A new airport will be established in Yogyakarta city, Indonesia, with an investment of $700m by state-owned PT Angkasa Pura I in a joint venture with GVK Power & Infrastructure.

If the deal is finalised, GVK will become the first international company to hold a major stake in an Indonesian airport, allowing the government to gain the much-needed funding for the infrastructure. However, it will not hold more than 49% stake.

In an interview with Reuters, Angkasa Pura president-director Tommy Soetomo said: "Our cooperation with GVK from India on the Yogyakarta airport will be the first foreign joint venture. We are still preparing the master plan."

"Our cooperation with GVK from India on the Yogyakarta airport will be the first foreign joint venture."

The deal is subject to approval from the Angkasa Pura’s shareholders, and the Indonesian firm plans to fund the project through loans or equity.

Construction of the new airport is expected to commence in 2015, and the operations are likely to begin in 2017.

It is not currently clear whether the new airport will complement or replace the existing airport.

PT Angkasa Pura I, which controls 13 airports, also plans to invest $300m each in two of its domestic airports in order to increase their capacity.

Indonesia is working to address the increase in passenger traffic, which is expected to surge following major aircraft orders by airlines such as Garuda Indonesia and privately held Lion Air.

By the end of this year, the country is expected to announce new regulations aimed at opening up foreign investment to the country’s airports and ports.