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UPDATE: Batavia Air CEO: AirAsia Drops Plan to Buy Carrier

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-- AirAsia drop's plan to buy Batavia Air, executive says

-- Batavia Air CEO says will continue to seek partners

 

(Recasts 1st paragraph, adds comments from people familiar with the deal on the cancelation in the 7th paragraph, analyst's comment in the 12th paragraph, and background.)

 

By Linda Silaen

 

JAKARTA--AirAsia Bhd. (5099.KU) has dropped its plan to buy an Indonesian airline that would have been its first major acquisition, leaving Asia's largest low-cost carrier to focus on organic growth to expand in one of Asia's most dynamic air travel markets.

PT Batavia Air Chief Executive Yudiawan Tansari told Dow Jones Newswires the companies failed to reach an agreement, but didn't say whether they couldn't agree on the price of the deal. "We will continue to seek strategic partners to develop our business," Mr. Tansari said.

AirAsia, a regional budget carrier which relocated its headquarters to Jakarta in June to sharpen its focus on the Association of Southeast Asian Nations, said in July it planned to buy a 49% stake in closely held Batavia Air, the maximum allowed under Indonesian regulations.

PT Fersindo Nusaperkasa, AirAsia's partner in the deal, planned to buy the remaining 51% stake. The two companies expected to pay a total of $80 million for Batavia Air in an all-cash deal.

Officials at AirAsia and Fersindo weren't immediately available to comment.

A person familiar with the plan told Dow Jones Newswires the deal fell through because financial data supplied by Batavia Air during a due diligence process "didn't make sense for AirAsia." The person didn't elaborate.

Batavia Air had an 11.25% share of the Indonesian market and a 3.6% share of international routes out of the country in 2011, serving more than 50 routes across Indonesia and Asia.

AirAsia's announcement that it planned to buy Batavia Air was a surprise, as AirAsia Group Chief Executive Tony Fernandes had said organic growth was his preferred strategy for Airasia.

The plan caught the attention of Indonesian politicians as well as the country's bureaucrats, who wanted to take a closer look at the proposed deal look before allowing another high-profile foreign buyout of an Indonesian company. Critics said that was because of an increasingly nationalistic tone in the country that was making foreign investment more difficult, but regulators eventually approved the deal after saying it didn't breach local rules.

"AirAsia will now focus on growing organically in Indonesia. The news of AirAsia not going ahead with Batavia purchase will be taken positively by the market in the near term," said Joshua Ng, an analyst at RHB Investment Bank. Mr. Ng said AirAsia's decision will be welcomed by investors, who will be happy that the company is opting for a less risky strategy of organic growth.

AirAsia closed unchanged at MYR3.04, while the broader market ended lower, with the benchmark KLCI down 0.24% at 1655.47.

AirAsia already has a presence in Indonesia through Indonesia AirAsia, in which it owns a 49% stake, with Fersindo owning the remaining 51%.

Its share of the domestic market is around 8%, but it is Indonesia's biggest player on international routes, with a market share of 41.6%, government data show.

Indonesia AirAsia started international flights out of Indonesia last year and carried 3.38 million passengers in 2011.

Indonesia is seen by many analysts as one of the world's last markets that can deliver large growth rates for air travel. The country is the world's fourth most populous after China, India and the U.S., and only a small portion of its citizens have experienced air travel.

A lack of good bridges, trains and ferries sometimes makes air travel the only mode of transportation in the 17,000-island archipelago. Business travel has taken off as companies fly long distances in the country in search of the natural resources that the country is rich in, including coal, tin and palm oil.

The number of domestic and international passengers in Indonesia rose more than 65% in the past two years to about 68 million in 2011, according to Indonesia's Directorate General of Civil Aviation.

 

Write to Linda Silaen at linda.silaen@dowjones.com

 

Abhrajit Gangopadyay in Kuala Lumpur contributed to this article.

 

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(END) Dow Jones Newswires

October 11, 2012 08:40 ET (12:40 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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