Option Agreement
In the context of aviation, an Option Agreement refers to a contractual arrangement between an airline and an aircraft manufacturer or leasing company. This agreement gives the airline the right, but not the obligation, to purchase or lease a certain number of aircraft at a predetermined price within a specified time frame. The purpose of an option agreement is to secure future fleet expansion or replacement needs at a locked-in price, providing a hedge against market price fluctuations. It also allows airlines to respond flexibly to changes in market conditions, such as passenger demand, fuel prices, or regulatory changes. The airline pays a premium for this option, which is usually non-refundable unless the manufacturer fails to deliver the aircraft on time and in the agreed condition. Option agreements are a common practice in the aviation industry, particularly for large commercial airlines and aircraft leasing companies.
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