Insight: Monday 11 January 2021: Could Tehran Save Boeing?

News It isn’t a secret that Joe Biden will have a much different administration than Donald Trump. Among the policies that will likely change is the new administration’s stance on Iran and whether the US should rejoin the 2015 Joint Comprehensive Plan of Action on Iranian nuclear testing and operations. The Trump administration was concerned about certain restrictions eventually expiring and thus enabling the potential development of nuclear weapons, causing him to pull the US out of the plan. The opposition believed that to be a mistake, and have now regained power. The one country in the world that needs, and can likely afford, new aircraft is Iran. Having been blocked economically from purchasing Boeing or Airbus aircraft due to economic sanctions and restrictions on aerospace components, the country is currently operating a mis-mash fleet that includes a number of 40 year old aircraft that require heavy ongoing maintenance and present potential safety risks. Flying on an airline in Iran requires strong faith in the mechanics who maintain the aging aircraft. Boeing is currently in a bind, partially of its own making, and needs new orders for the MAX, the 787, and the forthcoming 777-X. The combination of the MAX crisis, 787 quality issues and 777-X delays that have coincided with the global pandemic have crippled the company’s cash flow. The outlook for Boeing commercial in 2021 is not good, and the company certainly needs a major order and some good news. But in the midst of a pandemic, those orders are not likely to be forthcoming. Analysis The Obama administration played an integral role in the negotiations of the JCPOA agreement, and the Obama administration sent $1.7 billion to Iran in settlement of a decades-old arbitration agreement. It is likely that Biden will return the US to more favorable policies towards Iran than the Trump administrations. For a brief time in 2016, after the JCPOA agreement, President Obama lifted the sanctions against Iran, only to have them restored under Donald Trump in 2018. During that interim lull, Airbus and ATR were able to deliver some new aircraft to Iran, but the door closed before major orders could be placed and larger aircraft delivered. As a result, the need for new aircraft, both narrow-body and wide-body, remains critical in Iran. Boeing has a major cash flow problem in 2021. The company had built more than 450 737 MAX aircraft while the aircraft was grounded that it must deliver to customers during a pandemic in which customers do not need the aircraft and are asking that deliveries be deferred. Boeing also had more than 1,000 MAX orders cancelled in 2020, and the new order backlog for narrow-body aircraft has Boeing trailing with under 40% of the outstanding orders. With Airbus having gained a 60/40 advantage and Boeing needing to move aircraft quickly, the only potential short-term customer would be Iran. Boeing is also suffering from quality issues on the 787, as it was discovered that panels are not fitting together well. This is resulting in substantial rework. At the same time, due to cancelled orders, Boeing has a number of “white-tail” aircraft that currently have no customer and need to be sold. Iran could step in and take these aircraft quickly to replace their aging international fleet. Given the politics of the situation, it is quite likely that Iran would prefer to purchase Airbus aircraft from Europe, which are also currently blocked due to US content. But lifting the crippling economic sanctions on the country could provide substantial benefits, and a tacit quid-pro-quo could benefit both countries. While the United States must abide by WTO agreements and restrictions and cannot dictate which company Iran should acquire aircraft from. And it is also quite likely that a joint order split between the two companies could also occur, given the significant US content on Airbus aircraft. The US would have the option to reinstitute sanctions should Iran choose not to “play ball” and order any aircraft from Boeing. Those economically crippling sanctions have been difficult for the Iranian people. There are geopolitical levers to pull that, while separate from any deal, could be used to influence the situation without necessarily violating WTO rules. Should the Biden administration lift sanctions, with a tacit quid-pro-quo that Iran purchase a number of new airplanes from Boeing, it would certainly help Boeing and the local politics in Washington State and South Carolina. The boost for Boeing would be a piece of good news during the pandemic, and an order for 100 plus airplanes would enable a boost in the Boeing production rate just when it is needed the most. The Bottom Line The history of US foreign policy toward Iran is not pretty, and the overthrow of the elected Mohammad Mosaddegh’s government in a coup by the CIA and MI-6 in 1953 has been long remembered in Iran. Foreign policy since the overthrow of the Shah in 1979 has deteriorated, with crippling economic sanctions having severe impacts. Perhaps the new administration will provide an opportunity to rethink the policies of economic sanctions, recognize the sovereignty of the Iranian government, and create win-win situations that can help our companies and workers here at home, while ensuring that Iran complies with their obligations under the JCPOA.

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