AirAsia pares losses as Indonesia softens tone on airlines equity rule

[JAKARTA] Indonesia's transport ministry said it would help airlines struggling to meet a deadline to improve their finances, softening its stance after concerns about the measures sent AirAsia Bhd's shares plunging to five-year lows.

Ministry officials had told reporters less than a week ago that 13 airlines including the Indonesian affiliate of troubled Malaysian budget carrier AirAsia had to repair their stretched balance sheets by the end of July or risk being shut down.

On Thursday, the ministry issued a statement saying it would "help and support" these airlines to improve their finances, but did not mention anything about shutting them down.

A spokesman told Reuters the ministry would "decide in the future" on that matter. Investors often cite regulatory uncertainty as a key obstacle to doing business in Southeast Asia's biggest economy.

Worries that the loss-making Indonesian affiliate of AirAsia would be grounded sparked speculation that it may have to exit the country, pushing its shares down more than 15 per cent on Wednesday to five-year-lows.

On Thursday, the stock pared some losses, and was trading 1.5 per cent lower, underperforming the benchmark index which was up 0.4 per cent.

The speculation had added to investor concerns about AirAsia, Asia's biggest low-cost carrier, which has been hit in recent weeks by questions over accounting that the airline rejected.

On Thursday, AirAsia Group chief executive Tony Fernandes welcomed the latest transport ministry statement, and said the airline was committed to operating out of Indonesia.

"There are tough economic times but we are not here for the short term," Mr Fernandes told Reuters in Singapore. "We are not going to give up a country with 350 million and immense tourism potential."

Last month, a Hong Kong-based research firm said AirAsia uses transactions with loss-making carriers to boost its earnings. Shares have fallen by nearly 40 per cent since then.

REUTERS