Jakarta’s Soekarno-Hatta airport, Southeast Asia’s busiest, couldn’t offer Lion Group the space it needed to build a new airplane maintenance facility. Instead, the company ended up picking a site near Singapore.

With its Lion Air unit poised to overtake Singapore Airlines Ltd. as the region’s largest carrier by fleet size, the Jakarta-based company’s maintenance arm is spending $250 million to build the facility on Batam, an Indonesian island a short ferry ride from Singapore. When finished, it will have four hangars that can handle a total of four Boeing Co. 747 aircraft or 12 single-aisle planes.

“We considered Jakarta,” Romdani Ardali Adang, president of closely held Lion Group’s maintenance unit, said in an interview. “But there is no space in Jakarta. There was only space for one hangar.”

The Indonesian capital’s crowded airport is part of an infrastructure shortage that is holding back economic expansion in the world’s fourth-most populous country, where growth is already slowing amid accelerating inflation and a rising trade gap. Last month, a Boeing 737-800 plane struck a cow at a regional airport, underscoring the need for upgrades in a nation where air travel is expected to double in 10 years.

“More than any other mode of transportation, airlines are key in connecting all the diverse parts of Indonesia and put them together,” said Shukor Yusof, a Singapore-based aviation analyst at Standard & Poor’s. “The importance of the airline industry to Indonesia’s economy is massive.”

Low-Cost Carriers

The emergence of Southeast Asian low-cost carriers such as Lion Air and AirAsia Bhd. have helped fuel demand for flying by making it cheaper.

The two have ordered 764 planes worth $73.8 billion at list prices since 2011. By the end of this year, Lion Air and state- controlled PT Garuda Indonesia will surpass Singapore Air as the region’s biggest carriers by fleet size, the CAPA Centre for Aviation, which advises airlines, said last week.

Indonesia has more than 230 airports scattered on more than 17,000 islands that stretch across 5,300 kilometers (3,300 miles).

“We are a huge archipelago,” said Kristanto, a spokesman for PT Angkasa Pura II, the state-owned operator of Soekarno- Hatta. “Land travel is not an option in most cases,” said Kristanto, who like many Indonesians uses only one name.

Economic Growth

Demand has surged as economic growth enables more of Indonesia’s 253 million people to travel by air. Domestic carriers flew 70 million passengers in 2012, up from 37 million in 2008, according to CAPA.

Indonesia overtook its former colonial master, the Netherlands, in 2011 to become the world’s 16th-largest economy, according to data compiled by Bloomberg. If it maintains a growth rate of about 6 percent, it will leapfrog Germany and the U.K. by 2030 to rank seventh, consulting firm McKinsey & Co. predicts.

The country’s economic growth has slowed and stocks have tumbled amid faster inflation and a record current-account deficit. Still, air-travel demand may double in 10 years as only 10 percent to 15 percent of Indonesians have flown on planes, according to Vice Transport Minister Bambang Susantono.

Most major airfields in the country were operating at double to triple their capacity in 2011, according to the Indonesia Infrastructure Initiative, a project funded by the Australian government.

“A lot of the airports have very limited space,” said Brendan Sobie, chief analyst at CAPA. “They can modernize it a bit, but they can’t really expand very much.”

Airport Expansion

To accommodate growth, Indonesia’s government is spending about $53 billion to improve transport infrastructure including airports, ports and railroads. It’s also looking to invite companies to develop and operate some airports.

A new airport in Medan, Sumatra’s biggest city, opened July 25 and can handle as many as 9 million passengers a year. The old airport was handling 8 times its capacity of about 1 million.

Angkasa Pura II is working to develop terminals and aircraft parking spaces at all eight airports under its management, said Kristanto, the operator’s spokesman.

Soekarno-Hatta, Asia’s busiest airport after Beijing Capital International Airport and Tokyo’s Haneda, is boosting capacity to be able to handle 68 million passengers a year from 57 million currently, Kristanto said. The government is also considering building a second international airport in the capital.

Cow Collision

Soekarno-Hatta may quickly reach the expanded capacity. Last year, the number of passengers using the airport rose 13 percent to 53.7 million, according to the operator’s website.

“Demand is growing way too fast for infrastructure developments to keep pace,” said K. Ajith, a Singapore-based analyst at UOB Kay Hian Pte.

Crowding isn’t the only issue. Garuda, the nation’s flag carrier, postponed the start of non-stop flights between Jakarta and London’s Gatwick from this year to mid-2014. That’s because the Jakarta runway doesn’t meet the take-off weight specifications required for the Boeing 777-300ER at full capacity.

The nation has also struggled with safety. In 2010, the country accounted for 1.4 percent of all plane flights and 4 percent of all air accidents, according to the International Air Transport Association, known as IATA.

Two people were injured on Aug. 6 when a Lion Air-operated Boeing 737-800 hit one of three cows on a runway in Gorontalo. In April, a Lion Air plane carrying 108 people crashed into the sea off Bali on landing at Ngurah Rai International Airport, according to the airport’s operator. There were no fatalities.

“Having the right infrastructure to accommodate the growth will be critical,” said Albert Tjoeng, a spokesman for IATA. “It is equally important that the software — pilots, air- traffic controllers, and other human resources — is developed to be able to support the aviation growth.”

Editors: Terje Langeland, Neil Chatterjee. To contact the reporters on this story: Kyunghee Park in Singapore at [email protected]; Harry Suhartono in Jakarta at [email protected]. To contact the editor responsible for this story: Anand Krishnamoorthy at [email protected].