Aircraft Price

There seems to be some confusion for some investor about prices and rebates, as a commentary by one of my readership shows:

Nor wondering how you come up with this picture blokes they are paying half if those in the corporation I was meeting say they won't give rebates like this? A thing I often get to know is that some folks say they have Boeing or Airbus know-how. Because I am somewhat conversant with the Boeing processes, as I have repeatedly and to a limited degree approached Lockheed Martin (NYSE:LMT), the Company's employees have communications policies that oblige the Company's agents not to inform about order value, aircraft prices, or non-binding orders.

In fact, Boeing does not even indicate how many purchasing rights/options it has entered into with them. It is therefore very unlikely that corporate agents will give an indication of aircraft fares without contravening communications policy. The fact that aircraft fares are regarded as propriety is due to the fact that Boeing and Airbus can undercut each other if they know each other's off-the-shelf fares.

A question that you may ask yourself is where the fair value comes from if the company's people are not permitted to reveal it. One good way to begin is to look at the price lists to get an idea of the order of magnitude: You can see that the price is between 80 million and more than 400 million dollars per plane.

That chart doesn't say anything about rebates. However, these rebates are often found in investors' days presentation and come from trusted aviation consulting companies dedicated to helping airline companies and leasing companies make the right choice for expanding their fleets and providing networking assistance.

As the value of the aircraft declines over the course of the years, the valuation should not be considered a realisable value for the carrier. We see for the Boeing 787-9 that the new underlyings in March 2014 were between $133.2 million and $157.7 million, far from the $257.1 million Boeing had quoted on its premises for the -9 in 2014.

Today, the rebates for new planes are about 45%, for planes that have been in operation for some years, about 50% and for planes that reach the end of their time. However, other resources that give an indication of the price of aircraft are airline registrations or paperwork.

For example, the Government Accountability Office estimates that the acquisition of two Boeing 747-8I aircraft would result in a combined investment of 282.2 million dollars. That means $141. 1 million per plane versus a $386. 6 million listing price, which is a 63. Further evidence that airline companies and leasing companies do not charge a listed price is an application by BOC Aviation to buy two Boeing aircraft:

A significant discrepancy exists between the aircraft's listed price and the aircraft's real price under the aircraft sales contract. A price for an almost new aircraft such as the aircraft will be agreed taking into new aircraft prices inclusive of rebates. Just as the price structure for new aircraft is an economically sensible piece of information, since it represents a substantial fictitious deduction from the listed price of such an aircraft and is made in return for the first sales outside the manufacturing group.

These fictitious deductions from the listed price were calculated on the basis of certain variable data and following market conditions negotiated with Boeing. In our past practice, the scope of this rebate does not differ significantly in percent from the rebate on the listed price received by the Company on prior purchase of new aircraft from Boeing, adapted to the aircraft ages.

Due to this rebate, the real price of the aircraft is lower than the aircraft's listed price. As part of the aircraft sales contract, the Company is bound by a stringent duty of secrecy with respect to the aircraft sales price. If the Company had been obligated to publish the aircraft price under the aircraft sales contract, the seller would not have concluded the aircraft sales contract with the Company.

Revealing the aircraft price could lead to the forfeiture of the substantial deduction from the listing price that Boeing may grant the Company for further acquisitions, which could therefore impair the Company's operations. As is customary in the world' s aircraft industries, the price quoted for the aircraft purchased is the listed price rather than the real one.

You can clearly see how propriety the price of the aircraft is, but that it is definitely below the price listed. Thus, from corporate registrations, presentations and official documents, we can pretty much be sure that no client will ever pay a price on the lists, and if possible, the jets makers ask the businesses not to reveal the order value.

A further legend is that yearly price increases directly result in higher sales for the blast manufacturer. Price increases usually mirror perennial annual inflation, and this applies to both cost and turnover. It is only when market demands exceed available slots that we could see price increases above the level of headline price increases.

Today, price escalation is used to say something about how resilient the markets and demands are. As the Iranian order was about to come through, we saw how Iran was pleased to receive a 50% rebate, which is actually less than what it should have received for an order of 80 aircraft.

It is another legend that results from the fact that one does not understand what is implied in the price and what several technical concepts are. Aircraft in the unladen mass of the producer already contains the drive group. Aircraft supplied by the beam builder upon shipment of the empty mass contains the manufacturer's empty mass as well as off-the-shelf articles.

It already includes the drive group in terms of price and mass. This is what Boeing says about the price lists on its website: Above mentioned pricing reflects an avarage price that reflects a number of available choices and configuration for each product. Configuration and price affecting features could be power, interior, electronics, propellant and more.

The company also referred to what was contained in the price when it bought two Boeing 747-8F aircraft at the beginning of the year: Aggregated aircraft price on the present schedule is approximately $758. Aircraft prices consist of the cabin price, the option price and the price of the engines. It was the intent of this paper to discuss some of the Myths about aircraft prices and what they contain and what they do not contain.

It is clear that Boeing will probably never inform itself about the order value of aircraft sale contracts and asks its clients not to reveal any of the information either. However, an indication of the price may come from aviation consultancies, airline and lessor business registrations and public purchasing notifications.

In order for an investor to have real expectation of the aircraft manufacturer, it is important to be conscious that there is no global enterprise that will pay listed prices for airliners. There is no relation to a corporation whose shares are referred to in this paper.