Boeing and Iran Air finalized a deal for the carrier to acquire 80 aircraft. The deal calls for delivery of 50 737 MAX 8s, 15 777-300ERs and 15 777-9s, valued at $16.6 billion at list prices and follows on a Memorandum of Agreement reached in June. The first aircraft from the order is scheduled for delivery in 2018.
Boeing is keen to call out its compliance with all license requirements as it proceeds through the sales process. It also emphasizes the jobs associated with manufacturing the aircraft. This is a concerted effort to build support for the deal, a challenge in the current political climate. While current policy does permit the sale of these aircraft (and also a similarly sized Airbus order with many US-sourced components) a large and growing cadre of politicians does not want to see such a transaction. Less than a month ago Republicans in the US House of Representatives voted to block any such sales. While President Obama indicated he would veto such a law if it made it to the Oval Office the Senate did not take action on it. It is unlikely the incoming Trump administration would be similarly opposed to the restrictions so there is still plenty of risk associated with this order.
First delivery to Iran is 2018 – a 777-300ER. Export licenses last 4 years – should see most of the deal in Boeing's backlog soon, not 777X.
— Jon Ostrower (@jonostrower) December 11, 2016
Assuming the deal holds it is all sorts of good news for Boeing, particularly on the 777 line. Adding the additional 15 frames to that order book helps with near-term deliveries and bridging the gap to the 777X manufacturing ramp up.
No word yet on how the planes will be financed. This is the sort of deal the Ex-Im bank historically likely would have facilitated. That’s not going to happen this time around since the Ex-Im bank is essentially dead thanks to Congress. And the financing part of the deal is arguably as important as the export licensing in terms of bringing the deal to fruition. Typically Boeing does not provide financing on an order, expecting the airline to arrange such on its own. Does Iran Air have the cash to buy the planes outright? Can it secure a lease supplier?
Also important to note is the safety aspect associated with the order. Getting new aircraft into the Iranian fleet is critical for improving reliability and safety for the airline and for passengers. Rather than flying 40-year old planes with minimal spare parts available the carrier can fly modern aircraft with plentiful supplies and trained maintenance technicians around the world. Separate from the politics in play that’s a very, very important consideration.
I’ve also previously questioned the “shopping spree” nature of the country’s order plans. The 80 planes from Boeing are in addition to more than 120 from Airbus, a fleet shift that is much more explosive growth than simply renewal. And betting on Tehran becoming the next major connecting gateway for passenger traffic is a tricky proposition, especially given the competition in the region. Blame politics for Turkish Airlines slowing its growth and you still have Qatar Airways, Emirates and Etihad to contend with. And they all have a significant head start. Plus, it isn’t like Turkish is halting operations completely; it still serves more countries than any other carrier. Tossing a few dozen more new wide-body aircraft into the region could create havoc for network planning and revenue management at other airlines around the world.
So, yes, great news for Boeing and Iran Air, assuming frames are actually delivered. But even with the new announcement this weekend Boeing is reserving the numbers from its formal order book, saying that “The order will be posted on Boeing’s Orders & Deliveries website as contingencies are cleared.” I’m sure they’ll be listed there soon enough. Deliveries, on the other hand, are not so certain.
Header image of 777-9 rendering courtesy of Boeing
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