Indonesian airline bets $44 billion on travel boom

Lion Air is Indonesia's fastest-growing airline.
Lion Air is Indonesia's fastest-growing airline. Photo: AFP

Lion Air, a little-known carrier launched 13 years ago with just one plane, has struck two of the world's largest aircraft orders in a staggering $US46 billion ($A44 billion) bet on Indonesia's air transport boom.

France announced Monday that Indonesia's fastest-growing airline had agreed to buy 234 medium-haul A320 jets worth $US23.8 billion from European aerospace giant Airbus.

French President Francois Hollande described the "historic" deal as the biggest in the history of civil aviation.

The agreement was signed at the Elysee Palace by Airbus head Fabrice Bregier and his Lion Air counterpart Rusdi Kirana.

The deal comes after Lion Air astounded the industry with a $US22.4 billion agreement for 230 Boeing 737 airliners, inked in 2011 as a visiting US President Barack Obama looked on.

The impressive orders are in sharp contrast with the size of the company, which is banned from US and EU skies over safety fears.

The impressive orders are in sharp contrast with the size of the company, which is banned from US and EU skies over safety fears.

Founded in 1999 by brothers Kusnan and Rusdi Kirana, who are ranked the 33rd richest Indonesians with collective wealth of $US900 million, Lion Air is the first private airline in Indonesia, a sprawling archipelago nation.

Currently it operates a relatively modest 92 planes - all Boeings except for one McDonnell Douglas - which makes it number nine among regional carriers in terms of fleet size.

Its 72 destinations are mostly in Indonesia, and the furthest it flies is to Saudi Arabia - a route mostly packed with domestic workers and construction labourers.

Nevertheless, the company has huge ambitions and is betting big on the formidable expansion of air transport in Indonesia, which is experiencing passenger growth of around 20 percent every year.

With 240 million people, Indonesia is the world's fourth most populous nation, and embraces more than 17,000 islands scattered across 33 provinces.

Annual economic growth exceeds 6 per cent and there is a burgeoning middle class which is keen to abandon travel by bus, ferry and train and instead take to the skies for holidays and family visits.

Despite its regulatory woes, Lion Air is intent on spreading its wings internationally, and is expected this year to launch its long-haul arm, Batik Air, with six Boeing 737s and five Boeing B787 Dreamliners.

Last September it also announced the launch of another offshoot, Malindo Airways, which will begin regional operations in May from Malaysia, the home turf of Lion Air's main rival AirAsia.

The vast potential of Indonesia's aviation market, and the scope for offshoot carriers, supports the scale of Lion Air's orders, said Brendan Sobie from the Centre for Asia Pacific Aviation in Singapore.

"They see an increase in demand that is brought on by the conditions in the home market. If you look at the projections for growth in Indonesia, assuming that Lion maintains its current market share and leading position, they are going to need a few hundred more aircraft just to keep that position," he said.

"They also have an ambition to play more in international markets and to open up affiliates in other countries."

Observers said that Lion Air wants to replicate the success of AirAsia, the region's low-cost pioneer which has flourished from its Kuala Lumpur base under the charismatic leadership of founder Tony Fernandes.

"I think Lion Air wants to show that it can beat Tony Fernandes," said Dudi Sudibyo, an expert from aviation magazine Angkasa.

"But the questions now are -- who will fly those planes, where will the planes be parked, and how do they finance this?" he said, adding that the Airbus deal would likely be funded by a consortium.

With both mega-purchases in place, Lion Air would boast more than 600 aircraft by 2025, making it among the top ten of the world's biggest airlines in terms of fleet size.

In 2007 Lion was among a number of Indonesian airlines banned by the EU for lax safety standards. Flag carrier Garuda Indonesia and several other firms were taken off the blacklist in July 2009 but Lion Air is still on it.

Under present Federal Aviation Administration rules it would not normally be allowed to begin services to the US as the FAA classifies Indonesia as not meeting minimum air safety oversight requirements.

AFP

Comments