Lion Air to cancel order for five Boeing 787s

Mon Jan 27, 2014 1:01pm EST
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By Siva Govindasamy and Balazs Koranyi

BATAM, Indonesia/OSLO (Reuters) - Indonesian budget airline Lion Air said on Monday it planned to cancel an order for five Boeing Co (BA.N: Quote) 787 Dreamliner aircraft and replace them with smaller 737 models.

Lion Air first announced the order, worth $1 billion at list prices, in mid-2012 for its premium subsidiary Batik Air.

Lion Air is one of the world's fastest growing airlines and has placed major orders with both Boeing and Airbus (AIR.PA: Quote) for smaller narrowbody planes as it projects fast growth in air travel demand in Indonesia's populous archipelago.

But many analysts have raised questions about the sustainability of massive aircraft orders in the region, which has also seen aggressive buying from Lion Air's arch-rival AirAsia (AIRA.KL: Quote) of Malaysia.

Industry sources said the five 787 Dreamliners ordered by Lion Air were early production models which had been sold at discounts well above 50 percent due to their extra weight and modifications carried out after leaving the production line.

Despite ongoing reliability problems on some Boeing 787 aircraft, such aircraft could be attractive to other budget carriers due to their low prices, market sources said.

One such potential customer is Norwegian Air Shuttle (NWC.OL: Quote) which has said it is looking for more 787s despite complaining about teething problems in 787s it already owns.

"It's no secret that we are looking for more Dreamliners and it has not changed," said Norwegian Air spokesman Lasse Sandaker Nilsen.   Continued...

Invited guests for the world premiere of the Boeing 787 Dreamliner are reflected in the fuselage of the aircraft at the 787 assembly plant in Everett, Washington, July 8, 2007. REUTERS/Robert Sorbo