Economy, Business And Markets

1st Airbus Delivery Next Month

Iran is prepared to fund the first $1 billion tranche for the planes in Airbus and Boeing contracts. Half of this will come from foreign financing and the rest will be raised from the National Development Fund and domestic sukuk issuance
1st Airbus Delivery Next Month
1st Airbus Delivery Next Month
Iran has dropped the A380 superjumbo from a draft deal signed with Airbus in Paris in January

Iran has finalized an agreement with Airbus to acquire 100 jetliners, the first of which is expected to be delivered in mid-January, Iran's deputy roads and urban development minister, Asghar Fakhrieh-Kashan, told Reuters on Monday.

The deal, split roughly equally between narrow-body and wide-body aircraft, will be signed in the coming days, possibly as early as Monday or Tuesday, he added.

"We have finalized negotiations with Airbus and any day we will be able to sign the deal in Tehran. We are expecting some final clearances and expect to sign today or tomorrow," he said in a telephone interview.

The deputy minister said Airbus will supply four types of aircraft: its medium-haul A320 and A321 aircraft and the long-haul A330 and A350.

> A380s Dropped From Deal

Fakhrieh-Kashan also confirmed Iran's decision to drop the A380 superjumbo from a draft deal signed in Paris in January.

Airbus suffered a blow to its already troubled A380 program when Iran, which had previously suggested it would buy the double-decker planes, said it had dropped the model as part of a wider fleet upgrade, Bloomberg wrote on Sunday.

"Iran reduced its order with Airbus to 100 planes in a contract that will no longer include A380s," Farhad Parvaresh, Iran Air’s chief executive officer, said in a press conference in Tehran.

This will shrink the original $27 billion deal for 118 jets, including 12 A380s. A team from Airbus is currently in Tehran for talks.

"Given there are now 100 planes in the contract, I don’t think that the overall value will exceed $10 billion, and that’s at the very most,” Parvaresh said. “The A330 was part of the deal from before and it still is, but there will be no A380."

Airbus has already cut production of its superjumbo by more than half, to one plane a month by 2018, as demand has dwindled.

Dubai-based Emirates is the only carrier to give the giant aircraft a major role in its fleet.

Iran, which is updating its aging fleet after US sanctions were eased, is one of the few remaining untapped markets in which the planemaker and rival Boeing are competing for orders.

> Financing Process

According to Fakhrieh-Kashan, Iran is prepared to fund the first $1 billion tranche for the planes in Airbus and Boeing contracts.

Half of this will come from foreign financing, primarily through a leasing company. The remaining half will be raised via various sources, including $330 million from Iran’s sovereign wealth fund called the National Development Fund and $120 million from a domestic sukuk issuance.

"Iran, which last week finalized a parallel deal with Boeing for 80 jets, has reached agreements with foreign leasing firms to finance a total of 77 aircraft, including 42 from Airbus and 35 from Boeing," he said.

"There will be at least two leasing companies."

Iran is buying planes to rebuild the aging fleet of flag carrier Iran Air under an agreement with major powers that lifted most international sanctions in return for restrictions on Iran's nuclear activities.

The timing of the first delivery suggests the Airbus A321 could arrive before the January 20 inauguration of US president-elect, Donald Trump, who has voiced opposition to the nuclear deal, and well ahead of Iranian presidential elections in May.

The US Treasury has granted export licenses to allow both deals to go ahead, a step required for both suppliers because of the heavy use of American parts in Boeing and Airbus jets.

Asked whether the deal could be derailed if Washington withdraws the certificates or imposes fresh restrictions on trade with Iran, Fakhrieh-Kashan said, "We are not concerned, although we should not ignore such a possibility. The fact is that Mr. Trump may impose certain new sanctions, but we would consider that to be a violation of the Joint Comprehensive Plan of Action (the formal name of the nuclear accord), which explicitly provides for the possibility of the purchase of aircraft and their sale by manufacturers."

> Iran Toughens Talks on US Jet Deal

Iranian officials publicly hardened their resolve to proceed with a multibillion-dollar deal to buy dozens of Boeing jets, threatening to claw back any lost money if the deal is scuttled after the inauguration of Trump, Wall Street Journal wrote on Sunday.

The officials touted the timing of the agreement to buy 80 aircraft with a $16.6 billion list price from Boeing—ahead of the start of Trump’s administration—as possibly making it more difficult to thwart the agreement.

“Both they [Boeing] and we were willing to reach the conclusion sooner, and fortunately it took place before the new government [in the US takes office],” Parvaresh said on Sunday. “Both sides are committed and there are scenarios in the contracts for violation of commitments or in case of force majeure to deal with those cases.”

Boeing also had reason to speed the deal along. The planemaker was eager to close before yearend so it could book the order in its closely watched annual tally.

Boeing has trumpeted the deal as one that would help keep its US workforce building aircraft for export.

The timing of the jet deal risked making Boeing a target of the president-elect. But despite Trump’s outspoken opposition on the campaign trail to the international deal that lifted sanctions on Iran in exchange for curbs on its nuclear program, he has not weighed in significantly since his Nov. 8 election.

Iranian officials, providing fresh detail about the deal on Sunday, appeared eager to bolster the bona fides of their contract with Boeing. They said they were confident of winning financing for the purchase.

Fakhrieh-Kashan said that if sanctions are reimposed, invalidating the contracts with Airbus and Boeing, “we will take back all the prepayments, with interest”.

Airlines typically make regular installment payments to the two big planemakers as they build the aircraft, though the bulk of the money changes hands on delivery.

Still, the so-called pre-delivery payments are a key source of cash flow for both companies.

Fakhrieh-Kashan said Iran would make an initial payment of about $226 million for the first 15 Boeing planes, but didn’t say when.

No money has yet changed hands.

Iran Air is aiming to buy about 200 jets from Boeing and Airbus to revamp its aging fleet amid years of economic sanctions over its nuclear program.

US lawmakers opposed to closer ties with Iran have tried to block the deal by barring US banks from financing the accord, though overseas lenders provide the bulk of funding for Boeing customers.

Parvaresh said Airbus would deliver seven or eight planes next year. Boeing deliveries would n0t start until April 2018.

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