Lion Faces Question Of Quality Over Quantity

By Leithen Francis, Jens Flottau
Source: Aviation Week & Space Technology

Along with subsidiary Wings Air, Lion controls 48% of Indonesia's domestic market, which is Southeast Asia's largest aviation market and growing at 15% per annum. Lion and Wings have a combined fleet of 122 aircraft, according to the Aviation Week Intelligence Network Fleet database, a huge number for an airline that only started operating 13 years ago, with two leased Yakovlev Yak-42Ds and a Boeing 737-200.

None of the major aircraft lessors or financiers were prepared back then to do business with Rusdi, who had start-up capital of $900,000. But Lion has been able to win over the financial community. Those that have helped finance Lion's aircraft include Apple Bank for Savings (New York), BNP Paribas, Cathay United Bank, Citibank, Credit Agricole, DVB Bank, Korean Development Bank and Natixis.

With the new aircraft, Lion aims to expand its domestic and international network as well as add frequencies, particularly on domestic trunk routes. To fend off competition, the airline operates its major routes like shuttle services, with flights leaving every half-hour.

Only a few of the many aircraft Lion has ordered are intended to replace older types. The carrier still has seven Boeing MD-80s and seven 737-300/400s. But the orders for the Airbus and Boeing narrowbodies are also spread over many years. For example, the first Airbus narrowbodies will be delivered next year and the last in 2026.

Prior to moving into the airline business, Rusdi and his brother and Lion co-founder, Kusnan, owned and ran a travel agency, a business that is still very important to the airline industry in Indonesia. Internet penetration is low in the country and many people do not have credit cards, so travel agents account for the bulk of many Indonesian carriers' ticket sales.

In addition to its focus on the Indonesian market, Lion is establishing new airline ventures overseas. In Malaysia in March it launched Malindo Air, which operates two 737-900ERs. Rusdi told Aviation Week in early March that Malindo would have 10 737-900ERs by year-end. The director general of Malaysia's department of civil aviation, Azharuddin Abdul Rahman, says Malindo also plans to operate ATR 72s from Kuala Lumpur's Subang Airport.

Industry sources say Lion is looking at starting an airline in Australia as well, though its weak image overseas may make it hard for the carrier to win over the Australian public.

Lion is expanding beyond the airline business, too. Last year, it established Transportation Partners, an aircraft leasing company in Singapore. The company has a remit to lease to Lion group carriers, but also to third-party airlines. Because Lion has ordered so many aircraft, it has a competitive advantage—it is paying lower prices than aircraft leasing companies and other airlines. And having both Airbus and Boeing aircraft helps Transportation Partners attract a broad customer base and minimize risk. Purchasing aircraft in bulk, at low prices, also gives Lion and Transportation Partners the flexibility to sell their aircraft to realize a quick profit.

The 737-800 involved in the April 13 incident, and which was delivered to Lion in February, was owned by Irish lessor Avolon. Prior to delivery, Lion did a sale-leaseback deal with Avolon on six 737-800s.

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