Indonesia' government plans to establish a special economic zone (SEZ) for companies involved in aircraft maintenance, repair, and operations services - Photo: Garuda Indonesia

JAKARTA (TheInsiderStories) – Indonesia’ government plans to establish a special economic zone (SEZ) for aircraft maintenance, repair, and operations (MRO) services, after giving tax incentives in a bid to push forward the archipelago’ aviation industry.

Recently, secretary of the Coordinating Minister for Economic Affairs (CMEA), Susiwijono Moegiarso said, that the SEZ would be made possible amid the plans of Lion Air Group and Garuda Indonesia Group to unite their aircraft maintenance facilities.

He revealed that the two largest airline companies were exploring cooperation to unite maintenance facilities. This is in order to boost the efficiency of the airline. At pressent, certain maintenance must be done abroad.

“If Lion and Garuda can be integrated, we can facilitate not only fiscal incentives but also non-fiscal activities such as building economic zones specifically for aircraft equipment services,” he said after a coordination meeting with the CMEA Darmin Nasution in Jakarta, Monday (07/22).

The government is said to be in ongoing discussions with companies like PT Garuda Maintenance Facility Tbk (IDX: GMFI), a state-owned’ MRO service company, on its facilities in Bintan, Riau Province, as well as other companies.

Currently, unit of PT Garuda Indonesia Tbk (IDX: GIAA) in the process developing a hangar in Bintan, which is being built in a joint venture with Bintan Aviation Investments, a subsidiary of Singapore-based Gallant Venture, dating back to 2014.

Gallant Venture has the concession to build an airport in the area, with the company providing land for the hangar development for GMF. The hangar is slated to have the capacity to contain wide-body aircraft such as Boeing 747 and Airbus 330.

Meanwhile, the country’ biggest low-cost carrier Lion Air also established an MRO service at nearby Hang Nadim Airport in Batam Island, which is close to Bintan. Moegiarso assured that GMFI would get incentives that were applicable to SEZ, as stipulated in the economic package.

The incentives would include a tax holiday or tax allowance, according to Moegiarso, adding to the scrapping of taxes on aircraft components for the industry. The aircraft MRO business is estimated to be worth US$1 billion per year, with Indonesian businesses currently taking up only 30 percent.

There are an estimated 60-70 aviation MRO companies in Indonesia, with GMF AeroAsia the only one certified by the European Aviation Safety Agency (EASA) and United States Federal Aviation Administration (FAA).

Previously, GMF AeroAsia president director Richard Budihadianto expect total spending for MRO over the next five years would reach $32 million, with engine maintenance hitting $28 million worldwide, giving the opportunity for local MRO to access international markets.

While, Nasution added, beside create aviation SEZ, the government was currently reviewing the opening of an industry zones in Centra and East Java. The decision was taken because of many requests from the industry.

So far, none of the industrial zones have been built in Java because they are designed to build an economy outside Java. Nasution also stated that the criteria for SEZ development in Java, one of which did not disturb other industries outside the zones. In addition, the industrial zones must have an export orientation or import substitution that processes raw materials and intermediate goods.

Other criteria, the industry has high technology-related activities. According to him, Singapore investors have proposed the location of the industrial zones in Kendal, Central Java. With this decision, the Minister assessed that there was no need for changes in SEZ regulations.

Meanwhile, Minister of Industry Airlangga Hartarto said the development of SEZ related to the priorities of industries in the automotive and textile sectors.

Moreover, the government has also issued a super deduction tax rule. So far, many industries in Central Java have focused on labor-intensive. Meanwhile, the East Java region is expected to be a superior digital cluster compared to other regions.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com