Domestic Economy

Iran Confirms Signing Boeing Deal for 100 Jets

Iran Confirms Signing Boeing Deal for 100 Jets
Iran Confirms Signing Boeing Deal for 100 Jets

Iran has signed an agreement with Boeing to purchase 100 passenger planes, the president of Iran Civil Aviation Organization has confirmed.

"Both sides—Iran and Boeing—have reached a written agreement for buying Boeing airplanes," Ali Abedzadeh was also quoted as saying by the Persian daily Iran.

In an interview published on Sunday, Abedzadeh said the finalization of the contract is pending a Washington license, for which Boeing has already submitted an official request.

“A precise timeline cannot be specified for either signing or implementing the contract until the US Treasury Department issues a permit,” he said.

The ICAO chief's announcement came after Minister of Roads and Urban Development Abbas Akhoundi's Tuesday announcement for the first time that Iran had reached an agreement with the US giant. He, however, did not mention any numbers.

Akhoundi was further quoted as saying that the details of the agreement would be announced “in the coming days”.

Same day, The Washington Post cited "a person familiar with the deal sources" as saying that the agreement is likely to cover deliveries and services over nearly a decade at a cost of more than $17 billion, even though financing arrangements were not complete.

Abedzadeh did not verify the estimated value of the contract in his interview, adding that details of the deal “are yet to be specified through further negotiations”.

If finalized, according to Akhoundi's deputy, Asghar Fakhrieh Kashan, this will be the biggest Iran-US trade deal after the Islamic Revolution of 1979, which marked the beginning of US sanctions on Iran’s aviation industry.

The landmark nuclear accord saw the removal of western sanctions against Iran's economy on January 16 in exchange for temporary curbs on its civilian nuclear program.

The ICAO chief said negotiations with Boeing have been ongoing for a long time, as both the US company and the Iranian government have been eager to arrive at a deal.

For the first time after 1979, Boeing officials visited Iran in April to discuss supplies to flag carrier Iran Air and other Iranian airlines under a license granted by the US government in February.

During the two-day April visit in Tehran, the Boeing delegation discussed jetliner sales and maintenance services with seven Iranian airlines.

“The company’s executives have offered new series of 737, 777 and 787 planes,” said Maqsoud As’adi Samani with the Association of Iranian Airlines.

The Islamic Republic’s fleet comprises 60 Boeings, including the 747 models that predate the 1979 Islamic Revolution. Many of Iran’s Boeings are grounded because of mechanical issues.

According to Samani, 48 Boeings are currently in operation in Iran, including McDonnell Douglas, 747, 737, 727 and 757 models, which account for 32% of the country's air fleet.

Fakhrieh Kashan earlier said Iran is interested in Boeing 737s—one of the world’s most widely used jetliners.

> Pressing Need for Overhaul

Iran’s fleet of passenger jets—with ages exceeding 20 years—is in dire need of an overhaul after years of sanctions prevented the country from dealing with international planemakers.

According to Akhoundi, Iran is hoping to become a major aviation hub in the Middle East and to that end, the country needs 400 mid- and 100 short-range planes in the next 10 years, requiring an investment of about $50 billion.

“Of the 250 planes in Iran, 230 need to be replaced,” Abedzadeh said, adding that the country seeks to diversify its purchases.

In January, Iran clinched a deal to buy 118 aircraft from French planemaker Airbus and 20 short-haul planes from Airbus’ French-Italian subsidiary ATR.

The Airbus agreement is worth $27 billion based on list prices and entails the sale of 45 single-aisle planes comprising 21 from the current generation of A320 family and 24 re-engined A320neos.

There are also 73 wide-body aircraft, including 27 A330s, 18 A330neos and 16 of Airbus’s latest A350s, plus 12 A380s.

Airbus will have 5-8 of the aircraft delivered by the end of 2016, according to Iranian officials.

> Obstacles to Airbus Deal Finalization

The Airbus deal, however, has yet to be finalized amid obstacles created by the US in the way of financing the accord.

Earlier in June, the European planemaker’s head of sales said concerns in the financial community about doing deals in Iran are hampering Airbus Group SE’s ability to close a multibillion-dollar aircraft pact with Tehran.

“We have to find ways to get money out of Iran through the banking system,” John Leahy, Airbus chief operating officer for customers, was quoted by The Wall Street Journal as saying. “While progress has been made, it has been slower than expected.”

Even as the US and European governments are now looking to foster transactions, banks remain reluctant to cut deals after facing fines imposed by US regulators on lenders when western sanctions on Tehran were in place.

Nonetheless, Abedzadeh said the final obstacle to the deal is not financing but the permit that has yet to be issued by the US.

More than 10% of parts used in Airbus planes are made in the United States.

“The contract’s financing is of no concern. We have reached agreements with several institutions in that regard. The only issue which has delayed the contract is the US Treasury Department’s permits,” he said.

Iran Air CEO Farhad Parvaresh earlier said the airline has reached “preliminary agreements” with a German bank to finance the accord, without specifying the name of the bank.

The work by Boeing and Airbus to reestablish Iran’s jet market goes beyond aircraft sales.

"Pilots and mechanics will need to be trained on modern aircraft and commercial channels opened to finance them," said Howard Rubel, a managing director at Jefferies LLC.

Under an Airbus deal, the company has agreed to provide Iran with information regarding airport upgrades. Airbus will support the modernization of Iran’s air traffic control services, airport operations and aircraft maintenance, and assist regulatory harmonization and technical and academic training of Iranian airmen.

Boeing on the other hand, is already reaping the benefits. Its shares rose less than 1% to $130.39 at Tuesday 3:54 p.m. in New York, bucking declines across major indexes. The stock had declined 10% this year through Monday, while the S&P 500 Index gained 1.7%, according to Bloomberg.

Aside from the American planemaker, Iranian airlines have also proceeded with other new plane purchases. Iran’s Kish Air—operating in the southern tourism and commercial hub of Kish Island—recently had its two secondhand Airbus planes delivered.

Also, 16 new passenger jetliners are scheduled to enter Iran’s fleet by the end of 2017, according to Iran's Civil Aviation Organization.