Lion Air’s massive orders continue to raise doubts

The news that Asia’s Lion Air might be planning an order for the Bombardier CS300 energized the media and those that follow the OEM. If Lion Air follows through, this would be a major defection from Airbus and Boeing, which have large backlogs with this Low Cost Carrier.

It would be a major breakthrough for Bombardier.  But there are key questions about the prospective order.

  1. How big will it be? Lion Air’s president was quoted as saying up to 100, but this leaves a huge spread of 10 to 100, presumably in a combination of orders and options. Ten wouldn’t mean much in the all-important momentum/image battle. Fifty would. One hundred would be great. But…
  2. How can Lion Air, a carrier that has spotty financial results and a safety record that earned it banishment from flying to Europe and a raft of accidents within Asia, afford, support and staff another order?
  3. How can Lion Air, with 550 Airbus and Boeing A320 and 737 family jets on order, absorb yet another fleet type?

Boeing 737 (All Models)



Lion Air










Air Lease








August 2013


Airbus A320 (All Models)

Air Asia


Lion Air


















August 2013


Lion Air is attempting to replicate the business model of Air Asia, creating subsidiaries in Asia to meet the passenger traffic growth. AirAsia Group’s CEO Tony Fernandes notes that Asia’s population is larger than Europe’s, or the USA, and that vast expanses of water and mountains and the lack of roads means air travel is the most efficient way of getting around. Lion Air clearly sees the same opportunity.

But can Lion Air afford the huge orders outstanding, and add to it with a CS300 order? The carrier has relied on export credit financing for the Boeing 737s and undoubtedly will for the Airbus A320s. One presumes Bombardier will ask Canada’s export credit agency to step up as well.

This is all well and good, but the airline company still has to repay the debt and this raises a great deal of skepticism.

As the tables demonstrate, Lion Air has more single aisle airplanes on order than any customer other that the USA’s Southwest Airlines (for Boeing) or AirAsia (for Airbus). One of the techniques Low Cost Carriers use for these big orders is to flip the fleet at the end of the maintenance holidays of six or seven years. This can create a surplus of supply to demand, and many believe this is what is driving down residual values, lease rates and useful lives. The industry is seeing 737NGs and A320s scrapped at younger and younger ages, and lease rates appear to be seeing more frequent peaks and valleys.

A large order for the CS300 by Lion Air, which could come by year-end, will be a solid boost for Bombardier’s sales figures and make it all but assured it will meet its goal of 300 firm orders by entry-into-service (ostensibly fourth quarter 2014). A large order from Air Canada or some similar carrier would be more comforting.


A version of this went to our e-mail distribution September 30.

20 Comments on “Lion Air’s massive orders continue to raise doubts

  1. Looking at the table, it ostensibly seems most are “blue chip” customers and many needing fleet replacement (i.e. such as AA). Even carriers such as Indigo are profitable.

    • Air Canada is doing well right now. But if it acquires the CSeries it will not be in a position to benefit from financial credits coming from Export Development Canada because it is a Canadian company based in Montréal. Bombardier Aerospace is actually a five minute walk from the Air Canada headquarter.

  2. Scott your comments here are exactly why I wonder what Airbus is doing to push for winning all orders with NEO. It makes no sense because you end up flooding the market with a/c all very close in age with no real aftermarket for the customers to sell/lease aircraft. If there is no market then you scrap. The value of fleets are reduced signficantly, the market is flooded with used parts, and the tier 2 and 3 guys lose out to the scarp market. It would seem that both companies (or three companies) would want to hold the line on pricing and keeping share so you keep the aftermarket strong and there is consistent demand so valuations remain high. Help me understand why there is a focus for a winner take all approach when the profit potential long term is better with a more equal split?

    • The answer to your last question is a phenomenon that we call greed. 😉
      Airbus and Boeing should welcome the competition coming from a third player like Bombardier instead of trying to kill it by cutting prices down when the order book is practically full for the next seven or eight years. The market is too big for only two players.

  3. Lion Air seems to be more interested in speculation (buying and selling aircraft) than in daily airline operations.

    The company is buying aircraft, not so much for the profit it can earn operating them, but for their expected resale value. The main idea is to sell the aircraft upfront to pocket an immediate profit.

    The financial scheme has been used by Ryanair, among others, for years.

    1) Sign a massive order for a widely used aircraft type, at ultra-low price and lax associated conditions (allowing you to flip any aircraft after a few years of operation only).

