anshabhi
Topic Author
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Joined: Thu Oct 20, 2016 10:40 am

What is the approximate down payment required for new aircraft?

Tue Jul 11, 2017 11:24 am

It always amazes me how apparently small airlines like SG or G8 or even 6E (comparing the no. of aircraft on order) are able to place very large aircraft orders. How much down payment is required for each type like B737Max or A320Neo or ATR 72 or Q400?

I searched a little bit, and figured out that SG had paid $30 million to Boeing for 42 B737 Max as booking amount.
 
dtw2hyd
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Joined: Wed Jan 09, 2013 12:11 pm

Re: What is the approximate down payment required for new aircraft?

Tue Jul 11, 2017 11:34 am

Less than 1%.
 
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KarelXWB
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Re: What is the approximate down payment required for new aircraft?

Tue Jul 11, 2017 11:42 am

Here's what SriLankan Airlines paid for their A350s:

As part of the final price, pre-delivery payments commenced in 2013 and the last pre-delivery payments to be made by SriLankan Airlines (SLA) to Airbus in December 2018. According to SLA, it has paid pre-delivery payments of US$ 19,214,638.45 out of the total of US$ 222,356,600.85. Further, it has stopped to make pre-delivery payments with the approval of the Board of Directors since November 2016 and total amount due (to Airbus) is US$ 679,463.61.


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Planesmart
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Joined: Sun Dec 05, 2004 3:18 am

Re: What is the approximate down payment required for new aircraft?

Tue Jul 11, 2017 11:54 am

The formula is time based. Rather than deposit, the more appropriate term is customer financial commitment, because it can consist of cash deposits, bank guarantees (which the OEM can use to secure credit lines) and other financial instruments.

For example, a billion dollar order placed today, with first delivery in 2022 and final in 2027, it would be less than 1%.

Orders are broken down into tranches (multiple units, sometimes calendar year deliveries), and then as build nears, into individual progress payments, and then final settlement less retentions.
 
dtw2hyd
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Joined: Wed Jan 09, 2013 12:11 pm

Re: What is the approximate down payment required for new aircraft?

Tue Jul 11, 2017 2:26 pm

Thank You Planesmart, you always give detailed answers related to aircraft finances.

One slightly off-topic question. How and when are compensation get paid to airlines? Adjusted against last deliveries, cut a check, give spare parts or support contracts.
 
Planesmart
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Joined: Sun Dec 05, 2004 3:18 am

Re: What is the approximate down payment required for new aircraft?

Wed Jul 12, 2017 2:09 am

dtw2hyd wrote:
One slightly off-topic question. How and when are compensation get paid to airlines? Adjusted against last deliveries, cut a check, give spare parts or support contracts.

The first issue is who caused the compensation claim. Determining that can be protracted. For example, both Airbus and their customers will be seeking compensation in respect to engine-related delays, and the engine OEM's in turn will be seeking compensation from insurers and contractors.

Assuming the OEM is liable, the detailed T&C's will incorporate an agreed formula, including an arbitration process. Major airlines and leasing companies use their own standard purchase agreements, with negotiated tweaks from the OEM's, in contrast to smaller customers, who use Airbus and Boeing standard purchase agreements, with negotiated tweaks (if they are lucky).

We then get to how compensation is paid. Cash, credit, services, parts, training time..... Just as aircraft and engine funding is highly influenced by tax, so is compensation. Often the trigger for another round of negotiation to arrive at the optimum tax effective deal for both OEM and customer.

Some compensation might be obvious, like accessing temporary capacity. The customer may obtain capacity, pay direct and seek immediate reimbursement, or the OEM may arrange and pay, though not necessarily in obvious ways. For example, power by the hour payments may be suspended on the leased aircraft, plus others, or a payment on a new aircraft or engine may be suspended, or even forgiven.

Compensation is more challenging when dealing with the ME3 and other customers, which at home, though not globally, are domiciled in a zero or very low tax effective environment. Fortunately OEM's and major sub-contractors aren't.

Finally, we get to your question - when. Sometimes compensation never appears to get paid, because of the form it takes. For example, a quid pro quo could be that the customer acquires 'free' model switching rights, or the ability to delay remaining aircraft at no cost (when otherwise the OEM would promise to catch up).

Usually it's not a single lump sum. It may or may not be netted off against other sums the customer owes the OEM (though this can have a detrimental tax impact). If the customer has to lease temporary capacity, this will be paid promptly, compared to say failure to meet performance guarantees, which may be measured and compensated over months or years.

In most cases negotiations are amicable, because OEM's are constantly talking to customers (EK for example have permanent staff in France and the USA), ensuring there are no surprises.
 
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RWA380
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Re: What is the approximate down payment required for new aircraft?

Wed Jul 12, 2017 2:45 am

Planesmart, thank you very much for taking your time to explain a lot. I admit some of this is over my head, but your explanations are well written & informative. A.net can use more members like you.
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planes112
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Joined: Thu Dec 15, 2016 5:40 pm

Re: What is the approximate down payment required for new aircraft?

Wed Jul 12, 2017 2:51 am

one of the OEMs charges 1% deposit, 10% 2 years before, and 10% 1 year before. This is all subject to negotiation

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