USTDA GRANT FOR AVIATION SAFETY - ANOTHER POSITIVE STEP

UNCLAS JAKARTA 001091

SIPDIS

DEPT FOR EEB/TRA/OTP KGUSTAVSON
FAA FOR FAA/API
SINGAPORE FOR MARY WALSH
BANGKOK FOR MARK DUNN
DEPT PASS USTDA DROSSITER

E.O. 12958: N/A
TAGS: EAIR ECON SN TH ID
SUBJECT: USTDA GRANT FOR AVIATION SAFETY - ANOTHER POSITIVE STEP

REFS: A) 08Jakarta2304
B) 08Jakarta775
C) 07 Jakarta 3249
D) 07 Jakarta 1077


1. Summary: The U.S. Trade and Development Agency (USTDA) awarded
$341,000 in grant funds to Indonesia's Directorate General of Civil
Aviation (DGCA) to enhance the safety and security of the country's
aviation sector. The technical assistance grant is the latest
effort to bolster the civil aviation regulatory authority and help
Indonesia meet international standards for aviation safety. DGCA is
making progress in reforms and is receiving assistance from the
Federal Aviation Administration (FAA),Australia, Japan, the
European Union (EU) and the International Civil Aviation
Organization (ICAO). However, the Indonesian government and
airlines remain stung by the EU ban on Indonesian airlines, and to a
far lesser extent by the 2007 FAA downgrade to Category "2" (Ref D).
The USTDA grant will help DGCA develop a plan for meeting
international safety standards, but will not cover implementation
costs. The restructuring and strengthening of DGCA's regulatory
capabilities will foster continued growth in Indonesia's aviation
sector and provide opportunities for U.S. business. End Summary.

USTDA grant - a critical part of the solution
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2. Ambassador Hume and DGCA Director General Herry Bakti signed the
$341,000 grant agreement on June 23 at the Ministry of
Transportation. The USTDA grant will fund a review of the DGCA's
current operations, make recommendations to strengthen its
regulatory authority, and develop an implementation plan for the
DGCA to comply with international standards for aviation oversight
and regulation. The recommendations and plans will provide an
over-arching logic and path forward considering the ongoing DGCA
reforms, the new civil aviation law, and the myriad of assistance
efforts.


3. The FAA, Australia, Japan, EU, and ICAO are all engaged to help
the DGCA become an effective aviation safety regulator. The FAA
provides on-going technical assistance to the DGCA and most recently
focused on runway assessments at the airports in Bali and Jakarta.
In the past year, FAA and Post organized an exchange program through
the International Voluntary Visitor Leadership Program for DGCA
staff to meet with counterparts in the U.S. Australia, the largest
donor in the sector, has a $22 million assistance program that
includes building capacity for DGCA in aviation planning, air
navigation services, safety, and training for air traffic
controllers and technicians. Japan, EU, and the International Civil
Aviation Organization (ICAO) are other partners with projects and
assistance to improve aviation safety and security in Indonesia.

Why do they need help?
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4. DGCA, as the regulatory authority, and the airport infrastructure
have not kept pace with industry growth. The Indonesian aviation
sector ballooned after deregulation in 1999 -- currently there are
51 air carriers, 16 of which are passenger service airlines.
Several high-profile, fatal passenger aircraft accidents put
Indonesian aviation safety under increased scrutiny. In April 2007,
FAA downgraded Indonesia to Category "2" status due to concerns
about the DGCA's safety oversight of air carriers. In June 2007,
the EU followed suit and banned all Indonesian airlines. The
Indonesian reaction has been more negative toward the EU ban than
the FAA downgrade because of the EU ban's economic impacts and the
manner in which the ban and the exemptions process have been
handled.

EU Ban and FAA downgrade - looking forward
--------------

5. The Indonesian government is seeking exemptions to the EU ban for
individual airlines including for state-owned Garuda Airlines.
After over a year of attempts, the DGCA is cautiously optimistic
that an upcoming EU parliamentary meeting will approve exemption of
some airlines from the EU ban. In the coming year, the FAA
downgrade may get more attention. As a result of the 2007 FAA
downgrade of Indonesia's safety oversight from Category "1" to
Category "2", Indonesian airlines are prohibited from flying to the
U.S. To date, this has been a non-issue because no Indonesian
airlines fly to the U.S. (Note: Garuda Airlines last flew to Los
Angeles in 1997.) However, Garuda aspires to resume flights to the
U.S. in the next one to two years using recently secured, but not
yet delivered, Boeing 777 jets. The DGCA will have to overcome
significant hurdles for FAA reconsideration once Garuda or another
Indonesian airline is ready to fly to the U.S.