Law Kian Yan
By: Mavis Toh
Rusdi Kirana has relentlessly defied his critics to build Lion Air into the largest operator in Indonesia, and is showing no sign of slowing as he contemplates an initial public offering for the group and a rising political career
His boyish smile and signature moustache may have stayed the same, but much has changed in Rusdi Kirana’s life over the past 15 years.
Despite starting out as a virtual nobody in the aviation world – unable even to convince lessors to lease him his first aircraft – Kirana has forged Lion Air into Indonesia’s dominant airline. It took time, but before long the aviation world was beating a path to his door.
In 2011 he signed an order for up to 380 Boeing 737s in the presence of US President Barack Obama. He followed this in 2013 with an order for 234 Airbus jets, inked in the presence of French President François Hollande at the Elysee Palace in Paris.
These days, the 50-year-old is hounded by aircraft salesmen and journalists alike, eager for an insight into his plans for the Lion Group.
A true businessman, Kirana believes in keeping busy and moving quickly. Last year alone he added three new airlines to Lion Group’s portfolio. Batik Air’s mission is to break flag carrier Garuda Indonesia’s grip on the full-service market in Indonesia. In Malaysia he launched Malindo Air, and in Thailand he established Thai Lion Air.
His pace of life picked up a notch earlier this year, when he stepped into the world of politics. In a surprising move, Kirana, a Christian, was appointed the deputy chairman of the National Awakening Party – a moderate Islamic party in Indonesia.
The party is running in the legislative elections in April, and Kirana’s ambition is to secure a seat in parliament and eventually become the country’s agriculture minister. If all goes according to plan, the founder of Lion Air – the largest low-cost carrier in Indonesia – says he is ready to step down as chief of Lion Group to focus on his political career.
There have been signs that the man once known as a “key-man risk” – a leader so hands-on there are concerns about the business impact should he leave – has started loosening his grip on his airline business. In March, Kirana appointed general manager of sales and marketing Rudy Lumingkewas, who has been with Lion for the last 12 years, to be his successor as chief executive of Lion Air. Kirana moved on to the position of group chief, to take a “strategic role” in bringing the group forward in its next phase of growth.
“Fifteen years ago I said I don’t want to be involved in politics. I kept outside the system and just did my business. But after being more involved in my business, I realised I cannot be outside the system. I have to be in the system in order to fix, suggest or influence, to make sure the regulations are pro the country and pro the businessmen,” Kirana tells Airline Business in Jakarta. “From my business dealings I can see the flaws in the system.”
He wants to focus on agriculture because he “finds it strange” that a country of 240 million is not self-sufficient, instead relying heavily on food imports.
With Singapore’s founding father, Lee Kuan Yew, as his role model, Kirana – who spends a few days a week in the city-state – believes that “leaving a legacy” is more important than merely having power or money. With politics on his mind, the usually low-key and media-shy businessman now goes on live telecast debates to speak on national issues, and is even considering buying his own helicopter so he can reach isolated farms across Indonesia.
The Chinese Indonesian says the foundation of his airline business, which he took pains to build for over a decade, is strong enough to let him take a back seat should he need to be fully involved in politics.
“The business has been running [well] the last three to four years. Strategy-wise I’ve ordered the aircraft. My staff in financing, operations, engineering [and] commercial are running the business. This is because the system is there, and it took me 14 years to build the system,” he says.
To stress his point, Kirana says he did not have to meet with a single banker to secure financing for the group’s incoming 36 jets and 14 turboprops in 2014, because it was all taken care of by his finance team. He intends to spend the next few years training Lumingkewas – and also his 22-year-old nephew, who will be graduating from university this year – to eventually take over as chief of Lion Air.
Flightglobal’s Ascend Online database shows that Lion’s order backlog comprises 528 aircraft, all of which are Airbus A320 and Boeing 737-family jets, with deliveries scheduled out to 2026. Kirana is unconcerned by critics who believe he has bitten off more than he can chew and are betting that, like his biggest low-cost competitor, AirAsia, he will have to defer deliveries at some point.
He responds that his current orderbook is “not enough”, and that he is in negotiations for more aircraft – including widebodies – with a formal order coming this year.
The only widebodies the group has on order are five Boeing 787s, which Kirana says he will likely convert to the smaller 737s because Lion “is not ready” to operate the high-tech aircraft. He also needs to replace Lion’s two ageing 747s, which are used for pilgrimage flights.
He wants a flexible large aircraft for international and high-density domestic routes.
The group will also take delivery of the first of its 234 A320s this year. Kirana says he went to Airbus last year because Boeing could not keep up with the group’s ambitious growth plans. He was also determined to show the manufacturers he is not under their control. In addition, he is eyeing the Bombardier CSeries for its potential to serve long thin routes within Indonesia, and is aware that “when you deal with somebody who needs you, you can get a good price”.
The airline boss denies that his massive orders are for grabbing headlines. Instead, they are because he sees a genuine need for more jets when the ASEAN open skies comes into play in 2015, allowing carriers to fly with fewer restrictions within the region. Besides, the aircraft on order are not exclusively for domestic operations with Lion, Batik and Wings Air, but also for the group’s various overseas ventures.
With fifth-freedom rights, Kirana believes utilisation of his aircraft will increase. They will be able to fly from Lion’s base in Jakarta to Manila, for example, and on to a third city such as Hong Kong, before returning to Jakarta.
