“The deal is on and work is in progress,” AirAsia CEO Aireen Omar was quoted as saying.

Speculation that the acquisiton might be scuttled arose from a recent report in The Jakarta Post, which said that Indonesia’s business regulators want details from AirAsia Bhd and its Indonesian partner, Fersindo Nusaperkasa, about their plan to take a controlling stake in Batavia Air to ensure anti-competition rules are not flouted,

According to the report, the anti-monopoly agency fears that the acquisition by the owners of Indonesia AirAsia (IAA) would create a business entity that would control more than 50% of the domestic market, which is in violation of Indonesia’s 1999 law on unlawful business practices.

“We will annul the acquisition if it has the potential to stop other carriers from growing in the aviation industry,” KPPU head Tadjuddin Noer Said was reported of saying about the US$80 million deal to buy into Metro Batavia, which operates Batavia Air and Aero Flyer Institute, an aviation training school.

The paper said there is no official record on IAA’s number of passengers for domestic flights as the airline predominantly serves international routes with domestic interconnections.

Batavia Air domestic route passengers reached 6.75 million, or equals to 11.25% of the domestic share.

Tadjuddin said the agency would look into the composition of ownership in the parent companies of IAA, in which 49% is controlled by AirAsia and 51% by Jakarta-based Fersindo Nusaperkasa.

He urged AirAsia and Fersindo Nusaperkasa to disclose the details of ownership within the companies in 30 days so as to allowing the agency to precisely calculate their control over the domestic market.

“If they fail to notify the KPPU they will be fined 1 billion Rupiah (US$106,000) a day,” Tadjuddin was quoted as saying in the report.

In an agreement signed last week AirAsia and Fersindo would purchase 76% of Batavia sometime this year, while the remainder would be acquired in the second quarter of next year. (Read story here).

He further said the KPPU wanted to see if the Batavia acquisition was prompted by the possibility of the company going bankrupt, or driven by AirAsia’s intention to expand its Indonesian presence ahead of ASEAN’s open sky policy in 2015.

“We are afraid that AirAsia Berhad is using Batavia Air as a vehicle to control our market ahead of the open sky policy. We can say the acquisition process is just camouflage, which would not be right,” Tadjuddin told reporters in Jakarta.

He said that such a practice would endanger business competition in the country’s aviation industry, which would kill off other domestic carriers.

“It would create an unhealthy environment in the business, such as in pricing or creating what is called a cartel.”.

The Jakarta Post report also quoted Indonesia’s Transportation Ministry’s air transportation director, Djoko Murjatmodjo, as saying the ministry had recently received a report from Batavia Air on its plan to sell their shares to the two companies.

However, he said the company had yet to further elaborate on how many of its shares would be sold to the Malaysian-based company and how many to its Indonesia unit, giving an unclear message to the government.

Similar to the KPPU, he said the ministry would look at the composition of shareholders of Fersindo Nusaperkasa, as well as the acquisition process of Batavia Air.

“The KPPU has the right to annul the acquisition if Indonesia is not the majority shareholder,” Djoko said.

The English daily added that previously, the ministry’s air transportation director general, Herry Bhakti Gumay, said the ministry would not hesitate to “revoke Batavia Air’s SIUAU (flight permit)” if the acquisition did not comply with Indonesian ownership rules.

The Batavia acquisition comes hot on the heels of Tiger Airway’s takeover of Mandala Air earlier this year.

An Update:

PT Fersindo Nusaperkasa, AirAsia’s Indonesia partner in the proposed purchase of Batavia Air, has assured the Indonesian government that the acquisition of the domestic airline by low-cost-carrier Indonesia AirAsia (IAA) will comply with Indonesian rules.

Fersindo Nusaperkasa owns a 51% stake in Indonesia AirAsia, while Malaysian-based AirAsia Bhd controls the remaining 49% stake.

“I have been working in this industry for 35 years. My team and I know the rules exactly and how to do business here and I guarantee that we will follow Indonesian rules,” Fersindo Nusaperkasa president director Dharmadi told The Jakarta Post.

Under Indonesian rules foreign ownership of airlines is capped at 49%, leaving the remaining 51% of shares in the hands of Indonesians