The Forum for Partners in Iran's Marketplace

June 2017, No. 84

Trade & Business

Airbus, Boeing Seal Deals with Iran for Sale of 180 Aircraft

“I am delighted that we have reached an agreement to go to the next decisive phase and start taking delivery of new aircraft,” Farhad Parvaresh, Iran Air Chairman said.

Europe’s Airbus signed a firm contract on December 22 to sell 100 jets to Iran Air, completing a return by Western plane giants and paving the way for deliveries to start in January, a year after sanctions against Iran were lifted.

The deal took weeks of shuttling between Airbus headquarters in Toulouse, France, and Tehran, complicated by a shortage of expert legal advice as Iran completes its biggest commercial deals with the West since its 1979 Islamic Revolution.

The agreement signed by Farhad Parvaresh, Iran Air Chairman and CEO and Fabrice Bregier, Airbus President and CEO, covers 46 A320 Family, 38 A330 Family and 16 A350 XWB aircraft. Deliveries will begin in early 2017.

“I am delighted that we have reached an agreement to go to the next decisive phase and start taking delivery of new aircraft. I am gratified that this new round of cooperation with Airbus has come to fruition and brought us closer with more practical steps to follow for Iran Air’s fleet renewal. Iran Air considers this agreement an important step towards a stronger international presence in civil aviation. We hope this success signals to the world that the commercial goals of Iran and its counterparts are better achieved with international cooperation and collaboration,” said Parvaresh.

“This is a landmark agreement not only because it paves the way for Iran Air’s fleet renewal”, said Bregier. “Our overall accord includes pilot training, airport operations and air traffic management so this agreement is also a significant first step in the overall modernization of Iran’s commercial aviation sector”.

The agreement is subject to US government Office of Foreign Assets Control (OFAC) export licenses which were granted in September and November 2016. These licenses are required for products containing 10 per cent or more US technology content. Airbus coordinated closely with regulators in the EU, US and elsewhere to ensure understanding and full compliance with the Joint Comprehensive Plan of Action (JCPOA). Airbus will continue to act in full compliance with the conditions of the OFAC licenses, according to a press release posted on Airbus Company website.

The agreement follows the implementation of the JCPOA, its associated rules and guidance and included new commercial aircraft orders as well as a comprehensive civil aviation package. The package includes pilot and maintenance training, supporting the development of air navigation services (ATM), airport and aircraft operations and regulatory harmonization.

As the world’s leading aircraft manufacturer, Airbus offers the most comprehensive range of passenger airliners from 100 to more than 600 seats. Airbus has design and manufacturing facilities in France, Germany, the UK, and Spain, and subsidiaries in the US, China, India, Japan and in the Middle East. In addition, Airbus provides the highest standard of customer support and training through an expanding international network.

Airbus said almost half the jets would be for short to medium routes and that deliveries would start early next year.

Such a deal would worth $18-20 billion at list prices, depending on variants flown, but Iran is expected to receive steep discounts from foreign manufacturers as its aviation renewal coincides with a drop in demand elsewhere.

The Iran Air chief was quoted earlier as saying the value of the contract would not exceed $10 billion.

It is expected to be followed by a formal deal to buy turboprop aircraft from ATR, half-owned by Airbus. 

Boeing Deal

The breakthrough comes days after Iran signed a $17 billion deal with Boeing for 80 jets and is expected to sharpen efforts by the U.S. company to persuade the incoming U.S. administration to allow the trade to go ahead, aviation experts said.

The first jet, an Airbus A321 already painted in Iran Air livery, may arrive before the Jan. 20 inauguration of President-elect Donald Trump, who has opposed an international deal to lift sanctions in return for curbs on Iran’s nuclear activities.

“When Airbus and ATR aircraft start going into Iran, Boeing will point to that to argue that it should implement its own deal,” said an aviation source who closely followed the talks.

“Today is a historic day. . . that after 41 years, Iran Air and Boeing ink this deal,” said Abbas Akhoundi, Iran’s Minister of Roads and Urban Development at the ceremony. “It has a clear message for the world. . . by which businessmen are telling the world that they support peace, calm and development of humanitarian affairs.”

The Boeing sale includes 50 737 MAX 8s, 15 777-300ERs and 15 777-9s, the largest of its newest long-haul jet. The aircraft will be delivered over the next decade with the first arriving in 2018.

The deal will be a welcome boost to Boeing’s efforts to bridge the transition from its current generation 777 wide-bodies to the new re-engined 777X version. It also gives Boeing’s new generation 737 MAX a welcome boost in the face of fierce competition from Airbus’ A320 narrow-body family, which has been taking the majority of single-aisle orders.

However, Iran Air is equally buying a mix of new and current generation aircraft from Airbus in two stages — both of which have been granted approval by US authorities.

Boeing said it “coordinated closely with the US government throughout the process leading up to the sale and continues to follow all license requirements as it moves forward to implement the sales agreement”.

Iran has said it needs 500 new aircraft to renew the country’s ageing fleet, which includes some of the oldest models still in operation globally. Iran has said that only 12 passenger aircraft out of 250 were less than 15 years old. 

Moving Quickly

Despite rivalries, the Airbus and Boeing deals with Iran are unusually intertwined because each depends on continued U.S. clearances for the sale of planes built with U.S. parts.

“Everyone has an interest in moving quickly. The Iranian government wants to show results from the nuclear deal; Airbus wants to get deliveries moving and Boeing wants the leverage it can get from European deliveries to Iran,” another source said.

Republican critics of the nuclear pact want Trump to block the aircraft deals and have sought to hamper them by voting to tighten restrictions on use of the U.S. financial system.

Airbus is expected to be paid in euros instead of the usual dollars and is likely to provide its own financing for the first few jets, adding to cash strains caused by a spike in customer financing for Turkey this year.

However, both sides confirmed the Airbus A380 had been jettisoned from a provisional list first agreed in January.

Reuters first reported in June that the original proposal for 12 A380s - seen as a symbol of Iran’s determination to catch up with Persian Gulf rivals and a shot in the arm for Airbus as it struggled to sell the world’s largest airliner - was threatened by domestic opposition in Iran.

U.S. regulatory delays further reduced the order by six planes, lowering the total order to 100 from 118 jets. 

Test for Trump, Rouhani

Financial sources said Boeing has a financing plan for 15 777-300ER jets, which are expected to be delivered from 2018, but the rest of the financing may still have to be negotiated.

The deal could also test relations between America’s top exporter and U.S. President-elect Donald Trump, days after he complained about the cost of new Boeing “Air Force One” jets.

Because of the length of the 10-year deal, some U.S. export licenses may need to be extended during Trump’s administration. The president-elect, who opposes last year’s nuclear sanctions deal with Iran, has also rattled Boeing by sparring with China, which accounts for a fifth of the company’s deliveries.

A Boeing statement said the Iranian contract would support tens of thousands of U.S. jobs for the 777-300ER jets and nearly 100,000 U.S. aerospace jobs for the whole package.

The acquisition of modern planes is an important achievement for President Hassan Rouhani, who pledged when elected three years ago that he would negotiate a nuclear deal to help alleviate the economic privation caused by sanctions.

Proponents of the agreements with Boeing and Airbus hope that Trump will judge the deals by the gains they provide for employment and exports.

Observers say when Boeing and Airbus come forward with these massive deals, with these jobs, it will have an impact on the U.S. economy.

In Iran the deal is also viewed as a crucial political test for the government of pragmatist president, who has been criticized by hardliners opposed to opening up to the West.

The first Airbus aircraft are expected to reach Iran in 2017. Iran’s presidential elections are due in May.


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  June 2017
No. 84