lightsaber From United States of America, joined Jan 2005, 12413 posts, RR: 100
Reply 1, posted (2 years 5 months 3 weeks 2 days 6 hours ago) and read 3155 times:
Exciting Bombardier is selling some aircraft.
Quoting CRJ900X (Thread starter): Is a conditional order based on ensuring that the airline can get funding for the planes? How does it differ from a Letter of Intent?
A Letter of Intent (LOI) is the weakest form of order commitment. No money changes hands and all that letter does is temporarily hold some production slots until details may be negotiated. LOIs often expire un-confirmed. Most become orders... But a lower fraction than MOUs.
A Memorandum of Understanding (MOU) is stronger. Often small amounts of money change hands to show good faith and to pay for the planning of production slots, etc. More money is being spent securing the side deals (e.g., a tire MOU, etc.) . Often an MOU is the stepping stone to production allocation, payment negotiations, and customer Board of Director (BOD) approval of the deal. Most, but certainly not all, MOUs are converted to orders.
Conditional orders are the most common type of orders. They already have customer BOD approval. Usually the catch is based on selling old aircraft, financing, or other big hangups. Conditional financing is usually in the form of X% down, interest rate of less than Y% for a term of Z years. The vendor (Bombardier) is allowed to step in and provide the financing to ensure the deal goes through. Or help by taking part of the financing... etc. There have been aircraft that sit for a few months while the airline and aircraft vendor scramble to secure the financing. Sometimes the vendor has to bend (promise a bank a certain resale value in some number of years).