Some of the new aircraft will also be used for fleet replacement. In 10-12 years, Lion would also have the option to sell some of the aircraft it has completely paid off.
The group also has leasing firm Transportation Partners as a “back-up plan”.
“They were built first to finance our deliveries. Secondly, if we have more aircraft – whether these are used ones that have been paid off or if the economy collapses – Transportation Partners can look to lease out the new aircraft,” he says. “I know it’s quite difficult for people to understand [our need for so many aircraft]. It’s not easy to explain. When we first ordered the aircraft, people said ‘Rusdi just wants to be a leasing company’, but look, today we already have 110 aircraft delivered.”
Kirana, who turned Lion into the largest operator in Indonesia, with a 45% market share, wants more. While the shrewd businessman closely protects his operational figures, he shares that Lion and Wings together carried 38 million passengers last year, with an average load factor of about 90%.
“Today, we have the network and the frequency. We fly to some cities 15 or 20 times daily. We now fly every hour – we want to make it every half hour. With the frequency and network you can still manage exchange rate losses, high fuel prices and a poor economy because you’ve become the preferred carrier,” he says, adding that his full-service arm Batik, which was launched last May, has already turned a profit in its first year of operations.
His peers at home are not doing so well, however. Some struggle to obtain favourable slots and have insufficient fleet size to enjoy economies of scale. However, Kirana is “not interested” in buying out smaller carriers, preferring to focus on Lion’s organic growth.
LOW COST PER ASK
Kirana discloses that his Indonesian operation’s cost per available seat-kilometre is around four cents – much lower than the nine cents legacy carriers typically operate at. It is able to achieve this impressive figure because it does not engage third parties, but does almost everything in-house. The group is building its own maintenance facility on a 25ha (61 acre) plot of land at Batam airport, and also buys its own spare parts, engines and simulators.
“I do everything on my own. When you keep buying, in the first and second years it’s tough, but in the end it will be economically cheaper,” he says.
Pressed to give an idea of Lion’s financials, which he has never disclosed, Kirana laughs and rapidly declines without thinking twice. His only hint, and a rather telling one, is that the carrier is solidly profitable: “I’m making 10, 20 times more than Garuda, much more than that.”
He is all too familiar with speculation that secret financial backers support Lion. He maintains, however, that the group is 100% owned by just him and his older brother Kusnan, and that they have funded the airline’s growth entirely from cash flows.
“The good thing about being a private company is people cannot see who you are. But I can see AirAsia, I can see Garuda – it’s almost like a weapon, a strategy,” he says.
The carrier, however, does intend to eventually make its books public, as it has plans for an initial public offering on the Indonesia Stock Exchange. This will only happen when the airline gains a 65% domestic market share – a figure Kirana is confident of achieving.
“I know some people say it won’t happen because other airlines are also going to grow. But the thing is, has Tigerair grown? Has AirAsia grown? Citilink, Sriwijaya? No. But we’re going to grow to a 60-65% market share, and once we go there, we will go for an IPO,” he says. “If you make money when everyone is making money, it’s not something great. But if you make money when the people around lose money, that’s another thing. I will make sure when people buy a stake in my airline, they don’t have to worry.”
This can-do attitude is precisely why he plans to start a new domestic carrier in Australia, where both Virgin Australia and Qantas are deep in the red.
Kirana adds that Lion’s relatively relaxed approach to a listing reflects its financial health. “We have our own money,” he adds.
A clue to his personal wealth can also be seen from Forbes’ 2013 listing, where the Kirana brothers were ranked 29th of Indonesia’s 50 richest people, with an estimated net worth of $1 billion.
Lion’s flightpath, however, has not been without turbulence. Just last April, one of its new Boeing 737-800s broke in two when it landed short of the runway on approach to Bali. Amazingly there was not a single fatality, although pictures of the aircraft’s broken fuselage bearing Lion’s red and white livery made it on to the front pages of major news publications worldwide.
Kirana recalls how it “felt like a nightmare” when he received a text message about the crash from his team.
“The aircraft was new, pilot with 15,000 hours of experience, it’s a junior co-pilot but he was flying with an instructor. The manual says clearly that when you see that the visibility is unstable, you should go around, but still this happens,” he adds.
Lion has since fired the two pilots involved in the crash, and also a third who had a rough landing in a separate incident, when he failed to make a necessary go-around. This harsh approach is to make clear to the pilots that “even if you land safely, but did not abide by the manual, we will fire you”.
The carrier has since made changes internally, stepping up on the training of pilots and also subscribing to Airbus’ standards to check on operations and maintenance. Aircraft data is downloaded and analysed daily to make sure pilots are flying the jets safely. Lion has also signed a training services agreement with Airbus to develop training programmes for carriers under the brand. The aim is for its training school, Angkasa Aviation Academy, to achieve EASA certification.
Kirana says he is aware that “people aren’t so positive” about Lion Air when it comes to the airline’s safety record, and this is precisely why he is working hard to get the European Union ban on the carrier lifted, and also to achieve EASA certification for both its training school and the MRO facility in Batam.
“If you ask me what is the toughest part about the airline business, it is the safety. I don’t worry about competition or politics, but safety, yes,” he says.