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Batavia Air

Batavia Air founder may sell family-owned business if buyer is right  Jul 29, 2008

Batavia Air may be put up for sale by its founder, Yudiawan Tansari, as he plans to take a backseat from his illustrious career in the air travel industry, his daughter Alice Tansari told mergermarket. Batavia Air is a budget carrier in Indonesia with flights to around 30 domestic destinations and international services to Malaysia and China.

”If my father sells, he will sell 100%, not 49% or 51% because he once said that having shareholders would inevitably invite arguments,” said Alice Tansari, who is the company’s managing director. ”If he gets along with the buyers, he would sell to them. It is not about the money as we are not in distress or desperate to sell, it is about relationships.”

She said the funds from the sale would be used to invest in other businesses. ”My father is not retiring from the industry. He just needs to take things slow. He has not taken a holiday for five years. It is a challenging job running an airline, we wake up everyday at 5am and only see our beds at midnight.” She welcomed proposals or talks with interested parties. No financial advisers have been appointed yet for the sale plan.

Operating from Jakarta’s Soekarno-Hatta International Airport, Batavia Air is fully-owned by the Tansari family. Yudiawan, 56, founded Batavia Air in January 2002 after more than two decades in the travel services industry. In 1973, he formed PT Setia Sarana Tour & Travel, a travel agency located in Mangga Besar, known as Batavia’s old town, which later gave rise to the official name of his budget carrier. His three children - two daughters and a son - help him run the business and sit on the company’s board.

In 2007, Batavia Air made a net profit of USD 6m and has an average load factor of between 85% and 90%, she said. The budget airline carried 7.5 million passengers last year, and expected no increase in passenger traffic this year due to the higher costs of travelling. She added if global oil prices stayed less volatile, domestic passenger traffic was expected to increase 5% a year.

The budget carrier had incurred debts amounting to USD 10m from loans and financing for working capital and plane orders. Jet fuel amounts to 50% of Batavia Air’s operating costs, she added. Currently, Batavia Air has a fleet size of 25 planes of narrow-body Boeing 737s, which are 140- and 170-seater aircraft. Of the 25 planes, 12 are owned, three in the process of lease purchase, and the remaining 10 are on lease.

When asked about Batavia Air’s survival in the backdrop of sky-rocketing jet fuel prices, she said, ”our chances of survival is high because we are flexible and adaptable. The need for travel will always be there due to Indonesia’s vast landscape and unreliable sea transportation.”

Two years ago, Yudiawan was interested in selling the budget carrier for USD 300m [including aircraft, building and spare-parts assets and no debt obligation] and was approached by local investors, she said. But talks collapsed as the interested parties wanted to only purchase 40% to 50% stake in the carrier. ”My father even told them that he would help them for three years [after the sale] to transition the company.”

Budget carriers in emerging markets such as Indonesia and Thailand were expected to see more consolidation, according to Shukor Yusof, an aviation analyst from Standard & Poor’s Equity Research in Singapore. He told this news service that budget carriers in such markets would also see very high bankruptcy potential.

”Jet fuel accounts for at least 40% of low cost airlines’ operating costs and it is the single biggest item on their balance sheet. Budget carriers by definition are not designed to work when oil is at USD 130 a barrel, therefore the impact is severe. Of the six to seven airlines that have gone bust in the first six months of 2008 in the US, almost all were low cost carriers [LCCs]’.”

He added that if oil touched USD 200 a barrel, ”my guess is that none of the low cost carriers will exist. They would still be able to make ends meet if oil prices is around USD 100 to USD 110. The full-service carriers could be interested in the LCCs only if there is a fire sale.”

Batavia Air founder may sell family-owned business if buyer is right

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