FrontierCPT From Australia, joined Jun 2004, 973 posts, RR: 7 Posted (10 years 10 months 2 weeks 5 days 2 hours ago) and read 5558 times:
Hi! I don't really understand the point of placing an option on aircraft? I mean, if an airline decides they want more of a particular kind of aircraft, they can just place orders, right? Can someone please help me understand this? Thanks!
JAL777 From , joined Dec 1969, posts, RR:
Reply 4, posted (10 years 10 months 2 weeks 5 days 2 hours ago) and read 5507 times:
Look at it like this:
An airline orders 20 A320's with no options. 5 years down the line this airline needs more aircraft. Airbus, fully knowing the cost associated with either (a) jointly operating the 737 or (b) fully switching over to the 737, will not seek to undercut the price of the 737 by any substantial margin. Airbus fully knows that the customer needs and wants more A320's. The airline is therefore going to have to pay more per aircraft. With options written into contracts, the airlines can secure themselves lower prices and the manufacturers can secure themselves further orders.
Mandala499 From Indonesia, joined Aug 2001, 7169 posts, RR: 77
Reply 5, posted (10 years 10 months 2 weeks 5 days 2 hours ago) and read 5500 times:
Add to JAL777's post...
I want plane X now... price: 20M USD
in 5 years time, I believe price of X would be 25M USD
I order 10 X now, with an option of 10 X valid for 5 years.
Option price = 0.1M USD per year per aircraft.
If at the end of 5 years I don't need the extra planes, I'll let the manufacturers keep 5m USD from the options.
If at the end of 5 years and the price IS 25M USD each, I would have saved 45M USD thanks to the option for 10 planes.
Just a simplified example...
When losing situational awareness, pray Cumulus Granitus isn't nearby !
Leelaw From , joined Dec 1969, posts, RR:
Reply 7, posted (10 years 10 months 2 weeks 5 days 2 hours ago) and read 5486 times:
The legal definition of an option is the right, but not necessarily the obligation to do or refrain from doing something in the future. As the previous posters have stated well, particularly Mandala499, it's a low cost way for both the carriers and manufacturers to hedge their bets and provide themselves with certainty about pricing and product availability in the future.
Jwenting From Netherlands, joined Apr 2001, 10213 posts, RR: 17
Reply 11, posted (10 years 10 months 2 weeks 4 days 14 hours ago) and read 5220 times:
yes, sometimes you can ensure delivery as well, but in that case there will be a clause about when the option will have to be executed to make those dates happen (they can hardly have you place an option for delivery on 01/01/2006 and expect to be able to deliver that if you convert the option into a firm order on christmas day 2005 unless they're doing really badly and have a lot of aircraft parked AND you ordered dirt-standard aircraft with no customer specific items installed).
SEAPete From United States of America, joined Mar 2004, 67 posts, RR: 0
Reply 12, posted (10 years 10 months 2 weeks 4 days 14 hours ago) and read 5204 times:
Options are a pretty widely used business practice in many industries including the airlines. Most people have mentioned the ability for an airline to secure a price for what might be a future order, however for companies like Boeing it is a great sales tool because it will ensure a higher rate of return business. So the airline has a hedge against inflation and the plane builder has a hedge against the airline choosing a competitor.
Ultimately options are a win-win situation for the airlines and the manufactures.
777ER From New Zealand, joined Dec 2003, 12568 posts, RR: 17
Reply 13, posted (10 years 10 months 2 weeks 4 days 12 hours ago) and read 5162 times:
AIRLINERS.NET CREW FORUM MODERATOR
That'll explain why NZ had so many 7e7 options then, but only 2 planes.
The 42 options NZ has with Boeing when they announced the B763 replacement are for the B772, B772ER, B772LR, B773, B773ER and B7E7. About 8-10 of those options will be taken up in about 8-9 years for when the B773ER is ordered to replace the B744s. More B772s and/or B7E7s will be ordered for when NZ announces new long haul routes.