Boeing: Major Commercial Jet Order From Iran In The Cards?

The Boeing Co. (NYSE:BA) may get a huge order from Iran amid the ongoing recovery in light of the recent uptick in the country’s aviation market. According to Reuters, the company is presently in talks with Iran Air, the national flag carrier airline of Iran, for an order comprising over 100 jets, along with support for the latter’s old fleet.

Farhad Parvaresh, Chairman of Iran Air, said that discussions with Boeing to reach a mutual understanding are ongoing, and the companies are yet to finalize the number and model of the planes.

Other Deals Inked by the Iranian Airline

In Jan 2016, Iran Air signed a massive deal with Airbus Group (PA:AIR) SE (OTC:EADSY) to purchase 118 jets worth $27 billion at list prices. The order comprises 73 wide-body and 45 single-aisle aircraft. The deal is, however, subject to certain conditions and regulatory hurdles that are yet to be resolved.

Iranair is also discussing potential orders with a number of other global aviation companies like Bombardier Inc. (OTC:BDRAF) and Embraer SA (NYSE:ERJ) .

Factors That May Hinder the Deals

In 2015, Tehran, along with six major powers, the UK, France, Germany, Russia, China and the U.S., made a deal – the Joint Comprehensive Plan of Action (JCPOA) – to lift few major western economic sanctions on Iran. In exchange, Iran will drastically reduce its nuclear activities.

In early 2016, Boeing received a nod from the U.S. government to begin discussions regarding the sale of commercial planes to Iran. However, the company will need the approval of the Department of Treasury for the deal and will have to apply for a second license.

Airbus also needs to obtain an export license for its Iran Air deal, seeing that over 10% of the parts of the company's planes are built in the U.S.

Apart from the license issue, another issue that needs to be addressed is that of currency. Based on allegation related to Iran’s association with terrorism as well as Tehran's ballistic missile program, the country was not allowed to access U.S. financial systems. This can become a major problem as both the Boeing and Airbus deals are in terms of dollars and hence require financing from non-U.S. sources.

Parvaresh said that the company is currently in discussions with Airbus to allow Iran Air to pay for the deal in euros, followed by the airline’s payment to the financiers.

The Present Scenario at Iran Air

According to Parvaresh, Iran Air presently has a fleet of 250 commercial aircraft, out of which nearly 90 are grounded due to lack of replacement/repair.

Although the potential Iran Air-Boeing deal is supposedly “not bigger than Airbus,” the airline expects to renovate around 85% of its fleet by the next 10 years and will require at least 250–300 new commercial passenger aircraft for this purpose.

Boeing currently has a Zacks Rank #3 (Hold).

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