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Discount In Airbus's China Order Revealed  
User currently offlineJoni From , joined Dec 1969, posts, RR:
Posted (8 years 8 months 4 weeks 1 hour ago) and read 7445 times:

Check this out, although they don't specify what the other terms of the contract are.. - i.e. how much maintenance etc. (if any) is included in the price.


http://yahoo.reuters.com/financeQuot...05-12-08_11-29-27_l08759800_newsml

25 replies: All unread, showing first 25:
 
User currently offlineScbriml From United Kingdom, joined Jul 2003, 12508 posts, RR: 46
Reply 1, posted (8 years 8 months 4 weeks ago) and read 7266 times:
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Hmm, what's the odd $Billion between friends?

If you've just purchased 150 planes, you'd expect a pretty heathly discount. As to revealing the price, the range $7-8bn leaves a bit of wiggle room doesn't it?



Time flies like an arrow, but fruit flies like a banana!
User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10008 posts, RR: 96
Reply 2, posted (8 years 8 months 4 weeks ago) and read 7229 times:
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On the surface, an 18% - 28% discount sounds like an extraordinarly good result for Airbus, for such a large order (amazing, in fact). I would have expected 35% - 45%.

Quoting Joni (Thread starter):
although they don't specify what the other terms of the contract are.. - i.e. how much maintenance etc. (if any) is included in the price.

This is the problem. Without seeing the contract it's hard to know what's included in $7Bn - $8Bn and what's not.
A


User currently offlineZvezda From Lithuania, joined Aug 2004, 10511 posts, RR: 64
Reply 3, posted (8 years 8 months 4 weeks ago) and read 7128 times:

Quoting Astuteman (Reply 2):
On the surface, an 18% - 28% discount sounds like an extraordinarly good result for Airbus, for such a large order (amazing, in fact). I would have expected 35% - 45%.

I know exactly what UA paid for one tranch of A319/A320s ordered in the mid 1990s and would have expected a greater discount. I guess the ability to command prices nearer to list explains Airbus's recent profitability.

Quoting Astuteman (Reply 2):
Without seeing the contract it's hard to know what's included in $7Bn - $8Bn and what's not.

So true! A lot of free spares and free maintenance could be included in the price.


User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10008 posts, RR: 96
Reply 4, posted (8 years 8 months 4 weeks ago) and read 7069 times:
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Quoting Zvezda (Reply 3):
I guess the ability to command prices nearer to list explains Airbus's recent profitability.

IF (stressing the IF), the 18% - 28% discount range were "real", it would indicate a margin on this deal of about 15% - 25% for Airbus -
i.e. worst case (lowest price) 15% of $7bn = $1.1Bn operating profit (nearly 5 months worth for the entire company). Whew.
(IF, of course ...)


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 5, posted (8 years 8 months 4 weeks ago) and read 7024 times:

I wouldn't know whether the mainland Chinese are actually the most difficult people in the world to deal with. All I can say is that they were the most difficult people that I ever encountered personally.

Apart from anything else, any price currently agreed will certainly be re-negotiated downwards later - whatever the current documentation may say.

For what it's worth, I'm sure that Boeing will be experiencing exactly the same problems with their '150-plane' order.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineZvezda From Lithuania, joined Aug 2004, 10511 posts, RR: 64
Reply 6, posted (8 years 8 months 3 weeks 6 days 23 hours ago) and read 6938 times:

Quoting NAV20 (Reply 5):
I wouldn't know whether the mainland Chinese are actually the most difficult people in the world to deal with. All I can say is that they were the most difficult people that I ever encountered personally.

Europeans (and our progeny) want to complete a deal and move on to the next one. The Chinese are very, very, very patient.


User currently offlineZSOFN From United Kingdom, joined Jun 2005, 1413 posts, RR: 6
Reply 7, posted (8 years 8 months 3 weeks 6 days 23 hours ago) and read 6863 times:

It's reported that easyJet got their 120 A319s for about $20m each despite sticker price of about $50, so the discount on the China deal doesn't seem too significant...

User currently offlineJoni From , joined Dec 1969, posts, RR:
Reply 8, posted (8 years 8 months 3 weeks 6 days 23 hours ago) and read 6822 times:

I also recall that easyJet and Ryanair would have made noises of buying narrowbodies from A&B at about half-price.

One thing to keep in mind though is that those were colossal orders for single airlines, which allow the manufacturers to gain economies of scale on the factory floor. The Chinese order is actually for several airlines, making it perhaps more difficult to gain economies of scale if the planes are configures differently for different airlines.

Another theory is that Airbus knew that China would buy from them having just bought 70 planes from Boeing, which would mean Airbus doesn't have to offer such a cut-throat deal since they suspect they more or less already have the business.


User currently offlineMax999 From United States of America, joined Dec 2005, 1040 posts, RR: 0
Reply 9, posted (8 years 8 months 3 weeks 6 days 23 hours ago) and read 6810 times:

Quoting NAV20 (Reply 5):I wouldn't know whether the mainland Chinese are actually the most difficult people in the world to deal with. All I can say is that they were the most difficult people that I ever encountered personally.

