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Where Does Lion Air Get $$$?  
User currently offlinenikeson13 From United States of America, joined Dec 2011, 8 posts, RR: 0
Posted (1 year 3 months 3 weeks 6 days 10 hours ago) and read 5742 times:

Lion Air has been in service for about 13 years now, and in 2005 they had a fleet of about 20 aircraft and suddenly ordered 30 737-900ER +30 options valued at $3.9 Billion dollars. They then ordered 29 more 737-900ER's and 201 737 MAX 9 aircraft in 2011 for about $22.4 billion dollars. Then recently they ordered 234 jets, consisting of 60 A320's, 109 A320neo's, and 65 A321neo's for about $24 billion dollars.

How did Lion Air get over $50.3 BILLION dollars to order over 600 aircraft in 8 years? They can't be making it, so who has the cash to invest?

20 replies: All unread, jump to last
 
User currently offlineLAXintl From United States of America, joined May 2000, 24858 posts, RR: 46
Reply 1, posted (1 year 3 months 3 weeks 6 days 10 hours ago) and read 5707 times:

Who says you need money to buy airplanes ?

AA agreed acquire 460 Boeing and Airbus narrowbody airplanes during its BK for $13Bil without needing to spend a penny upfront. It was all funded by the manufacturers themselves.

But back to Lion Air while privately held reportedly has made profits and will be doing an IPO in the next couple of years when we should have more access to their numbers.



From the desert to the sea, to all of Southern California
User currently offlineViscount724 From Switzerland, joined Oct 2006, 24868 posts, RR: 22
Reply 2, posted (1 year 3 months 3 weeks 6 days 10 hours ago) and read 5657 times:

Lion Air, like many non-U.S. customers of Boeing aircraft, has received quite a bit of financing from the U.S. Export-Import Bank, part of the U.S. government.

One example here. There have been several earlier similar items.
http://www.exim.gov/newsandevents/re...ircraft-to-Indonesias-Lion-Air.cfm


User currently offlineAirCanadaA330 From Canada, joined Aug 2008, 294 posts, RR: 0
Reply 3, posted (1 year 3 months 3 weeks 6 days 8 hours ago) and read 5360 times:
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Quoting Viscount724 (Reply 2):
Lion Air, like many non-U.S. customers of Boeing aircraft, has received quite a bit of financing from the U.S. Export-Import Bank, part of the U.S. government.

surely they will not finance $22 billion dollars



Cheers;
User currently offlinea380900 From France, joined Dec 2003, 1103 posts, RR: 1
Reply 4, posted (1 year 3 months 3 weeks 6 days 6 hours ago) and read 5193 times:

Big picture answer: Ben Bernanke.

User currently offlineAirCanadaA330 From Canada, joined Aug 2008, 294 posts, RR: 0
Reply 5, posted (1 year 3 months 3 weeks 6 days 6 hours ago) and read 5163 times:
Support Airliners.net - become a First Class Member!

Quoting a380900 (Reply 4):
Big picture answer: Ben Bernanke.

what is he just writing checks to airlines?



Cheers;
User currently offlinea380900 From France, joined Dec 2003, 1103 posts, RR: 1
Reply 6, posted (1 year 3 months 3 weeks 6 days 6 hours ago) and read 5129 times:

Quoting AirCanadaA330 (Reply 5):
what is he just writing checks to airlines?

Not only to airlines but yes, pretty much. Never occured to you that the previous record orders was at the height of the last credit bubble? (2007) Well, we're in a new one.


User currently offlineAirCanadaA330 From Canada, joined Aug 2008, 294 posts, RR: 0
Reply 7, posted (1 year 3 months 3 weeks 6 days 6 hours ago) and read 5127 times:
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Quoting a380900 (Reply 6):
Never occured to you that the previous record orders was at the height of the last credit bubble? (2007) Well, we're in a new one.

to be honest no...it didnt. Well seems Lionair is really taking advantage of this.



Cheers;
User currently offlineAsiaflyer From Singapore, joined May 2007, 1126 posts, RR: 0
Reply 8, posted (1 year 3 months 3 weeks 6 days 5 hours ago) and read 5002 times:

It's not about being able to pay for all investments upfront. It is all about Cash Flow.
Almost all companies who makes large investments needs financing via loans. Airlines uses leasing companies extensively as well.
Hence it is about being able to have cash flow enough to make interest and principle payments.

