Industry News

November 2008 Issue

Pre-Production Airplane Deposits: Must Buyers Risk Them?

For years, it has been standard practice for owners of new models to pony up big bucks to secure an order position. Why canít the manufacturers fund their own development?

Somehow, encoded into the very DNA of many would-be aircraft owners is an utter inability to apply normal standards and cautions when it comes to making money decisions about airplanes. Itís undeniable that some airplane people go woozy and weak in the knees when a new aircraft purchase is afoot. Example? One entrepreneur contemplating launching a new jet was confronted by an investor who insisted on writing a six-figure check to be first in line for the new airplane. Never mind that not so much as a cocktail napkin sketch existed of the new airplaneóhe just wanted to be first in line if the project came to fruition. We canít venture a guess if this is blind faith or unbridled enthusiasm run amuck, but it supports an established trend in the airplane business that lives on to this day: Owners who want a new airplane are often asked to invest in it by writing large deposit checks which, in fact, make them both investors and customers whether they like it or not. The practice is so common that it has become the unquestioned way of doing business. We donít have a score card on this, but owners have lost bundles of money on position-holder deals and Eclipse Aviationís troubles with its EA500 jet have left an unknown number of position holders waiting for refunds. Given this development, does it make sense to continue this practice? Isnít there a better way? What should owners do to protect themselves against companies that donít deliver on the deposits?

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