Sunday, February 07, 2016

Boeing Can Sell Planes To Iran, But Does Iran Want Them?

Rescue workers look through the wreckage of an Iran Air Boeing 727 plane that crashed in northwest Iran as it was making an emergency landing in 2011. More than 70 of the 106 on board were killed. Iran's aging airline fleet has had a poor safety record.

Iran and Boeing go way back. Boeing was the largest supplier of civilian aircraft to Iran before the country's 1979 Islamic revolution. And despite the fraught relations between the U.S. and Iran since then, Iran has kept flying those planes for decades.

As part of the recent Iranian nuclear deal and the lifting of sanctions, Boeing is once again permitted to sell planes to the Islamic Republic. And Iran desperately wants to start replacing its fleet of aging, worn-out commercial aircraft.

But don't expect any deals anytime soon. Just last week, Iran announced preliminary plans to buy 118 planes from France-based Airbus in a deal worth roughly $27 billion.

Boeing, which is based in Chicago, says it isn't rushing to get back into Iran, says spokesman Gordon Johndroe.

"There are many steps that need to be taken should we decide to sell airplanes to approved Iranian airlines. But for now, we continue to assess the situation," he says.

Dr. Adam Pilarski, vice president of Avitas, an aviation consultancy group, says Boeing is wise to be cautious in any deal with Iran.

The nuclear sanctions have been lifted, and the sale of commercial aircraft are allowed. But the U.S. is keeping some sanctions against Iran in place that are linked to human rights issues and terrorism. Pilarski says Boeing would need to clarify a number of things before working out a deal.

"There are various complicated legal issues that many lawyers have to go through," he says, adding "For example, could any of the technology on the new aircraft be used for military purposes?"

Boeing and Airbus compete fiercely around the world for airplane sales. But Pilarski says there's no need for Boeing to panic about getting beat to the punch in Iran. He says it's normal for a country buying aircraft to play two companies off each other for better price leverage in negotiations. Pilarski says it's likely Boeing is already quietly exploring a deal.

"I would be very surprised if Iran only buys airplanes from Airbus and none from Boeing. That would be a huge surprise to me. It doesn't make sense," he says.

Ardavan Amir-Aslani, a French-Iranian lawyer who is negotiating deals with Tehran for French companies says the Airbus deal isn't set in stone.

"The agreements that have been signed are not definite, final documents," he says.

Amir-Aslani says financing the Airbus deal is a challenge because it has to be done without using the U.S. financial system. U.S. banks are still barred from doing business in Iran, and most foreign banks have partnerships with U.S. banks. Amir-Aslani says there's a difference between announcing a deal with Airbus and having an actual contract in hand.

"We're talking about memorandums of understanding or letters of intent. So the actual implementation of these contracts is going to happen over time," he says.

Iran may have other more pressing needs for its money - from rebuilding its infrastructure to modernizing its oilfields. Richard Aboulafia, an analyst with the Teal Group, an aerospace consultancy, says Iran may decide to lease new planes, not buy them. He says losing a deal wouldn't affect Boeing too much.

"I don't think this matters a whole heck of a lot. I mean you're talking about an industry that pumps out 1,400 jets a year," he says.

Even if it doesn't sell planes, Boeing could make a lot of money another way. Many of those old jets that Iran is still flying are in desperate need of Boeing parts and maintenance, Aboulafia says.

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