Moo From Falkland Islands, joined May 2007, 3766 posts, RR: 4 Reply 1, posted (5 years 7 months 2 weeks 6 days 23 hours ago) and read 2573 times:
The general terms include an interest to purchase, which means the manufacturer and customer are in talks, a Letter of Intent or a Memorandum of Understanding, which means an agreement in principle has been reached, production slots tentatively reserved and the legal contract to purchase is being drawn up for both parties to sign, and a firm order is when that legal contract to purchase is signed by both parties.
The exact terms of contracts differ and are highly confidential to both parties, as they are commercially sensitive - disclosing the terms of one customers contract could have a detrimental effect on the manufacturer when it comes to agreeing purchasing terms with another customer. If you are interested in the actual agreement, check out the leaked Airbus-Kingfisher MoU here http://www.wikileaks.org/wiki/Airbus-Kingfisher_60_plane_MOU_(2007)
Deposits are typically paid on signing of the purchase contract, and are paid direct to the manufacturer.
Options are simply an agreement to extend a purchase contract by a certain number of airframes within a certain time, but no obligation to convert to firm orders exist. They are a cheap and easy way to place follow on orders without the added cost of extra legal involvement. Options typically include a firm production slot for a period of time, which is why they expire - the manufacturer will go to great lengths to not have blank production slots wherever possible.
Purchase rights are a level below options, in that the legal framework for acquiring the airframes is in existence, but no production slots are held.
Methods of payment differ greatly, from outright purchase, to sale and leaseback, to finance, to partial ownership. As an example, SQ recently took ownership of 4 A380s, each and every one of which SQ immediately sold to German financial institutions and agreed to a lease term of no less than 10 years. What this means is SQs initial financial outlay is vastly lower than it would otherwise have been, and the aircraft are not counted on SQs books as capital expenditure or as a debt - it makes SQ look a lot healthier if they do not have to write down a $200m debt.
Moo From Falkland Islands, joined May 2007, 3766 posts, RR: 4 Reply 4, posted (5 years 7 months 2 weeks 6 days 11 hours ago) and read 2398 times:
Quoting Jimbobjoe (Reply 3): Don't options also allow the carrier to purchase an aircraft at today's prices at some time in the future...which is the other benefit of exercising options?
Yes, hence my
Options are simply an agreement to extend a purchase contract by a certain number of airframes within a certain time - the options are covered under whatever was previously agreed in the purchase agreement, including pricing.