Indonesia's Lion Air to Buy 60 Boeing Planes

JAKARTA – Indonesian budget carrier Lion Air (search) signed a deal on Thursday to buy up to 60 aircraft from Boeing Co. (BA) in a $3.9 billion transaction that will help the young airline expand its routes across Asia.

Lion Air President Director Rusdi Kirana said the deal to buy a combination of Boeing's 737-800 and 737-900 narrow-body airliners would modernize his fleet and save fuel.

"Lion Air has operated not more than five years, but we have bought up to 60 aircraft, which means we have great potential because we have 230 million people and we are an archipelago country," Kirana said at the signing ceremony in Washington.

The order was the latest sales coup for Chicago-based Boeing, which has shown signs of reversing European archrival Airbus' recent dominance in commercial aviation.

Moving forward on another jet which has seen good response from Asian buyers, the top U.S. aircraft manufacturer said it had signed contracts with Japanese partners for its next generation 787 Dreamliner program.

In a separate positive development, Canadian buyout firm Onex Corp. (search) said it still plans to purchase several Boeing commercial airplane manufacturing plants in the United States after a key labor union rejected its contract offer.

Boeing shares rose 2 percent on the New York Stock Exchange (search) to 62.68, after earlier in the session touching a new high since the Sept. 11, 2001, hijack attacks that crippled orders for airliners.

Boeing shares are up nearly 20 percent so far this year, the Dow Jones Industrial Average's top gainer for the period.

"They (Boeing) hadn't won a lot of those Asian low-cost carriers last year, but it really looks like the momentum has turned pretty hard in their favor," said J.B. Groh, an analyst at D.A. Davidson.

Kirana, visiting the United States as part of a delegation of Indonesian business leaders accompanying President Susilo Bambang Yudhoyono (search), said Lion Air would begin receiving planes in 2007.

The deal marks one of the biggest transactions for corporate Indonesia since the 1997-98 Asian financial crisis, and underscores the pick-up in economic growth and business confidence under Yudhoyono's seven-month-old government.

It is also an unusually large purchase of aircraft, especially for a new airline.

The carrier said the deal was worth $3.9 billion, a figure that corresponded to the catalog price of the aircraft, but airlines routinely get hefty discounts.

"They (Boeing) will help us to find a way to finance this," Lion Air spokesman Hasyim Arsal Alhabsi said in Jakarta.

Airbus SA's A320 family competes with Boeing's 737.

The spokesman gave no more details on the financing for privately owned Lion Air, which has made inroads with competitive fares and service to popular Indonesian destinations.

Alhabsi also declined to say who owned the airline.

"We want to use (the new planes) for new routes as well as replacing what we lease right now. We want to go to the region -- Australia, India, China and Hong Kong," Alhabsi said.

Brent Mitchell, an analyst at Shaw Stockbroking in Melbourne, said that while airlines needed to cut costs to survive, Asia was becoming congested with budget airlines.

"I think you have to say it's high risk. A major concern would be the fuel costs and safety and compliance issues (which) become an important and costly factor," Mitchell said.

Singapore Airlines has set up a regional budget carrier, Tiger Airways. Malaysia has AirAsia, and entrepreneur Richard Branson established Virgin Blue in Australia, while Qantas has set up a budget offshoot called JetStar and an affiliate called JetStar Asia.

Lion's current fleet has 38 aircraft, around half of which are leased, Alhabsi said.

The purchases mark a dramatic growth path for the company, which was once a travel agency. Following the deal, Lion Air is considering an initial public offering of its shares either next year or in 2007, Alhabsi added.

The deal marks the first major move by any Indonesian airline to expand its fleet in recent years.

The local industry was hit hard by the Asian financial crisis, then suffered again during several years of political unrest and bomb attacks in Indonesia that cut into foreign tourist numbers.