5 May 2020
Introduction
The global aviation industry has been significantly affected by the COVID-19 outbreak from the day the World Health Organization (“WHO”) announced it as a Public Health Emergency of International Concern on 30 January 2020. Dramatic affects are also experienced by Indonesian airlines ever since, even with zero cases of COVID-19 reported in Indonesia at that time. It was with unprecedented consequences they have grounded numerous aircrafts, shut down pax flights especially to and from red zone areas, and even recently shifted their pax flights to cargo.
Prior to the Government of Indonesia’s (“GoI”) official announcement of our first COVID-19 case on 2 March 2020, the GoI has paid attention to a few industries, which has been dramatically affected by the outbreak, among others, aviation and tourism. The GoI has established an incentive program to boost the tourism industry by announcing an economic stimulus for airlines that eventually will be carried out by giving discounted fares for several destinations. Although details and implementation of the incentive program shall be further regulated, the airlines have rolled out discount fare programs for several domestic destinations as previously encouraged by the GoI.
Weeks after the announcement of the first COVID-19 case in Indonesia, the GoI has enacted several regulations in response to the outbreak. Here is our update on the recently enacted regulations that may affect Indonesian aviation industry.
Temporary suspension of commercial flights
Recently, the GoI issued Ministry of Transportation Regulation No. 25 of 2020 to officially suspend commercial flights to and from large-scale social restriction areas or red zone areas within Indonesian territory. The regulation was issued in response to the GoI previous decision to disallow Moslem’s annual going home for Ramadhan holiday practice (mudik). The suspension applies for all transportation mode, and especially for air transportation, it will be starting from 24 April to 1 June 2020. However, exemption to the suspension is granted specifically for Indonesian institution heads and state guests flights, embassies, consulates, and international organisation flights, cargo flights, repatriation flights, state and emergency affairs, and other flights with prior permission from DGCA.
Previously, the GoI temporarily restricted foreigners to enter into Indonesian territory by the issuance of Ministry of Law and Human Rights Regulation No. 11 of 2020, without official suspension of flights nor closure of airports. The restriction, however, does not apply for foreigners who (a) holds limited stay permit and permanent stay permit; (b) holds diplomatic visa and official visa; (c) holds diplomatic stay permit and official stay permit; (d) aid force and medical support, foods and humanitarian reasons; (e) transportation crew; and (f) will work for national strategic project. Further, the regulation does not express time period of the restriction, thus, lifting of the restriction will be until further notice from the GoI.
Financial relief effort
As part of the GoI’s intervention on economic and financial sector, it has legitimated more state spending and financial relief efforts in an attempt to control the battered economy, by issuing Government Regulation in lieu of Acts No. 1 of 2020 on 31 March 2020.
Tax deduction is one of the reliefs covered in the regulation, where the current 25% of corporate income tax will be deducted to 22% for tax year of 2020 and 2021; and 20% for tax year of 2022. Additional 3% deduction will be enjoyed by listed companies where more than 40% of their shares are publicly owned and meet certain criteria. For financial and real sector, the GoI initiated a recovery program by means of State’s Capital Injection, placement of funds and/or GoI investment, and/or other GoI’s guarantee according to the pre-determined scheme by the GoI. However to date, the implementation of both the tax deduction and recovery program has not been further regulated; hence, there is no clarity if the aviation industry will be prioritised in this recovery program. Although the aviation industry is one of the (if not the most) affected sector due to the COVID-19 outbreak and the GoI has introduced several incentives, the implementing regulation(s) as guideline for the aviation industry to implement the incentives is yet to be enacted.
COVID-19 outbreak as non-natural national disaster
The GoI has officially declared the COVID-19 outbreak as a non-natural national disaster effective 13 April 2020 through the enactment of Presidential Decree No. 12 of 2020. For details on the decree, you may click here.
The issuance of the decree has been intensively discussed as to whether it may be used as a ground for any contracting party to declare force majeure event, to excuse any non-performance, or even a termination of contract. However, as most practitioners and scholars’ view, the decree could not be interpreted as an automatic declaration of force majeure event without revisiting the relevant contract clauses. To date, we are not aware of any information on exploitation of the decree related to performance of contract in aviation industry.
For more information, please contact:
Afriyan Rachmad, Partner, Roosdiono & Partners (a member of ZICO Law)
afriyan.rachmad@zicolaw.com
