Counting Airplane Orders Ain't For Sissies

The nebulous subject of counting airplane orders becomes a convoluted process at best. The press reports what it hears and in the world of semantics, what is said or indicated becomes a fill in the blank report by every writer of airplane orders. The key words and what it means is the first step in understanding of what happens at an airshow within an airplane maker’s venue. It is in its best interest, if it presents an order in the best possible light for bragging rights. In this case the Dubai Airshow is a good example to use for this discussion.

The Paris airshow is so long ago (June 2017) having many more customers ordering in play than Dubai had and so much has happened to those Paris orders. It becomes a nightmare explaining what has happened to those "orders" since the airshow. 

However, Dubai is much more manageable for this discussion. There were several major orders announced at the show. Specifically, the 40 Emirates 787-10, Avolon's 225 737 Max and finally Indigo Partners 430 units for the Airbus A-320 family of aircraft were announced.

The bantered around words were commitment, MOU and firm order. One headline stated Indigo Partner's placed the world largest order implying a firm deal. 

However, to avoid confusion for what occured, always refer to the Airplane makers own website listing those orders that are booked as firm orders. Airbus is making a mad dash with Indigo Partner's firming up those 430 A-320 NEO committed so it can add to its 2017 order counts.

The word "committed" is key in the reporting and it is not the same as ordering and is usually supported by some Letter of Intent (LOI). The back story of this announcement lists a handful of airlines that will be receiving these committed 430 aircraft. Within the announcement it is discovered the following airlines are customers of Indigo Partners for:

• ·       Wizz -       72  A320neo, 74 A321neo
• ·       Frontier - 100 A320neo, 34 A321neo
• ·       JetSMART -56 A320neo, 14 A321neo
• ·       Volaris -    46 A320neo, 34 A321neo

The total units come to 430 NEO's as mentioned. Indigo Partners negotiates with its airline customers and then negotiates with Airbus for these committed aircraft. It isn't a firm deal yet! It may have an LOI supporting the potential deal. Under ideal conditions it should go through. The affected parties have been working a long time to get to this point. Mark down that an LOI is a commitment with no contract yet signed, therefore the 430 NEO's aren't booked until Airbus reports the order contract and is signed and booked.

The MOU is an often used term and does not mean an order has placed as a completed "firm" transaction.  Memorandum of Understanding is a detail of what will occur when all parties are brought to the contract table. In fact most negotiations continue after an MOU is issued by the affected parties. It is a somewhat binding agreement over what will occur once all documents are completed to the participating parties satisfactions. The MOU would not include final prices but would include how many aircraft are required and what types requested. Pricing maybe included as a reference. Other services or product would be listed for contractual purposes. Everybody agrees with what is to be worked for on the final contractual order and purchase. An MOU is not a firm contract that can be booked. It is an over arching agreed upon statement for what will be accomplished concerning the potential firm order.

Referring back to the Airbus potential sale for 430 NEO's, it is possible changes could be made or the customer has further considerations needing clarification. The commitment status has a high likely hood of completion unless a disputed condition cannot be resolved. This alone does not make it a firm order yet. Legally, the customer acts in good faith over the commitment via its Letter of Intent and is bound by that LOI unless sale conditions change which would nullify its LOI. Examples could be, a customer could go bankrupt, or the maker could not possibly deliver the product as required. With Indigo Partner Airlines, the risk becomes greater but not likely there will be a failure from a customer commitment status.

A firm deal will costs participating customers money if the contract is violated by an order change. The manufacturer is bound by delivery and performance issues. If it cannot fulfill its end of its promise it may owe the customer money if it fails with contractual points. The word "firm" is a "done deal".  

When the press banters about the subject of orders it often uses its license of journalism by loosely using those terms or words mentioned above without accountability, because no one really knows, even those familiar with the process what the airline or maker has done when it says, "Commitment, LOI, or MOU". It could be all three conditions at the same time but no one really knows which until the customer or maker defines it at some future time.

The best counting method for orders is from the airplane makers-framer own website. Rely on it as it post its orders. Otherwise, a very confused airplane geek can say 430 NEO and 225 Max were sold in Dubai without having the Maker's website even reflect those orders as firm, even into next year.