Boeing: The Latest Happenings In The Iran Deal

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Last month, Boeing (NYSE:BA) was hit with some unsettling news when the Republican-led House acted to block its deal with Iran. By a 243-174 vote, lawmakers introduced legislation that would prohibit the Treasury Department from issuing any licenses U.S. banks would need to complete the transactions. If the deal falls through, it could lead to a potential $25 billion loss in revenues for the company. While the Chicago-based aerospace giant is a U.S. company and is directly affected by the bill, the Toulouse based Airbus also requires U.S. Treasury licenses since more than 10% of the its commercial planes and components are supplied by ancillaries located in the U.S., subjecting it to U.S. sanctions. Airbus has previously stated that it spends almost 42% of its commercial aircraft procurement resources in the U.S.

That said, one must keep in mind that the bill does not stop or forbid the sale of commercial aircraft to the middle-eastern country. The bill merely bars banks overseen by the U.S. from participating in such deals or the use of taxpayer funds to facilitate them.

Furthermore, it is plausible that the measure is unlikely to move further until early next year, when Trump takes office. This is primarily because President Obama has vowed to veto a related bill and Congress is too divided to override him. Essentially, this means that proponents will have to reintroduce the bill in the January session of the Congress. It is likely, that even then, Democrats (especially in the Senate), could fight the bill off successfully, as they have done in the past.

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In January, Airbus was the first of the two airplane manufacturers to sign a preliminary agreement with Iran Air for up to 118 aircraft, including 21 A320ceos, 24 A320neos, 27 A330ceos, 18 A330-900s and 12 A380s. Following this, in June, Boeing signed a letter of agreement to supply the carrier with more than 100 airliners, including about 70 single-aisle aircraft and an unspecified number of 747-8s.

Earlier in September, the United States removed a final hurdle for Western aircraft manufacturers to sell planes to Iran. The Treasury Department had announced that Airbus and Boeing will be granted licenses to deliver planes to the middle-eastern country effective immediately. Airbus received a license to sell more planes to Iran than Boeing. This was mostly because the French aircraft manufacturer had submitted its application earlier this year, prior to Boeing. Additionally, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) operates on a “first come, first-served” basis, which gives Airbus a head start. This move detrimentally affected the Chicago based aircraft manufacturer’s chances in Iran. At that moment, Airbus had already been outpacing Boeing in terms of orders.

Nevertheless, financing remains a critical factor for the success of the deals being completed. The new bill leaves Iran with mostly two options. The first being that Iran could pay the entire amount in cash. The second is that all the parties involved in the deal can find financing that is not subject to U.S. law. There could also be a combination of the two. Dubai Aerospace Enterprise reportedly is lined up to lease the first 18 Airbus aircraft to Iran Air, thus skirting U.S. restrictions, at least initially.

Boeing has had quite a rough year so far. Orders have been down year over year, while profits have taken quite a hit in the first two quarters. That said, the company is positioned strongly to bare the brunt of this fallback and flourish in the quarters to come. Furthermore, it is very possible that the deals with Iran will go through undisrupted with little obstruction.

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