The return for shareholders increases significantly by taking loan instead of buying assets with own money, but thats another topic!



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User currently offlinesxf24 From United States of America, joined Aug 2007, 1257 posts, RR: 0
Reply 9, posted (1 year 3 months 3 weeks 6 days 4 hours ago) and read 4836 times:

Quoting LAXintl (Reply 1):
AA agreed acquire 460 Boeing and Airbus narrowbody airplanes during its BK for $13Bil without needing to spend a penny upfront. It was all funded by the manufacturers themselves.

Not true.

In regards to the original question, Lionair doesn't have the money, which will result in significant problems down the road. There's no such thing as 100% financing for aircraft and lessors will only help so much.


User currently offlinemercure1 From French Polynesia, joined Jul 2008, 1304 posts, RR: 2
Reply 10, posted (1 year 3 months 3 weeks 6 days 3 hours ago) and read 4758 times:

I don't know about Boeing portion, but American Airlines Airbus order funding was committed by manufacturer Airbus. AA did not even have to purchase engines, as Airbus agreed to purchase engines from IAE on behalf of AA and include in deal.

This was story in French media and Airbus hailed that they and IAE manage to cover full amount of confirmed orders for this deal and let AA avoid from having to go get any of its own money. Deal even provides increasing financial credits for each airframe AA takes. The more frames they accept in the future the larger amount they receive.


User currently offlinephxa340 From United States of America, joined Mar 2012, 882 posts, RR: 1
Reply 11, posted (1 year 3 months 3 weeks 6 days 3 hours ago) and read 4667 times:

Quoting Viscount724 (Reply 2):
Lion Air, like many non-U.S. customers of Boeing aircraft, has received quite a bit of financing from the U.S. Export-Import Bank, part of the U.S. government.

You make it sound very one-sided. Airbus does the same thing with ECA. But cheap financing definitely helps these mega deals.

"Indeed, EADS strategy chief, Marwan Lahoud, told Reuters that the deal with Airbus made use of ECA funds, similar to its use of US export credit guarantees for its large Boeing order" - afm.aero


User currently offlinesxf24 From United States of America, joined Aug 2007, 1257 posts, RR: 0
Reply 12, posted (1 year 3 months 3 weeks 6 days 2 hours ago) and read 4661 times:

Quoting mercure1 (Reply 10):
I don't know about Boeing portion, but American Airlines Airbus order funding was committed by manufacturer Airbus. AA did not even have to purchase engines, as Airbus agreed to purchase engines from IAE on behalf of AA and include in deal.

This was story in French media and Airbus hailed that they and IAE manage to cover full amount of confirmed orders for this deal and let AA avoid from having to go get any of its own money. Deal even provides increasing financial credits for each airframe AA takes. The more frames they accept in the future the larger amount they receive.

All of those terms are relatively normal, though the scope varies by customers.

The simple reality is that in the US, laws prevent you from "sell" something unless there is a material amount of money put down (either from cash or financing). Manufacturers generally can't fully finance large projects like aircraft themselves and record an order. So, for at least Boeing, every aircraft sold is accompanied by deposits.

Airbus has more flexibility with its accounting, which is why it can record orders for aircraft committed to customers that don't have the ability or desire to actually take delivery.


User currently offlineHB-IWC From Greece, joined Sep 2000, 4498 posts, RR: 72
Reply 13, posted (1 year 3 months 3 weeks 6 days 2 hours ago) and read 4583 times:

Quoting sxf24 (Reply 9):
Lionair doesn't have the money, which will result in significant problems down the road.

As a front row onlooker, I tend to agree with you here. I do not believe that Lion Air has the money, but they are greatly assisted by both leasing companies and various financing schemes. But leasing companies have to be paid and financing schemes sooner or later require debt repayment, and I believe that Lion Air - or the Lion Air Group, which also includes Wings Air, Batik Air and Malindo - has to keep growing to be able to come up with enough cash.

The question then is for how long it can keep growing at the current pace. The market within Indonesia is not about to be saturated for sure, but the airline, like all other domestic operators, are increasingly being hampered by all sorts of infrastructure related issues for which no solution is even on the horizon and which is already hampering unfettered growth as we speak. So Lion is now venturing outside Indonesia with its Malindo set up. The question there is how effectively it will be able to compete with the much better established Air Asia. I would also fully expect the Lion Air group to actively look for further regional ventures in the likes of Thailand, the Philippines and Australia.

