The government has further relaxed a regulation that requires all airlines operating in the country to maintain positive equity.
The Transportation Ministry's director general for air transportation Suprasetyo said on Friday that the ministry would allow airlines with negative equity to submit their balance sheets in October, as long as they confirmed their ability to raise the equity by Friday.
"The carriers should state its ability and submit their plans to raise the equity to the ministry by July 31. However, they will be given time until Oct.30 to realize the plan to raise the equity," Suprasetyo told reporters during the ministry's post Idul Fitri gathering.
"Batik Air and Cardig Air have declared their ability to increase their equity and have also submitted the documents. In October, we will audit their balance sheets to see whether they have realized the plan," he continued.
An associate carrier of Malaysian budget airline AirAsia, Indonesia AirAsia president director Sunu Widyatmoko on Thursday said that the company had requested the Transportation Ministry to extend the deadline for the carrier to turn around its balance sheet.
"We have to undertaken several steps to turn the balance sheet into a positive one and each transaction [to raise the equity] requires approval from the parent company, therefore additional time is needed," Sunu told reporters.
He said that the carrier needed an additional two months to fulfil the requirement.
Transportation Minister Ignasius Jonan previously said that 13 airlines, including Indonesia AirAsia, Lion Group's full service airline Batik Air and cargo airline Cardig Air, were at risk of having their operating permits suspended. The remaining 10 airlines were Transwisata Prima Aviation, EastIndo Services, Survai Udara Penas, Air Pasifik Utama, Johnlin Air Transport, Asialink Cargo Airline, Ersa Eastern Aviation, Tri-MG Intra, Nusantara Buana Air and Manunggal Air Service.
Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding loan.
The minister later decided to soften his stance, saying that 13 airlines with negative equity could bring their balance sheets to positive by July 31. He said that such a regulation was important as part of efforts to ensure business sustainability and in turn maintain safety standards.
Should July 31 come around, and the respective airlines fail to increase their capital as per the requirement, the ministry would review and examine new service route permits applied for by the airlines.
The ministry would also ask all 13 airlines to present their business plans to ensure that they had a clear plan for healthy equity.
The ministry would also assist the airlines to help them operate in a healthy financial condition, in order to maintain standards of service and safety in accordance with regulations.
Sunu said that the government's regulation on equity also supported Indonesia AirAsia's plan for an initial public offering (IPO).
"The transaction will smooth out the IPO plan because there's no company allowed to do an IPO with negative equity," Sunu said. "The question now is the market situation. We have to wait and see when would be the best timing for the IPO."
Indonesia AirAsia had expected to launch an IPO since 2011. The firm originally planned to sell between 15 and 20 percent of its stake to the public, hoping to generate US$150 million to $200 million.