Apart from anything else, any price currently agreed will certainly be re-negotiated downwards later - whatever the current documentation may say.

For what it's worth, I'm sure that Boeing will be experiencing exactly the same problems with their '150-plane' order.

I believe this is a cultural issue in China.

Street haggling is a common thing, even when purchasing the simplest of items. One time I was in China, I was able to negotiate a price for taking a fixed-route jitney. One would expect public transport to have set price anywhere else in the world.

It's logical that if you can haggle for values as low as a few RMB (Chinese currency), you can 'multiply' this cultural attitude to giant multi-billion dollar aircraft purchases.

There's nothing wrong with this, it just shows they can drive a hard bargin.

[Edited 2005-12-09 16:23:50]


All the things I really like to do are either immoral, illegal, or fattening.
User currently offlineBCAL From United Kingdom, joined Jun 2004, 3384 posts, RR: 16
Reply 10, posted (8 years 8 months 3 weeks 6 days 23 hours ago) and read 6775 times:

List prices or Recommended Retail Prices (RRP) are there simply for guidance. It is up to the seller/buyer to negotiate the final figure.

Just because the house down the road is up for sale at £500,000, there's nothing wrong (apart from the seller being out of pocket) if you agreed a sale price of £475,000. It happens all the time, so what is the big deal with Airbus giving the Chinese the discounts?

Many sale catalogues that I receive list a product with the manufacturers RRP and the price that the catalogue company is selling at - there is often a significant difference between the two.



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User currently offlineWingman From Seychelles, joined May 1999, 2244 posts, RR: 5
Reply 11, posted (8 years 8 months 3 weeks 6 days 22 hours ago) and read 6692 times:

Hmmm, I wonder how happy the Chinese will be to see Airbus publicizing how badly they screwed them on this deal. Any way you cut it, this type of press certainly makes the buyer look stupid compared to other narrow body deals such as Easyjet and Ryanair. I've never seen anything like this from Boeing...or from Aribus. It seems very odd.

User currently offlineDAYflyer From United States of America, joined Sep 2004, 3807 posts, RR: 3
Reply 12, posted (8 years 8 months 3 weeks 6 days 22 hours ago) and read 6657 times:

A 28% discount basically offsets the cost of the engines.


One Nation Under God
User currently offlineGr8Circle From Canada, joined Dec 2005, 3100 posts, RR: 4
Reply 13, posted (8 years 8 months 3 weeks 6 days 22 hours ago) and read 6594 times:

Buy 10 and get one free.... Smile

[Edited 2005-12-09 17:19:53]

User currently offlineBestWestern From Hong Kong, joined Sep 2000, 7124 posts, RR: 57
Reply 14, posted (8 years 8 months 3 weeks 6 days 22 hours ago) and read 6550 times:

Quoting Joni (Reply 8):
I also recall that easyJet and Ryanair would have made noises of buying narrowbodies from A&B at about half-price.

The 2001 Ryanair Boeing order price will never ever be repeated by any manufacturer. Ryanair even boasted of raping boeing. Pure case of demand clearly exceeding supply. The Easy deal didn't even come near the price Ryanair paid - one more reason why FR's margins are so high.



The world is really getting smaller these days
User currently offlineEI321 From Iraq, joined Jul 2009, 0 posts, RR: 0
Reply 15, posted (8 years 8 months 3 weeks 6 days 22 hours ago) and read 6515 times:

What is the reputed price paid by FR? I know its something comicaly cheap like 1/3 of the list price.

User currently offlineDhefty From United States of America, joined May 2005, 599 posts, RR: 3
Reply 16, posted (8 years 8 months 3 weeks 6 days 20 hours ago) and read 6356 times:

If Airbus is going to invest billions of euros to build a plant in China, then perhaps the relatively low discount (if it can be believed) is a component of the bigger picture. The Chinese would naturally want that huge investment in their economy, and to get it they would agree to a somewhat higher announced purchase price.

If indeed Airbus does open an assembly plant in China, then that will be a sea-change in commercial aircraft manufacturing. Yes, I know, MD tried it, but at the time MD was already on the ropes. It was a desperation move and was limited to sales in China only. In the case of Airbus, however, this is a major strategic move by a very successful company and I very much doubt that similar restrictions will be applied. If it does occur, Boeing will have to either cost-reduce their operation or follow suit.

I also foresee howls by EU trade unions over the shift to China.

I predict there will be many interesting threads discussing this topic.


User currently offlineMax999 From United States of America, joined Dec 2005, 1040 posts, RR: 0
Reply 17, posted (8 years 8 months 3 weeks 6 days 20 hours ago) and read 6303 times:

Quoting Dhefty (Reply 16):
I also foresee howls by EU trade unions over the shift to China.