    2) Negociate a favourable sale-and-lease back agreement. The minimum lease period must be short (a few years) but consistent with the initial purchase contract. You must obtain an aircraft selling price higher than your initial purchase price, to secure an immediate profit.

    3) Take a first batch of leased aircraft to renew your fleet.

    4) Operate the aircraft for the shortest period allowed by the initial purchase contract and your lease contract. Take advantage of the “maintenance holidays”.

    5) Flip the aircraft as soon as you are allowed to do it.

    6) Do it again ….

    The limits are the size of your own operation (you have to operate the aircraft a few years), the prices and associated conditions accepted by the manufacturers and the lease conditions accepted by the lessors. Lion has not yet reached its own limits, but it might well reach them before being through with its orders …

    Flipping aircraft certainly contributes to depress aircraft values and shorten their economic life. Lessors may complain, but they are the ones who enable the practice.

    • But the plan only works if there is a demand greater than the current supply channels. If Loin is the largest consumer and the deamnd from other airlines is small, Loin will need to reduce their price so low it might not make sense. Smaller orders with the same supplier makes more sense than making large orders with every supplier. In the case of the CS300 there will be no other demand so the price per copy will be too smal to make a profit. And flooding the market with either Airbus or Boeing a/c will only drive the price down so the volume discount will be worthless. If other guys are doing the same thing with Airbus NEO orders, well that means the order book is not worth the paper it’s reported on? Hopefully this strategy is not being done by too many customers?

  4. AirAisia passed the opportunity to acquire the CSeries. That left the door open for Lion Air. The latter could have a decisive advantage with the 160 seat version of the CS300. And different variants of the aircraft could be acquired later on for areas where it is more difficult to take off and land.

    But if Lion Air acquires the CSeries it means that some of the options it currently holds with Airbus and Boeing might not be exercised.

  5. Lion Air have ordered 150 A/C in the CEO / NG range !

    How may their turn around work, with the poor value they have to expect at re-sale time !

    • Yeah but Ryan has maintained working with a single OEM. They also did not buy more than their system required and sold the overage after usage in their airline fleet. This seems to be a buy with a lease focused strategy? They use the 737s in their own operations while leasing out the A320s?

  6. Ryanair make very good benefits now !
    So they may get to 2017 with a lot of cash for heavier times !
    It is not the case of Lion Air, under the scope of their gvt these days !

    Anyway, Ryanair may not be so easy, to sale his hundreds of B737 NG, at the end of the decade, since they hadn’t ordered the new generation for now !

  7. Air travel in Indonesia on certain routes require aircraft that can operate on short runways shorter than 2000m. Lion Air fleet mainly consist of 737-900, 737-800 and ATR72-500/600. The Airline’s CEO, Rusdi Kirana mentioned that there are about 50 airports that can’t accommodate 737-900 and 737-800. And ATR72 are just too slow and the range are limited. So it makes sense that Lion Air needs 120-150 pax aircraft to expand their short-medium routes to airports with short runways that can’t be served by 737s and to fill the capacity gap between its 737s and ATR72s.

    • And the CS100 and CS300 are the right size planes to serve short-medium flights to smaller airports. Other Indonesia airlines also order smaller jets to serve the same market. Garuda has firm order of 18 CRJ1000’s and Sriwijaya Airlines placed order for 20 Embraer 190’s

      • The way I recall the situation is that the comment “we don’t see these as things you should be negotiating in the public realm” was perceived at the time as a faux-pas by observers like me and others. It was certainly a strong perception at the time. And I noticed that shortly afterwards Boehm’s career took a new tangent. It might only be a coincidence, but shortly after the comment was made he was sent away to China, possibly to meditate on what can be said publicly and what is better to swallow while biting your tongue. He eventually returned to Montréal, but was never again the superstar he once was before the comment was made.

        I believe this is a great lost for Bombardier, on the scale of the premature death of James Hoblyn two years ago. But like Boehm himself would put it, perhaps we should not be discussing these things publicly.

        • You may recall Qatar launched the A319neo at the time instead of ordering CS300. The French government called the Qatari government and applied the pressure-this was the Paris Air Show, remember-it had nothing to do with Boehm or PW (in fact Qatar later selected GTF) or BBD. All this stuff, Norm, you are speculating on is off base.

  8. Pingback: Odds and Ends: Looking toward the South; Lion Air updates CSeries interest; 787 fuel advantage | Leeham News and Comment

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