joffie
Posts: 814
Joined: Sun Mar 26, 2006 5:45 pm

How Exactly Do Airlines Purchase Planes?

Tue May 02, 2006 6:15 pm

HI
Now I know there is no such thing as a stupid question, only a stupid answer.

I was talking with someone yesterday about the Airbus A380, and he made an interesting point of how an airline can afford to purchase several of these.

For example QF have ordered 12 A380. How will they pay for them as I find it difficult they can pay for all 12 at once.

So how exactly can an airline pay for a brand new plane expecially if they are losing, ie united with their new 777 recently. How is this paid for?

I have heard numerious times NW dont want to retire their DC-9 because 'They are paid for'.
 
Joost
Posts: 1844
Joined: Wed Apr 20, 2005 8:27 pm

RE: How Exactly Do Airlines Purchase Planes?

Tue May 02, 2006 6:20 pm

It's a very interesting question and the basic answer is very simple: very often, the airlines will get a bank loan or a mortage, just like when private people are buying a car or a house. Sometimes banks pay provide it, or private investors. Also manufacterers of airplanes (Airbus, Boeing) or engines (P&W, RR, GE) provide finance.

That explains the DC9s that are 'paid for'. They have paid off the bank loan for the planes, just like when you paid off your house.
 
gunsontheroof
Posts: 3226
Joined: Wed Jan 04, 2006 8:30 am

RE: How Exactly Do Airlines Purchase Planes?

Tue May 02, 2006 6:23 pm

The DC-9s are a good example. Think of it as a house with its mortage paid off, except you have 100+ of them. You're saving a lot of money, yes? Leasing or buying newer aircraft is going to be expensive, so why retire the old ones when they're still in great shape and you're only paying the operating costs? Joe Passenger certainly doesn't know the difference between a DC-9 and an A320.
 
User avatar
Zkpilot
Posts: 3714
Joined: Wed Mar 08, 2006 8:21 pm

RE: How Exactly Do Airlines Purchase Planes?

Tue May 02, 2006 6:27 pm

Some airlines purchase straight up with cash, others arrange finance. Many lease up to 1/2 of their fleets from international leasing companies.

Aircraft take a long time to make and also each airline has slots that they have to wait their turn for delivery usually. So often the maximum rate of delivery is 1 aircraft per month for most types. For some types such as the A380 most airlines would probably get 2 or 3 aircraft within 2 months and then wait 3 months for each subsequent aircraft.
With the 787 airlines that got in early secured the production slots so they got to choose when they would have their aircraft produced. Airlines signing up now will most likely have to wait 2 years after Entry into Service before they can get theirs.
56 types. 38 countries. 24 airlines.
 
Joni
Posts: 2613
Joined: Thu Aug 10, 2000 11:05 pm

RE: How Exactly Do Airlines Purchase Planes?

Tue May 02, 2006 6:57 pm

I read somewhere of the practical maneuvers related to these purchases, and they're extremely complex. The airlines don't pay cash or use simple bank loans, but enter into long-winded contracts where they can e.g. sell the plane a few hours after buying it to some third parties, then lease it back permanently. The OEMS (A&B) have a lot of people designing these plans and they can offer ready-made solutions to customers in order to woo business.

AFAIK direct vendor financing isn't as popular in this business as in some others. One example that comes to mind is Airbus' sale of A350s to US Airways. (Vendor financing means the OEM borrows the customer the money to buy the planes, with the customer then pays back according to some agreed plan)
 
joffie
Posts: 814
Joined: Sun Mar 26, 2006 5:45 pm

RE: How Exactly Do Airlines Purchase Planes?

Tue May 02, 2006 7:04 pm

Great answers everyone.

Thanks for your input.

Slightly off topic, but did QF get their 737-800's so fast becasuse AA cancelled them?
 
gunsontheroof
Posts: 3226
Joined: Wed Jan 04, 2006 8:30 am

RE: How Exactly Do Airlines Purchase Planes?

Tue May 02, 2006 7:07 pm

Quoting Joffie (Reply 5):
Slightly off topic, but did QF get their 737-800's so fast becasuse AA cancelled them?

Possibly, but I doubt it. Boeing delivers a lot of 737s in a month...you'd be surprised how fast the flight line changes at the BFI delivery center. I'm sure they can work something out in order to expedite an order for a strong Boeing customer like Qantas.