As Airbus have found out, even firm contracted orders can disappear. This is quite worrying because until the aircraft are delivered and paid for, we cannot assume their orders are really firm.
Expect Airbus (and most likely Boeing) to start making escape clause much harder once the order is firmed up (if it's not already done). Fool me once... right?
The stricter the clauses, the more an airline waits to firm other contracts before signing. We should take a step back and realize why EK and EY were given the terms they we're.
If terms become stricter, small airlines will place small near term orders. The flexibility was to have airlines commit to longer term orders which means a larger sale.
EY and EK kept to their 'firm' orders for the A333 and 77W. For the A346, Airbus was in violation of contract, yet EK took all A345 and EY all A345/A346.
EY took all firm A380. During a downturn, both Boeing and Airbus offered less firm sales to EK and EY to keep their lines going.
Most of today's firm orders in the 1980s would be called options. From what I see, today's firm orders cost about the same (as a percentage of Airframe sales price). For the early payments are for risk on long lead items contracts.
Today vendors receive a guarantee of 2.5 years of orders at the current production, unless a ramp down contract is signed. Hence why I believe 2019, 2020, and 50% of 2021 we're already committed to for the A380. So Airbus has to buy those parts. In return,. parts are discounted 20% or more by vendors.
I'll give an engine example. I know coffee a bucket of parts for the CFM-56 for say (I'm altering the numbers to not violate an NDA):
1. Cost to CFM to make an engine:. $100,000
2. Cost for vendors to make: $104,000
3. Cost for vendor to overhaul: $30,000
4. Fee charged large airlines (best discounts) to overhaul: $90,000. Typically two overhauls per part or $116,000 profit off $280,000 in sales.
5. Cost if sold as spare parts:. $200,000.
6. Cost CFM charges for spare parts:. $300,000
The issue with EK is many parts do not need overhaul during their ownership or maybe one engine overhaul.
Also remember economies of scale. With today's automation, setting up for 2x the production run means that parts cost 87% as much (each). Now I intentionally picked an example where the economy of scale clauses in the contracts overshot the production savings. But parts still bought in quantity (quantity defined as 50+ per year) are sold at the peak or near peak discounts. So the JT8D/MD-80 vendors were held to pricing until, IIRC, about 2014 when AA declined to renew the service contracts.
The reality is automation only rewards volume. To achieve volume, airframers must sell at risk and take substantial write downs in bad recessions due to vendor penalties.
By taking risk on the A320NEO, Airbus has had huge success. Same with the 737 MAX. CFM had to lean forward on production costs to keep the exclusive. Without not so firm sales, neither would be where they are now. Same with the A380, 77W, A330, 787, and A350.
Firming penalty clauses cuts both ways. The 787 would have bankrupted Boeing on old school clauses. The delays on the A350 wouldn't have been allowed and the A330NEO would have come early instead of the A350 XWB.
Hopefully I've given an insight. E.g., old school clauses would have had EK order maybe 6 A380. Would they have? They would have been handed over dirt cheap due to all the delay penalties. EK would have ordered in small batches. Small enough in 2009, Airbus would have faced a shut the line down decision.
IM messages to mods on warnings and bans will be ignored and nasty ones will result in a ban.