But the question remains what will happen when growth eventually levels off...


User currently offlineAzure From France, joined Dec 2012, 610 posts, RR: 16
Reply 14, posted (1 year 3 months 3 weeks 5 days 21 hours ago) and read 4318 times:

Quoting HB-IWC (Reply 13):
But the question remains what will happen when growth eventually levels off...

Good question ! Lion air is benefitting from the credit export scheme both in the US for its Boeing mega-order and in the EU for its Airbus mega-order. In other words, the US government guarantees the first purchase and the French government (through COFACE) the second one - BTW have you noticed that Obama and Hollande attended the signature of the contracts ? - Therefore if Lion air takes delivery of the aircraft but cannot pay back the loan, the US and/or the French governement (i.e. the tax-payers) will pay. Why are the US and French government doing so ? Just to secure jobs in their respective countries.

Note : Of course AA did not benefit from such a financing scheme. As a US carrier, it can't.

[Edited 2013-04-03 01:57:24]


I fly because it releases my mind from the tyranny of petty things - A. de Saint Exupery
User currently offlinesxf24 From United States of America, joined Aug 2007, 1257 posts, RR: 0
Reply 15, posted (1 year 3 months 3 weeks 5 days 15 hours ago) and read 3954 times:

Quoting Azure (Reply 14):
Good question ! Lion air is benefitting from the credit export scheme both in the US for its Boeing mega-order and in the EU for its Airbus mega-order. In other words, the US government guarantees the first purchase and the French government (through COFACE) the second one - BTW have you noticed that Obama and Hollande attended the signature of the contracts ?

The US government has not guaranteed the Boeing order. Ex-Im Bank has provided financing guarantees for a portion of the 737s delivered to date.


User currently offlinej22 From Sweden, joined Jan 2012, 9 posts, RR: 0
Reply 16, posted (1 year 3 months 3 weeks 5 days 14 hours ago) and read 3815 times:

Warning back of the envelope maths coming up.

The thing to realize first is that the 50 billion is list prices, assume 40% less in real value.
So that makes it 30 billion.
Then its 30 billion divided by 450 planes makes about 66 million a plane.
Delivery is over a 5 year period (for example).
That is 90 planes a year or about 7 planes a month.

Then all of this becomes a cash flow issue. I expect that a major 1/3 down payment needs to be done at slot confirmation time (I suspect about a year before delivery, this is the first real deposit).
So at anyone time there is 12*7*66 million/3 in deposits at the manufactures. Which is about 1.8 billion.
Every month they buy aircraft worth a bit more than 462 million (deposits need to be put down for the next batch).
On average they would take delivery of 2 planes a week. So make that about 120 million in cash they need in their accounts every week. The thing is once bought by lion air they immediately resell or mortgage them.
So they get back their 120 million and now need to pay their lessor/bank in monthly installments.

Lets assume 7 year periods.
I suspect financing cost is about 20 million per plane (wild guess  .
So in the peak years (6 and 7 years after delivery) that comes down to 450*11million (80/7) or about 5 billion a year in payments. (all earlier years would have significantly lower payments). I suspect in reality that is a much higher number than lion pays in real life.

5 billion a year for a fleet of 450 airplanes is not unreasonable and would go down a lot of the financing is for a longer term lets say 11 then its only 3 billion a year.

Paying the bank/lessor is done from cashflow receipts. So as long as new cashflow from new planes makes a profit they only need 120 million in the bank at any one time. If you are making a profit then you can afford this kind of cashflow. The moment you don't make a profit you are in a world of hurt (or more accurately your lessors/banks are).

I can't think of a reason why you can announce a firm order under GAAT or IFRS without a major deposit.

New financing need is therefore only 5 billion a year (divide by 2 for ECA and EX/IM) each 2.5 billion. Something they won't really sweat about  Wink

[Edited 2013-04-03 08:51:43]

User currently offlineRDH3E From United States of America, joined Mar 2011, 1606 posts, RR: 3
Reply 17, posted (1 year 3 months 3 weeks 5 days 14 hours ago) and read 3795 times:

Quoting Azure (Reply 14):
Note : Of course AA did not benefit from such a financing scheme. As a US carrier, it can't.

It did on the Airbus order, just not on the Boeing order.

