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Aircraft Orders And "Options"  
User currently offlineAlitalia7e7 From Australia, joined Mar 2004, 185 posts, RR: 3
Posted (12 years 2 months 2 days 16 hours ago) and read 4432 times:

When airlines place aircraft orders, sometimes they accompany the order with options? Can someone please explain why options are made? I know it is for the possibility of airline expansion etc, but does this make the order cheaper if an airline places options with orders etc? What happens if an airline does not take up its envisaged options?

If you could give me some information on this it would be great.


7 replies: All unread, jump to last
User currently offlineConcordeBoy From , joined Dec 1969, posts, RR:
Reply 1, posted (12 years 2 months 2 days 15 hours ago) and read 4382 times:

Firm orders are signed with scheduled dates of completion/payment/delivery... options (in a general sense) are orders without that.

User currently offline727200er From Canada, joined Mar 2004, 318 posts, RR: 0
Reply 2, posted (12 years 2 months 2 days 15 hours ago) and read 4340 times:

Yes if the order with options is large enough it will usually include a nice discount on purchase price. Call it the bulk option.

Also when something happens like the Air Canada A340 situation. I would give them a chance to snap those A/C up if they felt they needed them ahead of someone with no options at that time.

"they who dream by day are cognizant of many things which escape those who dream only at night" - Edgar Allen Poe
User currently offlineAlitalia7e7 From Australia, joined Mar 2004, 185 posts, RR: 3
Reply 3, posted (12 years 2 months 2 days 14 hours ago) and read 4286 times:

Thanx ConcordeBoy and 727200er, but what happens if these options are not taken up, does the airline get penalised. I have seen some carriers for instance order one particular aircraft and have options for them, but swap the options from one aircraft type to another - is there a purpose to that? example Alitalia - had options for the A321 but changed them to A319's and A320's?

User currently offlineIMissPiedmont From United States of America, joined May 2001, 6544 posts, RR: 29
Reply 4, posted (12 years 2 months 2 days 10 hours ago) and read 4174 times:

An option is simply holding a position open on the production line, for a non refundable price. Converting the option to a firm order, whatever the series, means that all monies paid to the airframe builder are applied to the aircraft payment. And if the airline should choose, for example, a 757 over a 737, Boeing would certainly apply all payments to the 757

The day you stop learning is the day you should die.
User currently offlineAlitalia7e7 From Australia, joined Mar 2004, 185 posts, RR: 3
Reply 5, posted (12 years 2 months 1 day 10 hours ago) and read 4065 times:

IMISSPIEDMONT, what is the percentage of the holding costs for optioned aircraft. What benefit does the carrier have by placing options apart from possible discounts for bulk purchases. For Example Alitalia bought 8 MD-11's and optioned 5 which it never took up. Alitalia would of have made a loss then with the 5 options?????

Isnt it a risk for carriers?

User currently offlineDutchjet From Netherlands, joined Oct 2000, 7864 posts, RR: 56
Reply 6, posted (12 years 2 months 18 hours ago) and read 3931 times:

Options docost an airline money (its sometimes worked into the purchase price for the firm orders) - the price of an option usually secures advance delivery positions and the price of an aircraft and an airline must excercise the option by a date certain (ie, convert the option into a firm order), or pass on the option, thereby losing the money invested in the option. In real life, airlines and the manufacturers work together, and frequently, options are extended, rolled over, applied or cancelled in connection with a new order, etc. If AIRLINE X ordered 25 737s from Boeing, with a further 25 options, and then AIRLINE X determined that it did not need or want the 25 optioned 737s, Boeing would come to some type of arrangement with the carrier either to strech out the deliveries or convert the 25 737 options to a firm order for 8 777s so that AIRLINE X could begin its new long-haul services. If Boeing was unaccommodating to the customer, you can be sure that AIRLINE X would start up its long haul services with A333s.

Other concepts are rolling options (when airlines can pick and chose additional delivery dates later on in the contract), reservations for delivery positions, and the like.

User currently offlineAlitalia7e7 From Australia, joined Mar 2004, 185 posts, RR: 3
Reply 7, posted (12 years 1 month 4 weeks 1 day 4 hours ago) and read 3807 times:

DutchJet, You have answered all of my questions and more, thank you very very much!

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