The Boeing-Iran Deal
Boeing and Iran have finalized the terms of a transaction for 80 aircraft with a list price of $16.6 billion. The transaction includes 50 737s and 30 777s to be delivered from 2018 to 2028. But just when you thought it was safe to sell airplanes to Iran again, politics is once again coming into play.
The political intrigue surrounding the deal is interesting, with the change of US administrations and Donald Trump becoming President. The President-Elect has been critical of the recently negotiated agreement on nuclear power with Iran, and will likely seek to re-negotiate or cancel that treaty, and potentially re-introduce economic sanctions. That would certainly drive Iran into the arms of Airbus.
However, when Iran previously announced the purchase of 118 aircraft by Airbus, Trump was critical of the announcement suggesting that the US would not get its fair share of aircraft purchases. Considerable uncertainty remains regarding the transaction going forward.
US companies have been prohibited from dealing with Iran for nearly 40 years, and Republican members of congress have introduced legislation that would prohibit US banks from participating in the deal. Iran and Boeing have indicated that the aircraft will be financed outside of the US banking system, circumventing that potential legislation. But will other legislation follow in 38 days when Mr. Trump takes over that could block the deal?
Having seen the impact of his tweets on Carrier and Ford, Boeing has publicized the impact of the order on aerospace jobs, estimating that the 777-300ERs would support “tens of thousands of jobs” and that the overall order would contribute to 100,000 jobs for the industry as a whole. This is an attempt to place the deal into a more favorable light, knowing that the administration may not permit the deal to go through.
With the deal bypassing the US financial system, heavy job creation, and Boeing obtaining a nearly equal share of orders as Airbus, Boeing is attempting to get all of the dominoes in place before the President-Elect is in office and could revisit the nuclear deal. On the Iranian side, the success of this deal is critical for moderate President Hassan Rouhani, who has been criticized for moving too close to the west in the wake of the nuclear accords. He faces re-election next May, and negation of the Boeing order could lead to a more hard-line Iranian government.
The Bottom Line: There are some tough politics going on here. Typically, when both sides are unhappy with a political deal, it is a good compromise. But if second thought prevail, this deal, and given US content on aircraft, the ATR and Airbus deals also may not happen. Clearly, the very old Iranian fleet needs replacement, from a safety point of view if nothing else. But given the unpredictable nature of the incoming President, we aren’t optimistic that this transaction will happen.