Lion Air appears to have transferred USD 68m-equivalent to two affiliated start-ups even as own restructuring talks flounder

18 May 2021

Kirana family-controlled Lion Mentari Airlines (aka Lion Air) appears to have transferred a total of IDR 968bn (USD 67.8m) to Super Air Jet, a new budget airline, and Flyindo Aviasi Nusantara (FAN), a new charter-flight service, both controlled by the same family, said two sources familiar with the situation.

 

It isn’t known why Lion transferred the funds to Super Air Jet and FAN, but the transactions occurred in early February when Lion Mentari’s debt-restructuring talks were continuing to falter, the two sources said. As such, the transfers highlight the possibility that the Kirana family might intend to walk away from distressed Lion Air in order to concentrate on the newer budget airline and FAN, said one of the sources.

 

Avolon Holdings, CDB Aviation, ICBC Leasing, have leased or are in discussions to lease some of the up to 30 new aircraft to Super Air Jet, according to two airline industry sources with knowledge of the situation. Avolon is a major lessor to Lion Group and appears to have a strategy to support Super Air Jet in the hopes it will emerge from the COVID-induced crisis with its relationship intact, said the two. Avolon is perhaps betting that Super Air Jet will pull ahead of the market leaving financially beleaguered Lion behind and unable to compete in the domestic low cost carrier market, the two added.

 

Avolon, CDB Aviation and ICBC Leasing did not respond to requests for comment.

 

A Lion Air spokesman on 3 May provided a statement to various media that Super Air Jet plans to begin operations soon, with the low-cost carrier in the process of obtaining an air operator certificate (AOC), its Chief Executive Ari Azhari was reported by Reuters as saying. FAN is also believed to have applied for an AOC, the first two sources said. Super Air Jet is to provide a 'super' low-cost segment to Indonesia's air-travel market, aiming at young customers, according to the 3 May statement. 

 

Super Air Jet is owned by Farian and Davin Kirana, the sons of brothers Kusnan and Rusdi Kirana, respectively, who both founded Lion Air group in 1999. Farian and Davin own Super Air Jet through PT Kabin Kita Top, a company in which they each hold a 50% stake, according to Indonesia’s Ministry of Law and Human Rights (MOLHR) records. Kabin Kita holds 99.8% of Super Jet, while Rudy Lumingkewas, who is Lion Air Group’s president-director, owns 0.1% as does Achmad Hasan, Lion Air Group’s director of commerce.

 

Farian Kirana also owns 50% of FAN while Denis Firian -- another son of Rusdi Kirana -- holds the other 50% stake in the charter-flight services company. Lion Air Group director of general affairs Edward Sirait is a commissioner at FAN, while Daniel Putut Kuncoro Adi, director of safety and security at Lion, is also a director at the charter-flight-services company, the MOLHR records show.

 

The fund transfers, totalling IDR 968bn from Lion Mentari’s account at Bank Negara Indonesia, occurred on 2 February and were made in two transactions with IDR 518bn being paid to Super Air Jet and IDR 450bn to FAN, a copy of Lion Mentari’s bank statements provided to Debtwire shows.

 

Edward Sirait and a Lion Air spokesperson both did not respond to numerous requests for comment.

 

Divide and conquer

 

Lion Air’s restructuring talks have been very opaque, with the airline negotiating with its creditors individually, a third and fourth source familiar said. Through this process, Lion Air has told individual lessors that it has settled with other creditors but, citing confidentiality agreements, claims it cannot disclose the restructuring terms of these deals.

 

“It’s a divide and conquer strategy,” said the third source. “No one lessor knows what the deal is for the other and so while Lion says it has reached an agreement with a this or that party, there is no hard evidence of that,” said the fourth source.

 

Transportation Partners, owned by Rusdi Kirana, has around 14 aircraft on lease to Lion Group. Lessors have expressed concern that the Singapore-headquartered company may be paid in full for amounts due under the lease obligations with this connected party, the two first sources said. Lion Air is also believed to have entered into bilateral agreements with other lessors that include zero or low rental payments with payments apparently agreed to replenish maintenance reserves, the two first sources added.

 

Transportation Partners did not respond to a request for comment.

 

Goshawk Aviation, along with at least five other lessors, initiated litigation in London on 24 July last year, according to the UK court records, with a series of orders being made by Justice Moulder and Justice Henshaw between 23 November 2020 and 4 May this year. Holman Fenwick Willan represents Goshawk in the matter while Stephenson Harwood is counsel to Lion.

 

The Lion Air Group, which consists of three airlines -- Lion Air, Batik Air and Wings -- was launched at the height of the Asian Financial crisis in 1999. At the time, Kusnan and Rusdi Kirana were convinced that there would be a boom in demand for air travel in line with the growth of the middle-income group so Super Air Jet's emergence amid the COVID-19 crisis appears to be banking on a similar boom, albeit with a focus on millennials.

 

After co-founding Lion Air and serving as the airline’s president-director until 2014, Rusdi Kirana was appointed Indonesia’s ambassador to Malaysia. He also served as a member of President Joko Widodo’s Presidential Advisory Council and as deputy chairman of the National Awakening Party, according to Lion Air’s website.

 

Kusnan Kirana, who has been Lion Air’s President Commissioner since 2019, is a commissioner and a director of several of the group’s affiliate companies, the website shows.

 

Related links:  

 

Debtwire’s shareholder profile on the Kirana family and Lion Air Group

 

by Luc Mongeon and Megawati Wijaya