Quoting HB-IWC (Reply 13):
The question then is for how long it can keep growing at the current pace. The market within Indonesia is not about to be saturated for sure, but the airline, like all other domestic operators, are increasingly being hampered by all sorts of infrastructure related issues for which no solution is even on the horizon

That is very interesting. And it seems that with most of their cash flow going to new aircraft, they probably won't have much left to take on any infrastructure projects themselves.

Quoting j22 (Reply 16):
I can't think of a reason why you can announce a firm order under GAAT or IFRS without a major deposit.

The real question is whether or not you're allowed to finance the deposit  Smile

[Edited 2013-04-03 08:56:50]

User currently offlinefraapproach From Germany, joined Oct 2010, 57 posts, RR: 0
Reply 18, posted (1 year 3 months 3 weeks 5 days 11 hours ago) and read 3064 times:

I am pretty sure they dont have the money now and they will have trouble to raise it in the classic financing markets. They will IMHO need to tap into all funding sources available, i.e. EXIM-financing, leasing companies classic bank debt etc. They will also have trouble to source finacing for a sizeable amount from one bank or leasing company because they represent a very high 'chunk' risk. When they go broke the market will be swamped with 737s and A320s at a time when Boeing and Airbus produce more than one new unit of each type per day. In the end it is a question of how much equity they can provide. If its all going to be outside capital its not going to 'fly'. They will need to provide a substantial part of equity especially in this case as it is a risky venture for any lessor or creditor.

User currently offlineAzure From France, joined Dec 2012, 610 posts, RR: 16
Reply 19, posted (1 year 3 months 3 weeks 5 days 9 hours ago) and read 2521 times:

Quoting sxf24 (Reply 15):
Quoting Azure (Reply 14):
Good question ! Lion air is benefitting from the credit export scheme both in the US for its Boeing mega-order and in the EU for its Airbus mega-order. In other words, the US government guarantees the first purchase and the French government (through COFACE) the second one - BTW have you noticed that Obama and Hollande attended the signature of the contracts ?

The US government has not guaranteed the Boeing order. Ex-Im Bank has provided financing guarantees for a portion of the 737s delivered to date.

We can play on words endlessly : Ex-im Bank is a state-owned bank, an institution ruled by the Federal government. Its web address is exim.GOV if you care to know. France has a similar organisation, named Coface. Ex-im has guaranteed Lion air's order for B, Coface has guaranteed Lion air's order for A.
Ex-im and Coface have provided guarantees for a portion of the order, right, but this portion to my knowledge remains undisclosed. Airbus has stated this portion was "normal" for such a deal. What does "normal" mean here, I do not know. Do you ?
It can be added that thanks to these guarantees, Lion air can get loans at discounted rate.
US airlines and airlines from "Airbus countries" cannot benefit from this financing scheme.




Quoting RDH3E (Reply 17):
Quoting Azure (Reply 14):
Note : Of course AA did not benefit from such a financing scheme. As a US carrier, it can't.

It did on the Airbus order, just not on the Boeing order.

No. we are talking about export credit scheme here. AA (and all us carriers) cannot benefit from export credit when they order Airbus. And neither can carriers from "Airbus countries" (ie France, Germany, Spain and the UK) when they place an order at Boeing. This is due to a regulation implemented in the 1980s under the OECD supervision. There have been recent exemptions but discussing this would be off-topic in this thread. To my knowledge, AA did not benefit from these exemptions (if you know otherwise, please quote your sources).



I fly because it releases my mind from the tyranny of petty things - A. de Saint Exupery
User currently offlinej22 From Sweden, joined Jan 2012, 9 posts, RR: 0
Reply 20, posted (1 year 3 months 3 weeks 5 days 9 hours ago) and read 2499 times:

Quoting RDH3E (Reply 17):
The real question is whether or not you're allowed to finance the deposit

Why wouldn't you be allowed to? Your bank may not want to finance it but airbus/boeing don't care where it comes from as long as it comes (within limits). Financing deposits is not uncommon, even small businesses do this.

You also have to realize that short haul planes last fewer years these days because they are being flown much harder.

I think that lion air is like ryanair not insanely large or fast growing.

If at some point they can't grow due to infrastructure problems they will slow deliveries for a year or two. IMHO Airbus can take this in the A320 line, I don't think that Boeing is there with the NG but the Max line would not find this a problem either.


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