At a time, when according to several well informed local media, the IMF is concerned about the GCC countries’ governments apparent reluctance to up deficit reduction measures, saying an additional substantial deficit reduction effort is required in the region and the World Bank lowering the same countries growth forecasts due to persisting lower than expected oil prices, Iran has recently launched a ginormous shopping spree for passengers airplanes. Reuters reported on 6 June 2016 that Iran intends to purchase lots of Boing planes.
Iran is dangling the prospect of significant business for Western planemakers as it emerges from decades of sanctions. [ms-protect-content] The country has a fleet of 250 aircraft, of which 90 are grounded due to the economy or missing parts, as informed by a local executive.
Of that total, 80 percent will need to be renewed in the next decade, he said, adding that growth could add even more jets to Iran’s shopping list.
“In the next 10 years, we need at least 250-300 aircraft or even more if everything is going well.”
But this article of 24/7 Wallst in an attempt to go beyond local conventional wisdom uncovers another aspect of the business of shopping around for passenger planes and is very illustrative at this conjecture, asking the following question.
Will a Sale to Iran Be Easier for Boeing Than It Has Been for Airbus?
Published by 24/7WallSt on June 6, 2016 and written by Paul Ausick
Back in January, Airbus announced an agreement with Iran’s flag carrier, Iran Air, for 118 new aircraft at a list price total of around $27 billion. Because more than 10% of the parts used on the new airplanes are sourced from the United States, an obscure office within the U.S. Department of the Treasury must approve the deal.
The U.S. Office of Foreign Assets Control (OFAC) “administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.” Without OFAC permission, Airbus can’t sell those 118 jets to Iran.
The Wall Street Journal reported last week:
Even as the U.S. and European governments are now looking to foster transactions, banks remain reluctant to do deals after facing fines imposed by U.S. regulators on lenders when Western sanctions on Tehran were in place.
Boeing Co. (NYSE: BA) earlier this year received OFAC permission to negotiate sales of new aircraft to Iran now that sanctions against the country have been lifted. Those negotiations are ongoing, and Reuters reported Monday that some industry sources expect Boeing to strike a deal with Iran Air “fairly soon” for 100 new Boeing jets.
Even with OFAC permission, however, the deal between Iran and Airbus must find financing from non-U.S. sources. U.S. Secretary of State John Kerry has said the United States has no issues with foreign banks doing business with Iran, but the details of how that might work are still unclear. The U.S. maintains restrictions on Iranian banking due to Iran’s ballistic missile program and the country’s alleged support for terrorism.
How Iran could finance a purchase of 100 or so Boeing jets may also be problematic. The Chicago-based company must also get OFAC’s permission to do business with Iran and then help the country come up with financing for the sale.