Orders and Options [Archive]

TurboJ

31st Jan 2003, 13:58

Hope this doesn't seem a stupid question !!!

When reading some of the airline magazines/articles it mentions that airlines have ordered so many aircraft but what exactly does it mean when it refers to having, 'options' on so many others ?

e.g. Ryanair have committed to 250 new B737-800s of which 125 are orders and 125 are options ??

Cheers..............TJ

:cool:

Genghis the Engineer

31st Jan 2003, 15:16

When a manufacturer (say Airbus) plans production, usually over some years ahead, they plan in terms of production slots.

When a purchaser "buys an aircraft", they are actually paying for a specific purchase slot - so they are agreeing exactly what they'll be getting and when. Generally slots purchased well ahead attract the best prices since it allows the manufacturer a lot of power in their internal planning (in terms of manpower, material stocks, etc) and this is beneficial to them.

When a purchaser "takes an option", they are paying a deposit on a specific purchase slot, usually further ahead in time - say 3-5 years rather than 1-2 years. By a certain date they have to agree to purchase this jet, and of-course state the exact spec. At or before that date they have two other options, one is to default and lose their deposit, the other is to sell the option to another airline (almost certainly at a reasonable profit). Both occur fairly regularly but the main purpose is that airlines have a relatively low risk guaranteed new airliner at a certain point in their 5 year plan, and the manufacturer can plan their production long term (or if the plan goes wrong, they get financial compensation to cover the inconvenience).

G