Tuesday, 28 March, 2017

Multibillion-dollar jet deals With Iran will test Trump policy

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By Robert Wall, The Wall Street Journal

European plane maker  Airbus Group SE followed  Boeing Co. in completing a multibillion-dollar plane deal with Iran’s state air carrier, creating another big test case for how the incoming Trump administration responds to the West’s accelerating economic opening with the Islamic Republic.

Airbus, the world’s No. 2 plane maker after Boeing, said Thursday it had completed an agreement—first announced in broad strokes in January—to sell 100 planes to Iran Air. The contract is valued at more than $18 billion based on list price, which doesn’t include sometimes-big discounts. Airbus said it would start delivering planes early next year.

The agreement comes close on the heels of Boeing’s deal to sell Iran 80 jets for $16.6 billion, based on list price. The two contracts are far and away the most valuable commercial agreements between Western firms and Iran since the completion of a nuclear pact between the U.S. and other world powers and Tehran. In exchange for Iran curbing its nuclear program, the international community agreed to lift many of the sanctions that have isolated Iran economically for years.

Since then, many Western firms have scrambled to assess opportunities, and a few have made concrete obligations with Iranian counterparts in industries including energy and auto manufacturing. Commercial aviation has been a particular priority for Iran, which has struggled to modernize its aging fleet of mostly Boeing jets, bought before the 1979 Iranian Revolution.

Uncertainty has heightened over the fate of many of these commercial inroads in Iran since the election of Donald Trump. On the campaign trail, Mr. Trump said he opposed the Iran nuclear deal. Critics in the U.S. Congress have said they would try to unwind the Boeing deal, in particular.

Boeing announced its own Iran deal earlier this month at an awkward time for the American plane maker. Mr. Trump had just recently publicly raised questions over the cost of Boeing’s government contract to build the next version of Air Force One, the presidential jet. Mr. Trump hasn’t weighed in publicly on Boeing’s contract with Iran, and he and his team haven’t detailed their position on the nuclear deal with Iran since the election.

Even though it is a European company, Airbus is vulnerable to any big shift in U.S. policy toward Iran. Airbus requires specific U.S. approval for the sales because its jets include many American parts and technology that are subject to American export controls. It received that approval, from the U.S. Office of Foreign Assets Control, earlier this year.

The U.S. has other levers that could make completing the Airbus transaction more difficult—for instance, forbidding any financing or payments to be routed through institutions with access to the American banking system.

Farhad Parvaresh, head of Iran Air, said in an interview that Airbus would “probably” finance some of the first planes to be delivered. Airbus didn’t disclose financing details. Iran has previously said it would finance a chunk of the two plane orders domestically and rely on foreign financing for the rest.

Airbus is also expected to deliver its planes to Iran Air much faster than Boeing. That could set up the Airbus deal as an earlier litmus test than the Boeing one for how Mr. Trump responds. Mr. Parvaresh said he expected three to four Airbus planes by March. One person familiar with the situation said at least one plane could arrive before Mr. Trump’s Jan. 20 inauguration.

In announcing its deal earlier this month, Boeing said booking the Iran Air sales in its official order book was still subject to “contingencies.” That caution is common with deals involving state-owned airlines. They can include final green lights from governments and often are linked to potential financing arrangements, said people familiar with the sales process. On Thursday, in its weekly order-book update, Boeing said it hadn’t yet included its Iran order in that tally.

Iranian officials said earlier this week they would seek repayment with interest on any money they paid for the Boeing jets if Washington interfered with the order.

For Boeing and Airbus, the Iranian purchases are a big help. After years of record orders by airlines for the newest planes, global appetite has been ebbing. Airbus booked only 410 net orders in the first 11 months of the year, compared with 1,007 for the same period last year. Boeing’s 468 plane orders through Dec. 13 also trail last year’s figures.

Airbus said the 100 planes would include a mix of 46 single-aisle A320 planes along with 38 A330 and 16 A350 long-haul planes.

The two orders will go a long way in upgrading Iran Air’s fleet, one of the oldest in the world thanks to sanctions. Still, absorbing all those new aircraft pose other challenges.

Sanctions have also left the country with an antiquated airport and air-traffic management infrastructure.

Airbus said Thursday that as part of the deal, it would provide pilot training and other help upgrading the country’s infrastructure.

Fabrice Brégier, who heads Airbus’s commercial plane-making unit, called the package “a significant first step in the overall modernization of Iran’s commercial aviation sector.”

Source: WSJ

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