Boeing and Airbus sales of planes to Iran safe for now
14th Oct, 2017 | Tourism Mail Crew
President Donald Trump’s decision not to re-impose sanctions against Iran is good news for Boeing and its European rival, Airbus, which can continue doing business with Iranian airlines that are desperate for new planes.
Between them, Boeing and Airbus have announced deals with Iranian airlines that, if finalized, could cover nearly 300 planes worth $40 billion.
Still, those numbers pale in comparison to standing orders at both companies. Boeing has a backlog of orders that would take more than eight years to fill even if it never made another sale. Airbus has a similarly long list.
“This isn’t a make-or-break type of thing for either company, but it is definitely good for both Boeing and Airbus,” said Douglas Harned, a Bernstein analyst who tracks Chicago-based Boeing Co.
Boeing declined to comment beyond a brief statement saying that it follows US guidelines and is in close touch with regulators regarding sales to Iran. Airbus declined to comment.
Iran wants to modernize its ancient, accident-prone aviation industry. Years of Western sanctions prevented Iranian airlines from buying new planes from Boeing and Airbus, the duo that dominate the global aircraft-manufacturing market. Iran also has had trouble buying spare parts for planes that date to the 1970s.
The 2015 agreement negotiated by the Obama administration lifted some sanctions on Iran and cleared the way for aircraft sales. Both Boeing and Airbus need US Treasury Department permission for such sales — in the case of Airbus, which is not a US company, that is because some of its airplane components come from US suppliers.
Even without the re-imposed sanctions, however, hurdles still remain. Richard Aboulafia, an analyst with Teal Group, an aviation and defense consulting firm, said the Iranian airlines could yet have trouble financing their orders, partly because banks are unlikely to loan them money until Iran signs the Cape Town Agreement, an international treaty that includes provisions for repossessing capital assets like planes.
And American politics could still play a role, with Trump leaving it to Congress to consider next steps.
Some in Congress, including Sen. Marco Rubio, R-Fla., want to stop the aircraft sales to Iran. In September, the House approved a measure to block Treasury from approving future aircraft deals and possibly hinder the Iranians’ ability to finance pending purchases. The bill’s fate in the Senate is uncertain.
Boeing and Airbus currently have firm contracts to sell 180 planes to Iran — 100 by Airbus, 80 by Boeing — and tentative deals for more planes.
— In December 2016, Boeing said it signed a contract with Iran Air for the sale of $16.6 billion worth of planes — 30 large 777s typically used on long routes and 50 737 Max 8s, a new version of Boeing’s workhorse short-haul plane.
— The same month, Airbus finalized a deal with Iran Air for 100 planes worth more than $18 billion at list prices; A320s, A330s and A350s.
— In April, just over two months after Trump was sworn in, Boeing said Aseman Airlines signed its intent to buy 30 737 Max jets worth $3 billion, and an option for 30 more. The sale has not been finalized, according to a Boeing spokesman.
— In June, Airbus said Airtour Airlines and Zagros Airlines had committed to buy 73 planes worth $2.5 billion.
Those figures are list prices — Iran would likely pay Boeing and Airbus far less — and would be spread over many years. And the sales themselves don’t amount to a huge chunk of business when considering Boeing’s revenue in 2016 was $94.6 billion and Airbus took in 66.6 billion Euros ($78.7 billion).
“The numbers are basically insignificant — planes, revenue, jobs,” Aboulafia said. “You never know, it might get bigger, but it certainly doesn’t look very impressive.”
Harned, the Bernstein analyst, said that while both aircraft manufacturers have bigger business elsewhere, Iran Air’s order of Boeing 777s is particularly important in helping shore up production levels of that plane, a two-aisle, widebody jet that is frequently used on long international routes.
Sales of the plane have been slowing, and Boeing is cutting production from more than eight per month a couple years ago to 3.5 per month. The two models of the 777 that Iran Air ordered list at $347 million and $409 million each — although airlines routinely get big discounts — and losing those sales prices would mean less revenue and fewer jobs at Boeing.
Boeing has said that demand will be adequate to support production of 3.5 777s per month even without Iran, but keeping that order on the books “makes the backlog more robust,” Harned said.