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| Indonesia's Lion Air has placed the largest ever commercial airplane order in Boeing's history, valued at $21.7 billion. (AFP Photo) |
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Little over
a decade ago, Indonesian budget airline Lion Air served a single route on
remote Borneo island. On Friday, it placed a $21.7 billion order with Boeing,
the airplane giant’s biggest commercial order on record.
Lion
Mentari was founded with just $10 million in start-up capital in 1999 by Kusnan
and Rusdi Kirana, who ran a travel agency until they spotted a growth
opportunity when the Indonesian government deregulated the aviation industry.
Lion Air --
48-year-old Rusdi is now CEO, and Kusnan is president commissioner -- was one
of dozens of new carriers to emerge around that time in Southeast Asia’s
biggest economy, including Sriwijaya Air and the now bankrupt Adam Air.
The Boeing
deal for 230 short-haul jets takes Lion Air’s orderbook to more than 400
planes, which they aim to use to fly across an Asia-Pacific region still seeing
robust passenger growth despite the shaky global economy.
The deal
includes options for another 150 aircraft valued at $14 billion, bringing its
potential total value to $35 billion.
The
aggressive buying spree comes ahead of regional air liberalization in 2015,
part of a planned Southeast Asian free trade economic community.
At the
moment, some Southeast Asian nations shut out airlines to protect their
national carriers.
“If you’re
looking at a short term view, people will call us nuts, but we’re talking about
an opportunity here and we’re taking a long term view,” said Edward Sirait, a
Lion Air director. “Look at the growth in the region -- China, India and
Southeast Asia. It’s tremendous and what we’re doing now is to anticipate 5-10
years ahead,” he said.
The deal
for 201 of Boeing’s updated 737 MAX planes and 29 Next-Generation 737-900
extended range planes -- announced as US President Barack Obama attended a
regional meeting in Indonesia -- will be financed in part by the U.S. Exim
Bank, Sirait said.
The rest
will come from a consortium of international banks, which is still being
finalized. Delivery of the planes will be in 2017-25.
Lion Air
plans an initial public offering next year to raise more than $1 billion
through the sale of a 20-30 percent stake, to help finance its rapid expansion.
It aims to
fly to China, India, South Korea, Japan and Australia.
Much of the
growth in Asia’s air travel industry has been driven by budget carriers, but
Lion Air plans to use the blueprint of regional leader AirAsia and set up a
premium airline, too. Space Jet is expected to launch in a year’s time.
Lion Air
operates 92 planes and has a load factor of above 80 percent. The latest order
comes on top of a $14 billion deal signed in 2008 with Boeing for 178 737-900s,
which will be delivered in stages until 2016.
Apart from
flights around the sprawling Indonesian archipelago, Lion Air flies to Jeddah
and Singapore, but is banned from flying to the European Union because of
safety concerns.
The EU last
year allowed flag carrier Garuda Indonesia to resume flights after a similar
ban.
No Lion Air
plane has crashed in a domestic industry that regularly sees deadly aviation
disasters, but its planes have skidded off runaways and it has been criticized
for regular flight delays.
As the air
industry takes off, analysts say Indonesia must revamp overloaded and
dilapidated infrastructure, including airports and power supply, to sustain
current growth levels.
Reuters
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