AirAsia aborts deal to buy Indonesia's Batavia Air

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KUALA LUMPUR, Malaysia (AP) — Southeast Asia's top budget carrier AirAsia said Monday it has aborted an $80 million deal to buy Indonesia's Batavia Air, dealing a rare setback to the company's aggressive expansion.

AirAsia announced its first ever acquisition in July to accelerate expansion in Southeast Asia's biggest economy. But in an about face, AirAsia Chief Executive Tony Fernandes said a thorough evaluation found the deal would have "induced too many risks" and hurt earnings.

"We always knew it was not going to be an easy transaction. It has been a very good experience and we come out of it feeling more confident of what we need to do to grow the market in Indonesia," Fernandes said. "Our aggressive focus in Indonesia remains and we will push our Indonesian IPO plans while still maintaining close co-operation with Batavia Air. "

Batavia Air's commercial director Sukirno Sukarna told The Associated Press in Jakarta that the deal was called off as the two parties failed to reach an agreement.

"This is not the end of the world for Batavia because we will still continue our business without the acquisition," he said.

AirAsia, which started in 2001, has grown exponentially with a current fleet of more than 115 aircraft. It has ordered a total of 375 Airbus planes in an ambitious regional expansion with affiliates in Indonesia, Thailand, Philippines and Japan.

AirAsia set up its regional office in Jakarta in June to tap Indonesia's population of 240 million and a rapidly growing middle class that is hungry for cheap air travel.

Ahmad Maghfur Usman, analyst with OSK Research, said AirAsia was eyeing Batavia for its massive ticketing agent network. However, he said the deal would have weighed on AirAsia as Batavia has $40 million in debt and an aging fleet.

Ahmad said it will be challenging for AirAsia, which currently commands around three percent of Indonesia's lucrative air travel market, to expand unless it establishes a strong physical presence with more ticketing offices to tap Indonesia's rural population. Batavia has a 12 percent share while rival Lion Air has 38 percent of Indonesia's domestic market.

Overall, he is optimistic about AirAsia's prospects, citing strong demand and the proposed listings of its Indonesian unit and long-haul arm AirAsia X expected next year.

AirAsia said in a statement that the two airlines will cooperate in areas including ground handling and inventory systems. They will also jointly set up an aviation training center to address an expected pilot shortage in Indonesia.

AirAsia Deputy CEO Kamarudin Meranun said the Batavia acquisition was one of several options for quick expansion in Indonesia but it wasn't a good fit.

"We don't consider this as a setback. Our objective is clear. We are ambitious and we want to grow. We will invest in building up our infrastructure in Indonesia and we remain open to future opportunities" including possible acquisitions, he told AP.

AirAsia's Indonesian Chief Executive Dharmadi, who goes by one name, said the airline will accelerate its fleet expansion from 2013 with plans to more than triple the number of planes in the next five years, adding more routes and flights.

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