AirAsia said Thursday it will buy Indonesia's Batavia Air for $US80 million ($A77 million), as the region's biggest budget carrier spreads its wings in Southeast Asia's largest economy.
The Malaysia-based airline expects to complete the acquisition, which is subject to Indonesian regulatory approval, by the second quarter of next year as it moves to bolster its presence against fast-growing rivals.
In order to comply with Indonesian ownership law, AirAsia said it will hold 49 percent of Batavia, while 51 per cent will be held by its Indonesian unit, Fersindo.
AirAsia chief Tony Fernandes, who recently announced he was moving to Jakarta to oversee the airline's regional expansion, described the acquisition as a "fantastic opportunity".
He said it would "accelerate our growth plans in one of the most exciting aviation markets in Asia and further underlines our belief in the growth potential of Indonesia's aviation sector".
Demand for air travel in Indonesia, an archipelago of more than 17,000 islands with a growing middle class among its 240 million population, has been soaring.
The purchase will be carried out in two stages, with the acquisition of a majority 76.95 per cent stake to be followed by the remaining 23.05 per cent held by its existing shareholders, AirAsia said in a statement.
"The total purchasing consideration for Metro Batavia Group is $US80 million and will be settled in cash," the statement added.
The carrier has been shoring up its presence in the region against a host of other competitors, including Lion Air, Indonesia's largest low cost carrier.
Batavia, which has a fleet of about 30 planes, mainly flies domestic routes and a few international routes such as to Jeddah in Saudi Arabia, Singapore and Guangzhou in southern China.
It has been facing financial turbulence recently, with the transportation ministry saying the carrier was forced to return two leased Boeing 737 airliners to its owners after failing to pay overdue bills.
Indonesia's domestic airlines carried more than 60 million passengers last year, and the Indonesia Air Carriers Association predicts a 52-per cent increase in passenger numbers by 2015.
Also that year, a Southeast Asian open-sky policy is due to come into effect, reducing barriers on regional airlines expanding their route networks to other countries, in a move expected to intensify competition.
Earlier this year Lion Air sealed a $US22.4 billion deal for 230 Boeing 737 aircraft, billed as the largest commercial airplane deal for the US planemaker, positioning itself as a rival to AirAsia.
AirAsia has set up subsidiary budget carriers in Indonesia, the Philippines and Thailand, and is planning one that will serve the Japanese market.
As incomes grow, more Indonesians are paying for the convenience of air travel over tiresome and often unsafe ferry rides across the country, whose economy grew 6.5 percent last year and is projected to grow by more than 6 per cent this year.
Last May, AirAsia posted a 4 per cent increase in first-quarter net profit to 168.0 million ringgit ($A51 million) on record quarterly revenue of 1.17 billion ringgit.