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Have you ever wondered how airlines pay for their fleets
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Airbus and Boeing, the dominant players in the commercial aircraft manufacturing space
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publish list prices that serve as a starting point for negotiations. The Boeing 737 family, a mainstay in airline fleets
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ranges from the 737-700 with a list price of $89.1 million to the 737 MAX 7 at $99.7 million
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Airbus' offerings, including the popular A320 and A321, fall within a similar price bracket
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Moving to widebody aircraft, the numbers climb significantly. The Airbus A350 family, known for its fuel efficiency
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starts at $308 million for the A350-900 and stretches to a hefty $356 million for the A350-1000
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Similarly, Boeing's 787 Dreamliner series ranges from $248 million to $338 million
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with the iconic 747-8 passenger variant reaching a staggering $418 million. However, industry insiders know these list prices are more of a guideline than a fixed cost
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Both Airbus and Boeing acknowledge the significant negotiation process airlines undertake before finalising an order
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Airlines often place bulk orders, leveraging economies of scale to secure substantial discounts
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While headlines often announce multi-billion-dollar aircraft purchases, for many airlines, these aren't outright purchases at all
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Leasing, a prevalent strategy in the aviation industry, allows carriers to acquire aircraft without the immediate upfront cost
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Statistics reveal that a staggering 40% of commercial aircraft operate under lease agreements, according to the Pointsguy
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Dominant leasing companies such as Aircap, Avalon and GCAS often base their operations in Ireland due to favourable tax conditions
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These lessors, with their strong financial standing, enjoy better credit ratings than individual airlines
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This translates to lower borrowing costs, which they can then pass on to airlines through competitive lease deals
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Beyond cost benefits, leasing offers airlines flexibility. Aircraft purchases often involve long lead times, ranging from 2 to 10 years
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Leasing allows for faster fleet expansion and avoids the substantial capital outlay associated with outright ownership
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While leasing offers advantages, airlines also value owning aircraft. Owning an aircraft strengthens a company's financial position
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by increasing its asset base. This can be crucial when seeking additional capital
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or navigating financial difficulties. For airlines opting to purchase, direct lending from a consortium of banks is a common financing method
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Secured or unsecured loans are utilised, similar to how individuals borrow money, but on a much larger scale
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Another option is finance leasing, also known as capital leasing. This is a long-term arrangement that allows airlines to come close to owning the aircraft
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Similar to a higher purchase agreement, airlines have the option to acquire the aircraft outright at the lease's conclusion
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Airbus and Boeing have acknowledged that list prices don't reflect the final transaction value
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Industry estimates suggest actual aircraft sales occur at significant discounts, ranging from 40 to 60% off list price
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The type of customer, the number of aircraft ordered, and the payment terms all play a crucial role in determining the final price tag
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Airlines leverage their negotiation power and play manufacturers against each other to secure the most favourable deal
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Additionally, repeat customers and airlines placing large orders often receive more attractive offers
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Financing the acquisition of multi-million dollar aircraft is a complex dance for airlines
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Understanding the options available, from leasing with its flexibility to ownership with its strategic benefits
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airlines can navigate this intricate financial landscape. The final price tag reflects not just the list price
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but a strategic negotiation process that ensures airlines take flight with the most cost-effective and financially sound solution for their fleet needs
