|
|
Post by bulldog on Jun 17, 2015 20:25:55 GMT 1
Reading with interest on flight global website about the 811 "orders" taken during first three days of the Paris show, I am confused by the terminology. Is there anybody in the industry who could explain the difference between ;
A letter of intent.
An option to buy
A memorandum of understanding
The OEMs quote all these three terms, when is an order an order?
Any help gratefully received
|
|
|
|
Post by andyh on Jun 17, 2015 21:00:40 GMT 1
Bulldog - good question!
My understanding is as follows (though I am by no means an expert in this field).
If you can image a scale going from left to right. The further to the right you go on the scale the closer you are to actually placing a legally binding order and handing money over.
An MoU is pretty much far left of the scale. It just sets out general terms for discussion with the aim of the airline and manufacturer working together to come up with a firm proposal of aircraft type, specification, cost, delivery time and so on. Once you get these generally agreed, if you are happy and have the finance in place you would probably place your order.
However, if you still need to sort finance or there are some other conditions you want / need fulfilling before an order is placed you would sign a letter of intent. This is a bit like putting a deposit down on a new car but having the option to change your mind. You lose your deposit if you do though as a letter of intent is legally binding and will have penalties set out if you back out of the deal.
An Option to Buy would be taken out at the same time you place a firm order. It gives you the option to buy an agreed number of additional aircraft on the same terms as the original order but lets you firm up the details at an agreed point in the future.
Hope this helps?
|
|
|
|
Post by bulldog on Jun 17, 2015 21:08:58 GMT 1
Andy
many thanks for the simple explanation. Much clearer now.
Staggering sums involved in these orders. Shows how times have changed, when for example I recall the Bac 1-11 was new , if an order came in for 10 then that was a huge order. These days unless you go for a hundred you're not even a player. Must go and get me a hundred for my Ljla start up airline , do they still make Ambassadors? A line up of those would look good!
|
|
|
|
Post by richardheywood on Jun 18, 2015 6:28:05 GMT 1
|
|
|
|
Post by maverick on Jun 18, 2015 10:36:32 GMT 1
Andy many thanks for the simple explanation. Much clearer now. Staggering sums involved in these orders. Shows how times have changed, when for example I recall the Bac 1-11 was new , if an order came in for 10 then that was a huge order. These days unless you go for a hundred you're not even a player. Must go and get me a hundred for my Ljla start up airline , do they still make Ambassadors? A line up of those would look good! Perhaps one of our experts will know - but what is the rationale of announcing these orders at a given event? Paris, Farnborough etc. I assume the airline bosses don't go to the show and pick an aircraft type to order on the day!? It must be months and months, even years, of deciding. You (I) would think airlines would want to maximise the publicity with a sole announcement, but maybe they more by being at a large show? I don't know. TIA |
|
|
|
Post by viscount on Jun 18, 2015 11:40:20 GMT 1
Oneupmanship between manufacturers, especially those producing civilian airliners. The "Look how well we are doing now" factor at an event with all the world's aviation press and competitors present. Though now only the two major world players Boeing and Airbus, the competition to have sold more has become even more intense, although Bombardier and Embraer along with relative newcomers Mitsubishi, the Russians and Chinese take advantage of the global attention of the world's press being at the event too, to get their slice of the limelight. It is not just orders that get announced, but launches of new models and upgrades.
Many of the orders announced are already known to the trade, or have been announced nationally by airlines, but are announced again for the benefit and attention of the world's press. Frequently an MoU, LoI or Options announced at one show, becomes an order at the next to boost event sales figures twice!
Just occasionally, manufacturers will hand over the 'keys' of a new aircraft at Paris or Farnborough for publicity, although usually airlines need their aircraft quickly once completed, without the 7-10 days delay while the world and a man tramp through it while on show.
|
|
|
|
Post by bulldog on Jun 19, 2015 12:45:09 GMT 1
Looking on Flight global the huge number of orders at Paris has a value of $69 and a bit billion.
Looking at wikipedia that means that a value of this level would place Paris Air show at number 70 based on GDP of countries. This value beats the GDP of countries like Croatia, and Luxembourg. (without amazon tax presumably!!)
Where does all the money come from, Greek banks perhaps
Ch
|
|
