SINGAPORE Aug 6 Indonesia's Lion Group, which
boasts an order backlog of about 500 Boeing and Airbus
aircraft, has clinched the first deal for its leasing
subsidiary in a key diversification move for one of the world's
Two years after setting up shop in Singapore, Transportation
Partners (TP) has signed a deal to lease three new Boeing
737-800 planes to 9 Air, the low-cost airline of China's Juneyao
Airlines, TP's chief operating officer told Reuters.
Though TP's deal with 9 Air involves just three aircraft,
the potential is significant in a market like China where
airlines will need nearly 6,000 new jets over the next 20 years.
Many of those aircraft, valued at $780 billion at list prices in
total, will be leased rather than bought as carriers seek to cap
The three aircraft will come from Lion's existing order for
Boeing 737 aircraft, said John Duffy, a former banker hired by
Lion co-founder Rusdi Kirana to head TP.
"If we could do a couple more deals like this this year,
then we'd be really pleased. We would hope to announce other
deals during the fourth quarter," said Duffy, without disclosing
the value of the deal with 9 Air.
The value of leasing transactions are typically not released
to the public due to commercial considerations.
The China deal comes after Kirana started TP to help manage
some of the aircraft in Lion's portfolio. Lion has placed plane
orders worth about $45 billion at list prices and deliveries are
spread over the next 10 years.
Lion and Boeing did not immediately respond to requests for
comment on this story.
In an interview with industry publication Flightglobal in
April, Kirana described the move as a "backup plan" for
Indonesia's largest airline by passenger numbers.
Lion hopes a strong leasing business will offer flexibility
to cope with any regional oversupply of aircraft at a time when
Southeast Asian rivals such as Malaysia's AirAsia Bhd
are deferring orders due to deteriorating markets.
Juneyao previously said 9 Air aims to start domestic flights
from the southern Chinese city of Guangzhou in the second half
of this year. Juneyao could not be reached for comment for this
With low-cost carriers accounting for only about 7 percent
of China's air travel market, the country is "the last great
frontier for LCC traffic," said Duffy.
TP, which currently leases planes mainly to Lion Group
airlines, expects to ramp up its third-party leasing business in
2015 and 2016, from about six aircraft this year. TP's focus is
on large markets in China, Brazil, Japan and the United States,
"These guys are the needle mover in Asia Pacific. They
probably got more capacity delivering over the next three years
in seat number terms than anyone else. So there's obviously much
more uncertainty around whether there'll be demand for all that
extra capacity," said Timothy Ross, Asia transportation analyst
at Credit Suisse.
CHALLENGE TO LEASING FIRMS
Airlines have been leasing out surplus aircraft on an ad hoc
basis for years, usually in small volumes. However, the scale of
the order books of Lion Air and European low-cost carrier
Norwegian has attracted attention as a potential source of
competition to the mainstream leasing companies, which are an
increasingly important part of the global aircraft market.
"Their acquisition cost is probably very low, and in this
business, cost of capital and timing of your entry are the two
most important elements and particularly when it comes to
leasing," said Ross, referring to Lion.
Norwegian Air Shuttle Chief Executive Bjorn Kjos
told Swedish newspaper Svenska Dagbladet recently that the
airline had set up a leasing company in Ireland and planned to
lease out 100-150 jets in a bid to challenge the top lessors.
Still, leasing arms of airlines can face challenges and
successful offshoots of ordinary carriers have so far been
Airlines, engaged in a capital-intensive business with high
cyclical risks, tend to have a wide mixture of capital costs.
Leasing also requires specialist operations teams and there may
be complications over aircraft configuration.
Most importantly, industry analysts say, airlines tend to
be guarded about leasing from each other as it means opening the
books to a potential future competitor. Lessors typically
require a deep dive into an airline's books and carry out credit
checks or pore over operations such as maintenance facilities.
(Editing by Ryan Woo)