Domestic Economy

CEO: Boeing Making Progress on Plane Deal

Boeing is in the final stages of working through the deal structure with Iranian companies while also working through the US government licensing process
Boeing Chief Executive Officer Dennis Muilenburg
Boeing Chief Executive Officer Dennis Muilenburg
Boeing won’t deliver any aircraft this year, as these deliveries are a year, two, three downstream

American aircraft maker Boeing is making progress on a deal to provide more than 100 commercial airplanes to Iran, though none will be delivered in 2016, the company’s top executive said on Tuesday.

The deal is part of efforts to rebuild Iran’s aging fleet, an agreement included in a 2015 pact between Tehran and six world powers to lift most western sanctions in exchange for limiting Iran’s stockpiles of substances that could be used to make nuclear weapons.

“We won’t deliver any aircraft under that deal this year; these are deliveries that are a year, two, downstream,” Reuters quoted Boeing Chief Executive Officer Dennis Muilenburg as saying on the sidelines of a conference in Chicago on future technologies.

“But it’s a significant opportunity for us and I’m pleased to see that we’re making steady progress.”

The announcement comes as Iranian officials have said they expect delivery of a few Airbus planes by the end of 2016.

Iran announced plans in January to buy 118 jets worth $27 billion at list prices from Europe’s Airbus, but has complained about unexpected delays in receiving US licenses that are needed due to the large number of US-supplied parts.

The Airbus accord covers 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. Iran later said it may not include the A380s in the order.

Boeing has also agreed to provide jets to Iran as it emerges from sanctions.

Frustrated with the delays, an Iranian official said last month that the Airbus deal could be reduced by six airplanes and the Boeing deal could be clipped by one jet to 108 aircraft instead of 109.

Muilenburg said Boeing is “in the final stages of working through the deal structure with our customers in Iran” while also working through the US government licensing process.

A new round of talks between Iranian airlines and the French and the American plane manufacturers kicked off late-September in Tehran, after they said they had the US administration’s permits to do business with Iran.

On September 21, US Treasury Department Office of Foreign Assets Control allowed Boeing to sell more than 100 planes to the Islamic Republic, while granting Airbus licenses to start exporting the first 17 jets of its Iran order.

Boeing’s government approval came for the first time in almost 40 years, paving the way for the biggest business transaction between the two nations since the 1979 Islamic Revolution.

Boeing’s last airplane deliveries to Iran consisted of 747 jumbos that arrived in 1977, two years before the revolution, according to the company’s website.

The Islamic Republic’s flag carrier would add more of the iconic, humpbacked 747s, as well as 777 and upgraded 777X wide-body jets under a $17.6 billion order for 80 Boeing aircraft. The US manufacturer is also helping Iran Air line up another 29 planes from leasing companies.

The company faces risks and uncertain rewards, as it vies with Airbus to replace Iran’s aging fleet. Congressional opponents have vowed to block the exports. Boeing may also need to leave wiggle room to back out of any potential orders if the next US president decides to reinstate sanctions.

Most noticeably, Airbus has an immediate numbers advantage relative to Boeing in terms of aircraft purchases. Airbus’s initial amount is 40% higher than Boeing’s as a consequence of Airbus submitting its licensing application sooner and receiving “first mover” advantage.

However, this agreement comes with some important caveats. Any aircraft that the two companies sell to Iranian airlines must be used for the sole purpose of commercial passenger flights. Typically, aircraft are not retired once they exceed a certain number of flight hours as passenger jets. Older aircraft are regularly turned over for use as freight transporters, which help squeeze out additional service life.

Nonetheless, as per the terms of the agreement, these aircraft are restricted from eventually undergoing this conversion. Moreover, resale to any entity or organization that remains under US sanctions within the country is expressly prohibited. As these provisions can realistically chip off some of the intrinsic value of these aircraft, the financing element also becomes more complicated.

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