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"Instead of using the normal deployment and reserve rules for these units you can, during deployment, choose whether this Formation will arrive during your first or second turn."

So let's say the Skyhammer player goes first. He finishes setting up his Imperial Knight. His opponent sets up some Necrons. The Skyhammer player than Infiltrates some Scouts.

At what point in this sequence does the Skyhammer player decide whether it comes T1 or T2? At any point? Before the Necrons deploy? While he's Infiltrating?

It seems to be at any point, including Infiltrators (Infiltrating is still deploying - "Units that contain at least one model with this special rule are deployed last..."). It doesn't use the wording found in other similar rules (Deathwing Assault - "Immediately after determining Warlord Traits..."), but is before Scout re-deployments ("After both sides have deployed").

The phrase "Instead of using the normal deployment..." seems particularly redundant, since the previous sentence (not quoted) places them all into Deep Strike Reserves, and the "can" choose implies you could choose neither and just use the normal reserves rules (but not the Drop Pod Assault rules, as those are excluded in the last sentence?).

Ugh, and what happens when both players have Skyhammers? "Choose when yours is arriving." "Nu-uh, you choose, then I'll say." "No way! You choose first..." (handled by the Sequencing rule on page 17, but either way you end up with an unhappy player).

I'd imagine it is when you declare your reserves: so if you have first turn, you declare it before the opponent deploys, and vice versa if you have second.

That's my hiwpi, and I feel like that is what they meant, since that is how reserves are usually handled.

During deployment would be when you would normally deploy those units.

Generally this is during normal deployment(before infiltrate and scouts redeployment). But if there came out some warlord trait that granted units in your army infiltrate you would decide then.

So generally it is around the same time as you are deploying your knight/preparing reserves for non-infiltrate units. You do not prepare them normally, but you do prepare them and choose when they come in at this time.