What are 'aircraft purchase rights'?

[Sexual Chocolate]

I think I understand the basic principle but was wondering if anyone could explain some of the finer details of how this usually works?

[Bob Murphie]

Give me some more information. I have been on the wrong side of a purchase and have a wealth of data.

Don't rely on a maintenance release unless you personally arrange and pay for it. The Engineer only owes a duty of care to the person who commissioned the inspection. The maintenance schedule "should" be a good basis for a pre purchase inspection, however you get what you pay for

Don't rely on CASA.

[Bendo]

I think Sex is referring to purchase options, eg: QANTAS has ordered 65 787s and has purchase rights on 65 more.

My understanding is that when you order an aircraft, you are allocated a serial number in the production run. When you have an "option" you pay the vendor a consideration to hold a serial No. for your first refusal - when the time comes to decide, you can pay up or opt out, and forfeit your deposit.

[Sexual Chocolate]

Thanks Bendo, got it in one.

[Dehavillanddriver]

When you purchase aircraft you generally place a number of firm orders. These firm orders are allocated production positions and are noted in the contract as to when they will deliver. You typically pay a non refundable deposit and progress payments against the final delivery price, so that when you finally technically accept the aeroplane you pay the balance owing and they throw you the keys and off you go.

You can then take options, which are delivery positions, held against a refundable deposit, and you generally have a date by which you need to exercise the option, after which the deposit reverts back to you or you can put it against a purchase right that you convert to an option.

A purchase right is an agreement which gives you the right to purchase an aeroplane at an agreed price (subject to escalations) but doesnt typically have a delivery position attached to it.

You can convert your purchase rights one airframe at a time into firm positions or options as you wish.

The purchase right typically doesnt convey any committment by the manufacturer to a delivery date.

It may be that you decide that you want to exercise a purchase right and go to manufacturer x to convert it into a firm position. The manufacturer says sorry, sold my last one to the bloke before you, I can do you a good line in those aeroplanes in say 2015. So you take a risk in that you may not get the delivery timeframe that you want - but you dont have 1 or 2% of the purchase price sitting as a deposit - so you need to weigh up the pros and cons.

For example, if you have options for the 777 with contractual delivery months in 2009-2010, you can be pretty sure that you will get the airframes then - but if you have purchase rights and go to Mr Boeing today he wont sell you one till say 2015 - by which time you may have missed the boat as it were.

Hope that helps ....

[Bob Murphie]

Good Ho, helped me a bit also. Having the thread on the GA and questions threw me a bit.

Amazing what you learn when you prompt.

Cheers.