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Technique Of Options In The Airline Industry  
User currently offlinePilotboi From United States of America, joined Sep 2007, 2366 posts, RR: 9
Posted (6 years 6 months 2 weeks 14 hours ago) and read 2736 times:

So today in Airline Ops class, we talked about fuel hedging, and options, financially speaking. We talk often about airlines placing orders for aircraft, and also about the options they have. I understand that an option gives someone the right to buy something at a later time, at a set price. I also understand that there is usually some sort of "fee" (for lack of a better word that I know of) required by the buyer, upfront. So my question is...does anyone have any details on what goes into a contract that has to do with aircraft options? I realize every situation may be different, but I'm juts looking for either general info, or info related to a specific aircraft/airline if you know of any.

Is there an upfront charge? (I guess kind of like a security deposit, but you never get it back, no matter what)
If so, numbers?

Does the agreement guarantee them a spot in 'line'?
Or do they only get in line when the order is confirmed?

Do they have to confirm it before it is built?
Or can they wait till it's completely built?
If so, and they decline, I assume the manufacturer would just give it to the next person in line?
(Now that I think about this one, I wouldn't think this is possible, since aircraft are built for specific customers)

Aircraft prices always go up, so there's never really a bad time to use options, correct?

2 replies: All unread, jump to last
 
User currently offlineTdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 1, posted (6 years 6 months 2 weeks 9 hours ago) and read 2693 times:



Quoting Pilotboi (Thread starter):
So my question is...does anyone have any details on what goes into a contract that has to do with aircraft options?
...
Is there an upfront charge? (I guess kind of like a security deposit, but you never get it back, no matter what)

You pay for an option. Much less than the purchase price, obviously, but it has value. This may be rolled into the purchase price of firm orders, so there may or may not be a line-item for the cost of the option.

Quoting Pilotboi (Thread starter):
If so, numbers?

No idea, unfortunately.

Quoting Pilotboi (Thread starter):
Does the agreement guarantee them a spot in 'line'?
Or do they only get in line when the order is confirmed?

The option wouldn't guarantee a particular line position, but it could certainly provide a delivery window.

Quoting Pilotboi (Thread starter):
Do they have to confirm it before it is built?

Yes.

Quoting Pilotboi (Thread starter):
Or can they wait till it's completely built?

No. The airline needs to start coordinating with the OEM months in advance of actual production.

Quoting Pilotboi (Thread starter):
If so, and they decline, I assume the manufacturer would just give it to the next person in line?
(Now that I think about this one, I wouldn't think this is possible, since aircraft are built for specific customers)

Bingo. There was a time when planes would come off the line without an owner (white tails) but the OEM's *hate* that and avoid it whenever possible.

Quoting Pilotboi (Thread starter):
Aircraft prices always go up, so there's never really a bad time to use options, correct?

Aircraft prices don't always go up. A manufacturer with no backlog is a lot more willing to bargain than one with a full backlog. An airline that bought options during a boom time might find a fresh deal during a bust time to be better value than exercising the option.

Tom.


User currently offlineHighFlyer9790 From United States of America, joined Jul 2005, 1241 posts, RR: 0
Reply 2, posted (6 years 6 months 1 week 6 days 9 hours ago) and read 2628 times:



Quoting Pilotboi (Thread starter):
Is there an upfront charge? (I guess kind of like a security deposit, but you never get it back, no matter what)
If so, numbers?

As far as i know, its 50-50. Half upon order and the other half is paid to the manufacturor at delivery, sometimes there may be a payment during construction.



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