Lion Air plans IPO in 2016 to fund new airport

PARIS - Indonesia's Lion Group is pushing forward with revived plans for a 2016 initial public offering now designed to fund an airport vital to securing its growth, chief executive Rusdi Kirana said.

The owner of one of the world's fastest-growing airlines, Lion Air is also close to placing an order for Airbus A330 wide-body jets, which it plans to use for busy domestic routes as it runs short of airport slots for smaller jets.

"We are talking now with banks about an IPO and will use the money to build this hub. Now we are using our own money but hopefully by first quarter 2016, the company will do an IPO and will use the money partly for airport expansion," said Mr Kirana.

He declined to say how much the company planned to raise.

Privately-owned Lion has long toyed with a flotation, only to conclude that it could fund some of the industry's largest plane orders from its own operations. This has changed, however, with the group's growing focus on airport projects, Mr Kirana said.

The 51-year-old former travel agent captured international attention when he announced record purchases of jets from Boeing and Airbus to serve Indonesia's rapidly growing consumer class, as well as to compete with Malaysia's AirAsia.

AirAsia operates in several regional cities and its flagship Malaysian company is valued at US$2.1 billion (S$2.7 billion).

Both companies have hundreds of aircraft on order.

The latest order for current- generation A330s will be placed "soon", said Mr Kirana. He said the size of the deal has not been fixed but did not dispute a suggestion by industry sources that it could involve seven to 10 jets worth US$2.5 billion at list prices.

Lion had previously cancelled an order for newer but smaller Boeing 787-8 jets because it needed more seats, said Mr Kirana, who was in France to mark the reception of Lion's first Airbus jets, which will be used for its full-service Batik Air subsidiary.

"In Indonesia . . . there is a lot of demand. We keep increasing frequency. If we had the slots, we would make it every half an hour instead of every hour (on routes like) Jakarta-Medan. The only limit we have today is because of infrastructure."

Mr Kirana said Lion Air will not buy more planes other than the A330s before the end of 2015, but has no plans to defer any of its existing large order book of Airbus and Boeing jets. It is no longer looking at Canada's Bombardier CSeries.

Weak transport structure is the main obstacle to Lion's further growth, Mr Kirana said, so it is focusing on two projects to sidestep congestion at Jakarta's Soekarno-Hatta airport.

It has won permission to operate and expand Halim Perdanakusuma airport in east Jakarta, bringing capacity to 11 million to 12 million passengers a year from current tiny levels.

In a rare comment on the company's finances, Mr Kirana said this could increase Lion's revenues by 15-20 per cent next year.

He also said Lion will break ground in 2015 for an entirely new airport at Lebak, south of the capital, for the main low-cost brand with a capacity of up to 50 million passengers, hoping to gain an edge over capacity-constrained rivals.

Its four runways will include one capable of taking A380 superjumbos to draw in Gulf carriers.

Mr Kirana said Lion may seek an alliance to support this but has not approached anyone yet. "Fuel price and currency are beyond our control. They can be up and down. The most important thing is that we control things we can, like infrastructure."

The rupiah has declined over 25 per cent since Lion placed a record Boeing plane order in 2011, whereas aircraft are paid for in US dollars. Mr Kirana said its dollar exposure will be cushioned by the company's new in-house maintenance and repair facility and stock of parts, limiting US dollar spending to buying new jets.

In key overseas ventures, Mr Kirana said Lion's Thai affiliate is faring well and looking to expand. Malindo is performing less well in Malaysia but Lion Group expects to outstrip AirAsia as Asia's largest budget carrier by fleet size in one or two years.

"The growth looks promising for Thai, so we will double our fleet there by the end of next year." From eight planes in the first year, Thai Lion plans to increase this to 20.

Lion Air has not decided when to start a planned local venture in Australia but will serve the country initially from Indonesia under the Batik Air brand. The company has no immediate plans to add further international ventures, Mr Kirana said.