WCA March 2019

From the Americas Student loan debt is a worry point in the USA, and one set of borrowers is having a particularly hard time with repayment According to a Bloomberg analysis of student loan securitisation data, student loan debt outstanding reached $1.465 trillion in the USA in November. This record student debt level is more than double the $675 billion outstanding in June 2009, when the recession ended, and is posing fiscal risks for the country. “Over 90 per cent of student loans are guaranteed by the US Department of Education, meaning that if a recession causes a rise in youth unemployment and triggers mass defaults, this contingent liability could prove burdensome for the government budget,” Paul Della Guardia, an economist at the New York-based Institute of International Finance, told Bloomberg ’s Alexandre Tanzi (17 th December). A large percentage of those who took out loans in 2012 are currently 24-33 years old, an age at which many are establishing themselves in their careers, wrote Mr Tanzi, who noted that borrowers in this group entered the labour force when the unemployment rate was twice as high as it is now in the USA. They may have found it difficult to find a career track in their field of choice. According to data from the Bureau of Labor Statistics, cited by Mr Tanzi, adding to the difficulties faced by this group of Americans was that finding a job in 2012 took almost three times longer than it does today. Loans disbursed in that year have defaulted at a faster rate than for any other student loan cohort since the financial crisis of 2007-2008. Fatal Lion Air Flight 610: Stung by Boeing’s perceived imputation of blame, Indonesia’s largest airline threatens to scrap $22 billion in plane orders “In a rare public dispute between the plane maker and one of its biggest customers, the head of PT Lion Mentari Airlines has threatened to cancel an order for billions of dollars worth of jets because of what he says is Boeing’s unfair reaction to the crash.” Bloomberg News went on to identify the man standing up to Boeing Co (Chicago) as Rusdi Kirana, the owner of the Indonesian carrier Lion Air and one of the US plane maker’s biggest customers. At the centre of acrimony between Boeing and possibly the most important aviation figure in Southeast Asia is the crash of a Boeing plane that killed 189 people in Indonesia on 29 th October last year. (“Lion Air and Boeing Are Heading Into a $22 Billion Feud,” 16 th December) As reported by Bloomberg ’s Harry Suhartono and Angus Whitley, Indonesia’s worst air disaster in two decades commenced upon takeoff by Lion Air Flight 610 on 29 th October. Minutes after leaving Jakarta, bound for Pangkal Pinang, the plane plunged into the Java Sea, killing everyone on board. According to a preliminary report by

Indonesia’s National Transportation Safety Committee (NTSC), which included evidence from the plane’s flight data recorder, retrieved by divers, the pilots battled to control their 737 Max as faulty data from a sensor repeatedly forced the aircraft to tilt its nose down. The plane’s cockpit voice recorder had yet to be found. The November report from the NTSC did not assign a cause for the crash. But it did disclose that a malfunctioning sensor was not repaired before the fatal flight even though it had failed on the plane’s previous trip. The report also criticised Lion Air’s safety culture. ‘The ecosystem is so intertwined’ In a statement, Boeing said that the doomed plane had suffered airspeed and altitude issues on previous flights, even after maintenance work was carried out; also that pilots on the flight immediately prior to JT610 had overcome similar problems by following appropriate procedures. The plane maker asserted that the 737 Max “is as safe as any airplane that has ever flown the skies.” Mr Kirana took offence at Boeing’s response to the NTSC report, and Lion Air in December was reported to be drafting documents to scrap its $22 billion dollars of orders with Boeing. “I was in a tough situation and [Boeing] decided to beat me up,” Mr Kirana said in an interview with Bloomberg News in Jakarta. “They have been behaving unethically, they have been acting immorally in this relationship, so we just go our separate ways.”  The Bloomberg reporters noted that it is “almost impossible” to cancel firm plane orders without incurring financial penalties. In the interview, Mr Kirana rejected suggestions that his threat to scrap his Boeing purchases is a ploy to trim an unnecessarily large order book as Lion Air struggles to pay for its planes. He said that the airline’s deliveries are fully funded through to the end of 2020. Messrs Suhartono and Whitley observed that Mr Kirana may have other options. They were told by Gerry Soejatman, an Indonesia aviation analyst, that, if Mr Kirana cannot annul the orders, he might be able to resell or lease his new Boeing planes to other airlines. According to Mr Soejatman, that would distort the market for new and used Boeing 737s because, he said, “The ecosystem is so intertwined.”  He added that “[Mr Kirana] is very loyal to those within his circle – as long as they don’t betray him. He can be very unforgiving.” And, as Bloomberg hardly needed to point out, a big cancellation from a major customer that called into question the reliability of Boeing’s bestselling plane could have repercussions for the manufacturer – even if it managed to squeeze financial penalties from Lion Air. According to Mr Kirana, Boeing has yet to deliver about 250 jets to Lion Air. In mid-December, the manufacturer’s orders and deliveries website showed 188 unfilled orders.

Dorothy Fabian Features Editor

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Wire & Cable ASIA – March/April 2019

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