I

ndonesia AirAsia (IAA), a subsidiary of Malaysian budget airline AirAsia Group, may have to merge with its sister company, Indonesia AirAsia X, if it fails to reverse its negative equity as required by the government.

Transportation Ministry director general for air transportation Suprasetyo confirmed he had received letters from both subsidiaries indicating the possibility of a merger.

'€œThey proposed a merger,'€ he told The Jakarta Post by text message on Thursday.

However, he added that he was still evaluating the equity documents submitted by IAA.

Indonesia AirAsia X, a joint venture between AirAsia sister company long-haul, low-fare AirAsia X and local partner Kirana Anugerah Perkasa, is seen to have better equity and is expected to improve IAA capital.

IAA is obliged to provide proof of equity turnaround actions taken by the companies by Sept. 30, as required by the ministry, as it is listed as one of the remaining 11 airlines to have negative equity.

If it fails to provide such documentation, the ministry will carry out a thorough review of its business plans, operations and airworthiness. It will then revoke its air operator certificates (AOC) if the review yields results that show the airline is not capable of flying.

Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding loan.

The ministry stressed its concern for the safety standards of airline companies that had negative equity.

The ministry has so far revoked the AOCs of six airlines, including Nusantara Buana Air, Manunggal Air and Survai Udara Penas, for failing to fulfill the minimum planes requirement and negative equity.

Meanwhile, according to an unaudited IAA financial report for the second quarter, the company recorded a net loss of Rp 486.4 billion (US$33.1 million), about a 42.9 percent increase from Rp 340.3 billion loss in the same period.

In the second quarter, its equity was negative Rp 4.2 trillion, as its liabilities of Rp 6.84 trillion exceeded total assets of Rp 2.64 trillion. The negative equity was a 32 percent increase from Rp 3.18 trillion at the end of last year.

IAA has since taken various steps to reverse its financial situation, such as by converting its debt into preference shares.

On Sept. 8, IAA president director Sunu Widyatmoko said the airline was waiting for approval from the Investment Coordinating Board (BKPM) to do the converting.

The company also planned to issue perpetual bonds and sell as many notes as needed to bring its financial position out of negative equity, Sunu said on another occasion.

IAA also pledged to fulfill the cabotage principle, which required the injection to come from domestic investors.

Suprasetyo said that AirAsia might not have to merge the two subsidiaries if the company'€™s documents regarding capital injection were complete, hence showing positive equity.

'€œYesterday evening, before the deadline, Indonesia Air Asia stated that they have injected additional capital, and I will validate it today. I still need to evaluate it,'€ he further added.

Sunu refused to comment on the matter, stating that he would comment '€œat the right time'€.

Meanwhile, Indonesia AirAsia X CEO Dendy Kurniawan also refused to comment, while saying that the press should wait for an official announcement from the Transportation Ministry. (fsu)