What to do with all the money$!

One of the major benefits with an option contract is that the owner of the option has not invested the full value of the required part until it is absolutely necessary. In Supply Chain Management, one of the commonly heard phases thrown around is "Just-In-Time" (JIT). Manufacturers ideally want all the raw materials and products that go into producing a product to arrive on the production floor from the various suppliers the day before the production run. Then have the finished product leave the production floor for the customers as soon as the products are manufactured.

The Just-In-Time supply chain success is measured by the cash flow and time that product sits on the floor as raw material or finished product.

The success of Just-In-Time Supply Chain management in the aviation industry would reduce the value of inventory held in stock by the airline, with inventory and parts coming in from a supplier the day before they are needed. With a Boeing 747 having 6 million parts, procuring the parts is a tough enough job without trying to then control when they all arrive for scheduled maintenance's. But what about if the aircraft needs maintenance and repair outside of the scheduled window, the airline would never manage to source and move the parts to the aircraft in time for the aircraft to fly the same day!

Running an airline is not the same as a production line, aircraft need to fly while production runs can be doubled up to make up lost time!

It is estimated by analysts that airlines in North America are presently holding $ 6 Billion worth of parts and inventory to maintain and repair an aircraft in the event that a part is needed. It is understandable with the airlines risks and concerns that they have accumulated all this inventory, but what if things could be done differently? What if airlines could have access to inventory while not having to invest the cost of the part until Just-In-Time! The Aviation Option Market allows for the airlines to do just that. Airlines get to take options on parts and inventory, securing the parts and inventory for when they will be needed, without having to layout the funds to hold it.

Through the Aviation Option Market, the North American Airlines could put $ 6 Billion back into their bank accounts, leaving the question, What to do with all the money?

The Aviation Option Market allows the Airline to purchase the part when they need it under the contract, paying 2%* of the value of the part to secure the contract. That would free up 98% of the value of their inventory as cash for operations and re-investment!

In a previous Blog post, we discussed how many new aircraft the industry could purchase with the extra cash, while still having the parts and inventory Just-In-Time!

*Cost of the Option contract on the Aviation Option Market.