Boeing nears historic deal with Iran for about 100 jetliners

The transaction would be the first struck by the planemaker since sanctions were lifted on Iran in January and would require US government approval

Julie Johnsson, Golnar Motevalli, Kambiz Foroohar
Updated15 Jun 2016
The Boeing Co. 737 MAX 9, a more fuel-efficient variant of the world&#8217;s most widely flown jetliner. Photo: Bloomberg<br />
The Boeing Co. 737 MAX 9, a more fuel-efficient variant of the world&#8217;s most widely flown jetliner. Photo: Bloomberg

Chicago/Tehran/New York: Iran is preparing to unveil a historic agreement for Boeing Co. jetliners within days that could be valued at about $25 billion.

The transaction would be the first struck by the planemaker since sanctions were lifted in January and would require US government approval. An order listed at $27 billion announced by Europe’s Airbus Group SE also needs a US Treasury department license before it can be finalized. Buyers typically negotiate discounts from list prices.

Boeing is poised to land a comparable deal if the US company can navigate the appropriate government permissions, chief executive officer (CEO) Dennis Muilenburg said in a 3 June address at the Bernstein Strategic Decisions Conference in New York.

“You can anticipate that that’s potentially a 50-50 kind of marketplace for Boeing and Airbus, and we’re going to battle it out competitively,” Muilenburg said. Referring to Airbus’s 118-plane order, “we see market space that’s measured in that category,” he said.

Since trade barriers were lifted as part of a nuclear agreement, Iran has been on shopping spree for commercial jets. The market is a bright spot for the planemakers as economic turmoil saps demand in other regions.

Political backlash

A deal could spark political backlash, given Iranian leaders’ penchant for anti-US and anti-Israeli rhetoric. Boeing also may need to leave wiggle room to back out of any potential orders if the next US president decides to reinstate sanctions. There’s also no assurance that all the orders will materialize, since Iran’s carriers face competition from Persian Gulf counterparts.

“It’s grist for the mill for everyone involved,” Richard Aboulafia, an aerospace analyst at Teal Group, said in an interview. “The Iranians love splashy announcements to use as leverage. Pro-nuclear-deal politicians in the US and Europe love it as proof of opportunity. Conservatives love to use it as a sign of political weakness.”

Minister Abbas Akhoundi in an address on Monday to Parliament referred to a Boeing agreement “within the coming days,” according a statement on the ministry of roads and urban development website. He said the country needs to invest about $50 billion to bolster its fleet with 400 mid- and long-range jetliners and 100 short-haul planes.

Stock climbs

Boeing’s shares rose less than 1% to $130.39 at 3:54 pm in New York, bucking declines across major indexes. The stock had declined 10% this year through Monday, while the S&P 500 Index gained 1.7%.

The planemaker has held discussions with Iranian airlines “about potential purchases of Boeing commercial passenger airplanes and services,” spokesman Tim Neale said by e-mail.

“We do not discuss details of ongoing conversations we are having with customers, and our standard practice is to let customers announce any agreements that are reached,” he said.

The work by Boeing and Airbus to re-establish Iran’s jet market goes beyond aircraft sales. Pilots and mechanics will need to be trained on modern aircraft and commercial channels opened to finance them, said Howard Rubel, a managing director at Jefferies LLC.

Boeing isn’t “declaring victory,” he said. “They’re being very understated about it. Lots of things can still go awry. But it sounds like there’s been real progress.” Bloomberg

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