Victoria
By Victoria March 25, 2013 14:14

After a short time away to move offices and bring on additional staff we are back and in the past few days there have indeed been some points of interest to note. Firstly look to the AWAS term loan re-pricing of last week – Joint arrangers JP Morgan, Goldman Sachs and Credit Agricole Corporate Investment bank managed to tighten the original spread of a $411m term loan due in 2016 from 400bps to 275bps and the LIBOR Floor from 125bps to 75bps. That is impressive and highlights a further significant question – Why did FLY pull their re-pricing? We reported here that there was in February investor pushback on re-pricings due to the large number going through at the turn of the year – Can it really be bad timing alone?
Also as the debate over Lion Air and its aircraft requirement over the next decade continues, it serves to look at reports in the past week that the airline is looking to attack the Australian market. This would be an obvious move because of the relaxed rules governing market entry and it is an easy way to explain away what the airline is to do with the vast number of aircraft it now has on order. The logical thing to do with a mixed fleet would be to split the airline into two or three entities much like AirAsia and/or JetStar has done and this is the only logical way of handling a mixed fleet within a low cost set-up. Lion Air argues that one manufacturer alone cannot build the aircraft fast enough for its growth plans. That comment rings alarm bells. Lion Air is willing to ditch an optimum low-cost structure in favour of rapid expansion. Given that Lion Air will be operating in a proliferated market we here feel that they will have to branch off the business and pool the separate aircraft types (Airbus/Boeing) within those businesses, if it does not then it will not last too long. Obviously the choice of selling off the aircraft delivery slots remains a very good option for the airline and this could prove a very lucrative business sideline indeed. Through all this conjecture we can be very sure of one thing, the price paid for the aircraft will guarantee the economics of operating the same or selling off the slots. This edge will be consumed by the additional costs of a mixed fleet though over the course of a decade. Lion Air remains behind the competition in terms of building a network of feeder businesses through JVs and the like and this is a significant disadvantage. We can but wait as Lion Air, JetStar, AirAsia and the huge list of APAC LCCs join in competition over the next decade. One hiccup during that period like the Tiger economy collapse in the late 1990s will see aircraft leaving gates empty and this is where the Lion Air orders might come in handy as those delivery slots could well act as insurance.

Victoria
By Victoria March 25, 2013 14:14
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