Indonesia threatens to close Adam Air in 3 weeks; airline has defaulted on debt payments
JAKARTA, Indonesia: Indonesia threatened Monday to close low-cost carrier Adam Air after two of its largest shareholders announced plans to pull out of the beleaguered company.
The airline has defaulted on debt payments to airplane leasing companies, which has forced the company to ground 12 of its 22 planes, said Adam Suherman, whose family together with Sandra Ang owns a 50 percent stake.
Transportation Minister Jusman Djamal said the airline, which already has sliced its number of routes from 52 to 12 — has three weeks to prove it is economically viable.
If it cannot meet its financial obligations, he said, "its operating license will be revoked." No specific conditions were released to the media.
"We have defaulted and the investors have done nothing about it," he told The Associated Press. "We'll continue to operate as long as we have planes," said Suherman.
He said there were no plans to file for bankruptcy.
Global Transport Service or (GTS) and Bright Star Perkasa — which together control the other 50 percent stake in Adam Air — said Monday they decided to sell their shares back to the owner citing financial mismanagement.
Adam Air's "life expectancy is less than a month," said GTS director Gustiono Kustianto. The airline has outstanding debt of US$14 million to aircraft leasing companies and free capital of just US$4.8 million, he said.
GTS bought into Adam Air last year for US$17 million, when it was suffering capital problems after the deadly New Year's Day crash in the sea off the coast of Sulawesi island. Kustianto claimed the founding owners have agreed to gradually buy the shares back for US$11 million.
Adam Air has had a string of accidents in just over a year, including the plunging of a jetliner into the sea from 10,000 feet (3,000 meters) that killed all 102 people on board. The cause of that crash has not yet been determined.
Last week, a Boeing 737-400 skidded off a runway while landing in heavy rain, injuring five people and badly damaging the aircraft.
"Since we joined, our priority has been safety" and Adam Air's management has ignored a push by its new investors to improve, Kustianto said.
This B737-400 is roughly comparable to the aircraft involved in all the accidents mentioned in this story.
Indonesian budget airline Adam Air has been given a three-week ultimatum by the authorities to prove its economic stability or its license will be revoked, said Transportation Minister Jusman Djamal. This is because major financial difficulties have become apparent today, with two major shareholders pulling out of the company.

PT Global Transport Service (GTS) and Bright Star Perkasa, who between them own a 50% stake in the company, have decided to sell back all their shares to their original owners, who control the other 50%. These are the family of founder Adam Suherman and Sandra Ang. 

The companies invested in the airline last year, when the company was struggling after the New Year's Day disappearance of Adam Air Flight 574 with 102 on board. The Boeing 737 (B737) was ultimately determined to have crashed into the sea near Sulawesi, and all on board are presumed dead. Shortly afterwards, Adam Air Flight 172, another B737, snapped in half during a hard landing, but held together preventing fatalities. These were not the first serious accidents for the company, as in February 2006 Flight 782 became lost for several hours after navigation systems failed and the plane entered a radar blackspot, forcing a subsequent emergency landing many miles from the intended route. The given reasons for the withdrawal are a lack of improvement in safety and financial irregularities.

The company has now also defaulted on debt payments to aircraft lease firms, resulting in 12 of their 22 planes being seized, and has cut the number of routes served from 52 to 12. The remaining ten planes are also in default and at risk of seizure. Adam Air owes leasing companies US$14 million compared to free capital of $4.8 million of free capital. They have agreed to buy back shares gradually for $11 million (100 billion rupiah), $6 million less than the investment firms paid for them. The cost difference will be borne by Harry Tanoesoedibyo's family, the founder of PT Bhakti Investama, of which GTS is a wholly owned subsidiary. The companies have also lost 157 billion rupiah worth of investment in the company since the April 2007 deal. 9,325 Rupiah are currently worth US$1.

GTS director Gustiono Kustianto said that "Since we joined, our priority has been safety" but that Adam Air's management had been unresponsive to pressure from the new investors to improve its poor record. Last weeek another company B737 shot off the runway during landing, damaging the plane and injuring five.

Lawyer Marx Andryan of Hotman Paris Hutapea, representing the investment firms, said they have documents proving the company has not adequatly seen to pilot recruitment, maintenance and insurance.

Suherman said "We have defaulted and the investors have done nothing about it. We'll continue to operate as long as we have planes," adding that there are no current plans to declare bankruptcy.

"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," he told ''Reuters''. He went on to say that a cash injection is required, and that "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."