Alitalia7e7
Topic Author
Posts: 184
Joined: Thu Mar 04, 2004 11:10 am

Aircraft Orders And "Options"

Fri Mar 26, 2004 7:52 am

When airlines place aircraft orders, sometimes they accompany the order with options? Can someone please explain why options are made? I know it is for the possibility of airline expansion etc, but does this make the order cheaper if an airline places options with orders etc? What happens if an airline does not take up its envisaged options?

If you could give me some information on this it would be great.

Cheers.
 
ConcordeBoy
Posts: 16852
Joined: Thu Feb 01, 2001 8:04 am

RE: Aircraft Orders And "Options"

Fri Mar 26, 2004 8:25 am

Firm orders are signed with scheduled dates of completion/payment/delivery... options (in a general sense) are orders without that.
Faire du ciel le plus bel endroit de la terre c'est impossible sans Concorde!
 
727200er
Posts: 301
Joined: Tue Mar 09, 2004 5:18 pm

RE: Aircraft Orders And "Options"

Fri Mar 26, 2004 8:48 am

Yes if the order with options is large enough it will usually include a nice discount on purchase price. Call it the bulk option.

Also when something happens like the Air Canada A340 situation. I would give them a chance to snap those A/C up if they felt they needed them ahead of someone with no options at that time.
"they who dream by day are cognizant of many things which escape those who dream only at night" - Edgar Allen Poe
 
Alitalia7e7
Topic Author
Posts: 184
Joined: Thu Mar 04, 2004 11:10 am

RE: Aircraft Orders And "Options"

Fri Mar 26, 2004 9:21 am

Thanx ConcordeBoy and 727200er, but what happens if these options are not taken up, does the airline get penalised. I have seen some carriers for instance order one particular aircraft and have options for them, but swap the options from one aircraft type to another - is there a purpose to that? example Alitalia - had options for the A321 but changed them to A319's and A320's?
 
IMissPiedmont
Posts: 6200
Joined: Wed May 23, 2001 12:58 pm

RE: Aircraft Orders And "Options"

Fri Mar 26, 2004 1:21 pm

An option is simply holding a position open on the production line, for a non refundable price. Converting the option to a firm order, whatever the series, means that all monies paid to the airframe builder are applied to the aircraft payment. And if the airline should choose, for example, a 757 over a 737, Boeing would certainly apply all payments to the 757
The day you stop learning is the day you should die.
 
Alitalia7e7
Topic Author
Posts: 184
Joined: Thu Mar 04, 2004 11:10 am

RE: Aircraft Orders And "Options"

Sat Mar 27, 2004 2:04 pm

IMISSPIEDMONT, what is the percentage of the holding costs for optioned aircraft. What benefit does the carrier have by placing options apart from possible discounts for bulk purchases. For Example Alitalia bought 8 MD-11's and optioned 5 which it never took up. Alitalia would of have made a loss then with the 5 options?????

Isnt it a risk for carriers?
 
dutchjet
Posts: 7714
Joined: Sat Oct 14, 2000 6:13 am

RE: Aircraft Orders And "Options"

Sun Mar 28, 2004 5:32 am

Options docost an airline money (its sometimes worked into the purchase price for the firm orders) - the price of an option usually secures advance delivery positions and the price of an aircraft and an airline must excercise the option by a date certain (ie, convert the option into a firm order), or pass on the option, thereby losing the money invested in the option. In real life, airlines and the manufacturers work together, and frequently, options are extended, rolled over, applied or cancelled in connection with a new order, etc. If AIRLINE X ordered 25 737s from Boeing, with a further 25 options, and then AIRLINE X determined that it did not need or want the 25 optioned 737s, Boeing would come to some type of arrangement with the carrier either to strech out the deliveries or convert the 25 737 options to a firm order for 8 777s so that AIRLINE X could begin its new long-haul services. If Boeing was unaccommodating to the customer, you can be sure that AIRLINE X would start up its long haul services with A333s.

Other concepts are rolling options (when airlines can pick and chose additional delivery dates later on in the contract), reservations for delivery positions, and the like.
 
Alitalia7e7
Topic Author
Posts: 184
Joined: Thu Mar 04, 2004 11:10 am

RE: Aircraft Orders And "Options"

Mon Mar 29, 2004 7:45 pm

DutchJet, You have answered all of my questions and more, thank you very very much!

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