You brought up an interesting point... The unions are stronger in the EU than here in the US. I wonder how they would react if manufacturing is indeed moved to China. These are high paying aerospace industry jobs that many people would loath to see shipped off to a lower-wage country.



All the things I really like to do are either immoral, illegal, or fattening.
User currently offlineMorvious From Netherlands, joined Feb 2005, 707 posts, RR: 1
Reply 18, posted (8 years 8 months 3 weeks 6 days 20 hours ago) and read 6272 times:

Quoting Wingman (Reply 11):
Hmmm, I wonder how happy the Chinese will be to see Airbus publicizing how badly they screwed them on this deal. Any way you cut it, this type of press certainly makes the buyer look stupid compared to other narrow body deals such as Easyjet and Ryanair. I've never seen anything like this from Boeing...or From airbus. It seems very odd.

Well, thats called business.

But read above, maybe there is more into this story!



have a good day, Stefan van Hierden
User currently offlineWingman From Seychelles, joined May 1999, 2244 posts, RR: 5
Reply 19, posted (8 years 8 months 3 weeks 6 days 19 hours ago) and read 6154 times:

I agree, perhaps Airbus will publish the actual contract. It almost sounds as if they're gravitating more towards the shareholder vs. the employee base. Let's face it, laid off Americans get drunk, cry and then find another job. Laid off Europeans set things on fire and shut down highway systems. It'll be interesting to see how this pans out.

User currently offlineA342 From Germany, joined Jul 2005, 4681 posts, RR: 3
Reply 20, posted (8 years 8 months 3 weeks 6 days 18 hours ago) and read 6051 times:

Quoting Max999 (Reply 17):
You brought up an interesting point... The unions are stronger in the EU than here in the US. I wonder how they would react if manufacturing is indeed moved to China. These are high paying aerospace industry jobs that many people would loath to see shipped off to a lower-wage country.

The thing is that Airbus employee numbers are still growing in Europe. As aircraft production is ramping up and (German) birth rates are decreasing, at least in Germany, Airbus struggles to find skilled employees which speak English and can deal with computers (this rules out most of the older unemployed engineers, courses are too expensive to dump these people after a few years). Airbus already participates in special programes in schools in order to make the kids like aviation, but still.

But of course you are right, unions will go mad.



Exceptions confirm the rule.
User currently offlineTaromA380 From Romania, joined Sep 2005, 334 posts, RR: 0
Reply 21, posted (8 years 8 months 3 weeks 6 days 17 hours ago) and read 5523 times:

I am so dissapointed. Seeing the topic's title, I thought Airbus has given them for free.

Nothing to bash ... lost my day ...


User currently offlineIntothinair From Germany, joined Mar 2005, 392 posts, RR: 2
Reply 22, posted (8 years 8 months 3 weeks 6 days 14 hours ago) and read 4737 times:

You mean China actually ordered 150 A320s?
Or will it turn out to be the same as the Boeing deal, 70 orders+ 80 options.
Could someone please clarify this
thanks.

Cheers, Konstantin G.


User currently offlineGlideslope From United States of America, joined May 2004, 1612 posts, RR: 0
Reply 23, posted (8 years 8 months 3 weeks 6 days 13 hours ago) and read 4485 times:

Quoting Wingman (Reply 11):
Hmmm, I wonder how happy the Chinese will be to see Airbus publicizing how badly they screwed them on this deal. Any way you cut it, this type of press certainly makes the buyer look stupid compared to other narrow body deals such as Easyjet and Ryanair. I've never seen anything like this from Boeing...or from Aribus. It seems very odd.

My thoughts as well. This could be considered a "loss of face" by the Chinese. Not insignificant at all. You would never see Boeing do this intentionally.



To know your Enemy, you must become your Enemy.” Sun Tzu
User currently offlineGlideslope From United States of America, joined May 2004, 1612 posts, RR: 0
Reply 24, posted (8 years 8 months 3 weeks 6 days 13 hours ago) and read 4479 times:

Quoting A342 (Reply 20):
But of course you are right, unions will go mad.

I'd say that is the understatement of the year.  Smile



To know your Enemy, you must become your Enemy.” Sun Tzu
User currently offlineJoni From , joined Dec 1969, posts, RR:
Reply 25, posted (8 years 8 months 3 weeks 6 days 2 hours ago) and read 2924 times:

Quoting Glideslope (Reply 23):
My thoughts as well. This could be considered a "loss of face" by the Chinese. Not insignificant at all. You would never see Boeing do this intentionally.

I think this is very rash of you to say. I'd say probably Airbus felt like making the numbers public because they got a good price, and they'd have cleared with the Chinese first if publicizing it was ok. After all, the practice is that the final figures aren't made public on 99% of contracts.

Another thing to keep in mind is that the Chinese are sitting on hundreds of billions in USD that they feel like unloading before any USD/US economy collapse because of the fiscal and current account deficits + mounting federal, state and private debts. This way Airbus will have to secure futures for the dollars and the Chinese will get excellent planes for them regardless of their value (or lack thereof) at delivery.


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