Batavia Air to stop flying due to bankruptcy.

Batavia Air will cease operations at midnight tonight (31 January/1 February 2013) – at least temporarily – after being declared legally bankrupt yesterday.

All affected clients will be contacted regarding alternate arrangements and possible refunds, once they become known.

Despite its advertising slogan, Batavia Air owes an aircraft leasing company, International Lease Finance Corporation, $US4.68 million.

By international standards, this may not seem much; but in Indonesia, companies that fail to pay outstanding debts can be declared bankrupt – regardless of the value of assets, level of capital, potential for future payment, etc.

In the past, this has resulted in some unexpected or controversial declarations of bankruptcy, including Indonesia’s largest mobile phone network and the Indonesian operations of different multi-national companies:

Bankrupt on a technicality, but still operating

The then Prudential chief executive, Mr Michael Bloomer, said at the time:

There is an unusual bankruptcy law in Indonesia which allows them to bankrupt you despite you having plenty of money to pay claims. It is too bizarre for words.

Prudential won a subsequent appeal against its banktuptcy declaration; Batavia Air has eight days to try to do likewise.

As privately-owned Indonesian airlines do not have to publicly announce their e.g annual profit results, the true state of Batavia Air’s finances are unknown.

However, AirAsia recently backed out of a $US80 million purchase of the airline, as it “posed many risks” to its shareholders.

Similarly, some other Batavia Air planes were repossessed last year by aircraft leasing companies after the airline failed to pay its lease fees on time.