Boeing’s $9.5 billion Iran deals, always uncertain, are now effectively dead

Following President Donald Trump’s scrapping of the Iran nuclear deal Tuesday and his imposition of what he called “powerful” sanctions, Boeing’s prospective sale to Iran of jets worth $9.5 billion is effectively dead for the foreseeable future.

For Boeing, it’s a lost opportunity rather than a blow to current plans.

Two Iranian deals for 110 aircraft got the go-ahead in the waning days of President Barack Obama’s administration in 2016.

But given Trump’s hawkish views on Iran before he took office, Boeing always saw the deals as tenuous. It has not delivered any airplanes and never firmly booked the orders.

In a statement immediately after Trump’s announcement, Boeing said it “will consult with the U.S. Government on next steps. As we have throughout this process, we’ll continue to follow the U.S. Government’s lead.”

The potential sales were an order from Iran Air for 50 single-aisle 737 MAX 8s, 15 large current model 777-300ER widebody jets and 15 next-generation 777-9X widebodies, plus an order from Iran Aseman Airlines for 30 MAXs.

At list prices, those are valued at just shy of $20 billion. However, according to market pricing data from aircraft-valuation consultancy Avitas, the true value after standard industry discounts is about $9.5 billion.

While the 777 and 777X orders in particular would have been very welcome to help sustain Boeing’s 777 production rate in Everett and to bolster prospects for the new 777X, chairman and chief executive Dennis Muilenburg said last month that production plans would be unaffected if the Iran deal were killed.

“We have no Iranian deliveries that are scheduled,” Muilenburg told Wall Street analysts on Boeing’s first-quarter earnings conference call. “The plan that we outlined for you, the production rate that we’ve put in place, is not dependent on the Iranian orders.”

In contrast, rival European jet maker Airbus, which won orders for 98 aircraft worth about $8.4 billion from Iran, formally added those sales to its order book and rushed to deliver the first airplanes as soon as it was legal.

Since the deal was cleared, Airbus has delivered three jets, one A321 and two leased A330s, to Iran.

But Airbus likely won’t be able to take further competitive advantage.

U.S. sanctions will probably bar further deliveries of Airbus planes to Iran because all of the jets contain a significant amount of U.S. parts.

The U.S. Treasury Department, which controls licensing of exports, said the United States after a 90-day wind-down period will no longer allow the export of commercial passenger aircraft or parts to Iran.

U.S. Treasury Secretary Steve Mnuchin said Tuesday that the licenses granted to Airbus and Boeing under the original Iran deal will be revoked.

In a statement Tuesday, Airbus spokeswoman Mary Anne Greczyn said the company is “carefully analyzing the President’s announcement and will be evaluating next steps.”

She said Airbus will remain “in full compliance with U.S. sanctions and export control regulations.”

Richard Aboulafia, aviation analyst with the Teal Group, said Airbus sales to Iran are now a “legal gray area.”

While the Airbus deal is not necessarily totally dead, prospects for filling it are “not great,” he said.

Longer term, looking ahead to when Iran may one day be free to trade without restrictions, Bloomberg Intelligence analyst George Ferguson said it’s possible Airbus would benefit from Europe’s less fraught relationship with Iran.

“Airbus is likely to take greater market share in Iran over the long run,” Ferguson wrote Tuesday. “The Europeans have built strong relationships with the Iranian government and were quick to enter the market upon the lifting of sanctions … Iran probably feels more comfortable trading with Europe.”

For now, Aboulafia said, Iran will likely be forced to fall back again on efforts to acquire newish aircraft through expensive third-party transfers from holding companies in semi-neutral countries.

He also said that while Boeing’s prospects for the 777 and the 777X are indeed cause for concern, “it’s not much to do with Iran.”

Industry sources say some of the larger airlines that have ordered the new model 777X are seeking deferrals of the initial deliveries. Aboulafia said it now looks like it will take a long time for the 777X to get close to the 2016 production rate on the 777, of 100 airplanes per year.

A slower-than-expected introduction of the 777X will also extend the slots that need to be filled with the current model 777. So, despite Muilenburg’s assurances, Teal Group now projects 777 production going even lower, from 3.5 deliveries per month now down to 3 per month.

Even if the Iran sales had happened, Aboulafia said, they wouldn’t have significantly changed that outlook.