boeing-sponsored safety seminars in 2006 on topics 
ranging from crisis management to improving maintenance and 
safety for 737-200s.  The most recent 2 day seminar in 
Jakarta involved 17 trainers from Boeing, and attracted over 
170 Indonesian participants.  Boeing and the Federal 
Aviation Administration, together with one or more key 
airlines, plan to offer additional Safety Management 
Seminars in 2007 for airline officials and aircraft 
inspection personnel.  The seminars will encourage a 
heightened commitment to investing in safety, and will also 
train working level mechanics and personnel on improved 
safety management process. 
 
Bali Airport Security 
--------------------- 
 
¶14. (SBU) Ngurah Rai International Airport in Bali remains 
subject to a TSA Public Notice issued in December 2005 for 
failure to meet standards under the International Civil 
Aviation Organization (ICAO).  Singapore-based TSA 
representatives have made several trips to Bali in the past 
three months to assess progress at the airport.  During the 
most recent consultations on October 10-12, TSA officials 
commended airport officials for improving outdoor setback 
areas for passenger drop-off, perimeter fencing, and entry 
control.  However, they noted continued deficiencies in 
cargo screening, as well as inadequate staffing and 
supervision of passenger and baggage screening points, 
particularly at peak periods of passenger demand.  In their 
outbrief with representatives from the DGAC and airport 
operator Angkasa Pura I (API), the TSA representatives 
discussed in detail the July 2006 revisions to ICAO security 
standards.  The revised standards require more comprehensive 
screening of all hold baggage and other more stringent 
security measures.  Airport officials said they would 
consider a variety of strategies for meeting these 
standards, including the purchase of additional baggage 
screening equipment. 
 
¶15. (SBU) Director General Tatang noted that one of the main 
challenges for improving screening is the airport's reliance 
on temporary staff from the Indonesian Air Force, often 
assigned for only three month periods.  He also expressed 
some indirect frustration that API has not yet solved this 
issue.  On a positive note, API has now scheduled training 
for 35 passenger and baggage screening supervisors in early 
November.  DG Tatang told the TSA he had hoped TSA could 
remove its Public Notice before Indonesia hosts the 
conference of Civil Aviation Director Generals in Bali in 
early December.  However, it now appears that given 
remaining security issues, early 2007 is the soonest date 
that DGCA could realistically request TSA return for a 
reassessment.  TSA officials from Singapore and Washington 
 
JAKARTA 00012825  004 OF 004 
 
 
DC plan to visit Jakarta and Bali on November 9 for further 
consultations. 
 
PASCOE