Tuesday, May 30, 2023

Indonesia Sriwijaya Air built its empire on cheap old planes | Aviation News

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Starting with a single aircraft in 2003, Sriwijaya Air has become the country’s third largest airline, aided by its strategy of acquiring older, low-cost aircraft and serving routes neglected by competitors.

The midsize airline, which has few international flights, was put in the spotlight this week when a nearly 27-year-old Boeing Co 737-500 crashed into the Java Sea on Saturday with 62 people on board .

Brothers Chandra and Hendry Lie, whose family was involved in the tin mining and garment industry, and their business partners launched Sriwijaya 17 years ago with a single plane that flew from their hometown from Pangkal Pinang on Bangka Island to Jakarta, the capital of Indonesia.

The focus on second and third tier routes has given it a loyal following and helped it capture nearly 10% of the market share behind Lion Air and national carrier Garuda Indonesia.

“They had a reasonable business approach,” said an industry source who was not authorized to speak publicly to Reuters news agency about the founders of Sriwijaya.

“They aren’t flamboyant people like many of them who run airlines.”

They used a conservative business model of acquiring older aircraft at a low price rather than taking advantage of low-cost financing to purchase large fleets of modern aircraft like other fast-growing carriers such as Lion Air, AirAsia Group Bhd in Malaysia and VietJet Aviation JSC in Vietnam.

The fleet of Sriwijaya and the regional subsidiary NAM Air is on average nearly 20 years old – almost three times older than the Lion Air group, according to Planespotters.net.

The plane involved in the crash, a 737-500, was one of 77 remaining in service around the world, aviation data provider Cirium said. Other current operators, notably Air Peace in Nigeria and SCAT Airlines in Kazakhstan.

Two former Sriwijaya employees told Reuters there were strategic reasons to keep such an older model in service beyond the cheaper acquisition cost.

The smaller 120-seat capacity was more appropriate for some routes like Jakarta to Pontianak on Borneo flown by the plane that crashed on Saturday and the 737-500 could land at airports that were otherwise served by turboprop engines due the short length of the runways, they said on condition of anonymity.

Sriwijaya did not immediately respond to a request for comment from Reuters.

Strategy tested

The black boxes from the crashed jet have not yet been recovered, so the cause of the crash remains unclear.

The crashed plane had passed an airworthiness inspection last month [File: Dimas Ardian/Bloomberg]

Older jets can be used as safely as newer ones if maintained properly, although the cost of doing so is higher, as are the operating costs, as they are less energy efficient.

Rising maintenance costs and low prices due to fierce competition meant that in 2018 Sriwijaya had accumulated significant debts to Garuda’s maintenance arm, GMF AeroAsia.

As of September 30, 2020, Sriwijaya and NAM owe approximately $ 63 million in unpaid invoices to GMF AeroAsia and Garuda had warned of impairment on $ 37.5 million owed by Sriwijaya under a cooperation agreement. failed, according to GMF AeroAsia and Garuda.

The state of his financial situation since the start of the pandemic is unclear, but a pilot from Sriwijaya, speaking on condition of anonymity, said there had been cuts in pay and a reduction in employment. number of planes in service during the pandemic, according to many other airlines around the world. .

The pilot added that the airline had complied with all training and maintenance requirements throughout the pandemic.

Indonesia’s Transport Ministry said in a statement on Tuesday that the plane, which was grounded between March and December last year during the pandemic, passed an airworthiness inspection on December 14.

Indonesia, with a population of around 270 million people spread over thousands of islands, is the world’s fifth largest aviation market in terms of scheduled capacity, according to OAG Aviation Worldwide. The coronavirus pandemic has squeezed airlines across the country, as it has done with others around the world, and indoor seating capacity is still 32% below pre-COVID levels, the OAG said.

Sriwijaya and NAM together have 34 planes for operations and half of them are in service, according to Planespotters.net.

“The question now is whether Sriwijaya, already in poor financial health, is able to weather this accident as COVID-19 has crippled all airlines,” said Shukor Yusof, director of Malaysian aviation consultancy Endau Analytics .


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