[UPDATED with comment from Bombardier]
We have previously reported that Iran is the next exciting market opportunity for the OEMs. It won’t be as big as China or Russia. But there is pent up demand and there is a money – a lot of money. Mohammad Khodakarami, the director of Iran’s Civil Aviation Organization, is quoted as saying the country needs 80-90 aircraft per year for the next five years.
What are we looking at here? As of the end of 1Q15, Iran had 207 commercial jet aircraft in service and another 46 parked. So acquiring 80-90 per year clearly shows pent up demand to grow the fleet. The chart below lists what we can find for Iran’s commercial fleet as of the end of 1Q15.
Digging deeper we can see virtually the entire current fleet is ready for replacement. The youngest Airbus is an A321 at nearly 15 years old. The youngest Boeing is a 19 year old 757-200. Even in a world with low (and going lower thanks to Iran oil exports coming on stream again) fuel prices, the MRO costs for these old aircraft must make them unattractive. Replacement is there not only attractive, it is probably necessary. Iran’s aviation safety record certainly supports this thesis.
Given that the suppliers cannot deliver as much as Iran needs/wants, deals will probably be prioritized. Iran has said they will buy “equally from Airbus and Boeing”. That suggests a focus on the 150+ seat segments. It also signals a deliberate policy to get the big duopoly to fight for every deal.
Looking at the 150-200 seat segment first, we see Iran’s fleet looks like this. There are 69 aircraft to replace.
The table shows that Airbus and Boeing should be able to split this market. Airbus has the advantage in this segment because so many airlines are familiar with their A320 family already.
If Boeing were given priority replace the Douglas aircraft plus keep the customers they have, then Boeing gets twice the business compared to Airbus.
Since Airbus is still pushing for the A319 and Boeing seems more focused on the 737-800 size, this may play a role in replacement selections.
It will be interesting to see just how equal the ordering will be. Of course these airlines may have their own ideas as to which aircraft they want.
Judging by how small some these airlines are, we expect to see some consolidation take place. This will also mean some fleet rationalization. Such a move is likely to also mean a switch to larger aircraft.
Since this segment accounts for a third of the national fleet, an OEM equality might be spread across more than this segment.
The next segment is above 200 seats. Here we have 55 aircraft and Airbus is way ahead with 52 in service. As the table below shows, Airbus’ older twins are still popular. However, the Iranians will be aware that in terms of widebodies, Boeing has the wider selection. We expect the Iranians to focus on long range twins for their fleet replacement over 200 seats.
Last week’s intriguing decision by Airbus to get Singapore Airlines to give back some A350 delivery slots could be playing out here. The widebody aircraft are where the big money is and Airbus will be keen to get the A350 into the Iranian fleet. Given its present footprint, Airbus will be determined to keep its advantage. Early delivery slots on the A350 will be compelling. It also has A330neo slots it will use to win deals.
Even so, Boeing has a number of 777-300ER slots it can do aggressive deals on. We would expect Boeing to be as aggressive as anything Airbus offers and Boeing can increase 777 production rates to meet demand. Boeing may be more flexible here than Airbus which is a distinct advantage.
Finally we take a look at the turboprop and regional segments. Once again we see that pretty much the fleet is at replacement age. ATR has the jump on Bombardier in the turboprop segment. For Bombardier to enter this market likely demands some creativity with its families of aircraft. Colin Bole Senior Vice President, Sales and Asset Management at Bombardier Commercial Aircraft shared this view: “While we are mindful that sanctions are still in place, we do foresee significant opportunities in Iran as its commercial aviation sector is on the cusp of a major fleet renewal and growth. When the timing is right, we will focus on opportunities in the region – where the airline industry is in various stages of development. We expect Iran will require aircraft with various seat capacities and competitive operating economics to match passenger demand in what is already an increasingly competitive market. Bombardier’s C Series jetliners, the CRJ regional jets and the Q400 aircraft are perfectly suited to meet the need for fuel-efficient, comfortable, technology-advanced aircraft which we look forward to providing when embargoes are lifted.”
Embraer will be dogging the same deals Bombardier is chasing. Paulo Cesar Silva, President & CEO, Embraer Commercial Aviation shared this thought: “With a population of 80 million people, Iran is certainly an important market for aviation with a big need to re-fleet its jet fleet. We are sure that Embraer ‘s products may play an important role to help airlines to develop their business plans in the 70 -130 seat category very efficiently. At the right moment, when the embargo is lifted, Embraer will tap the market and start to develop relationships with the airlines.”
There are 83 replacements and almost certainly there is going to be growth as the economy picks up with feeder traffic into the hubs. The Fokker fleet represents 70% of this market and is no doubt going to be see Fokker services plus Rolls-Royce try to hold them in place as long as possible.
On the other hand, Iran is likely to create the same excitement at the small duopoly. There is a report that Iran is not interested in looking at any Russian equipment. Which is unfortunate because the Superjet could be useful. However, if the Iranians consider the MRJ, they may have to wait longer than they are ready to do. Which brings us back to the small duopoly.
Finally a report suggest that Iran’s Mahan Air is the airline with the biggest pending orders. Of this airline’s 44 aircraft, 29 are widebody and 15 are in the regional category. Seventeen of its widebodies are aging A330s. Perhaps this is the area they will focus on first.
Great analysis. But note that Mahan is still on the SDN List for terrorism – rather than nuclear – sanctions. So, as things stand, Boeing and Airbus will not be able to sell them anything. It’ll be interesting to see if that changes, as Mahan is the largest airline in the country in terms of operational fleet (Iran Air has grounded a lot lately).