Boeing Finalizes $16.6 Billion Deal With Iran

Over the weekend, Boeing was able to finalise its deal to sell 80 planes to Iran. This transaction comes at a time when tensions are high between President-elect Trump and the company. Only recently, Trump had expressed his concerns over the mounting costs related to the new Air Force One project. As a further deterrent, by a 243-174 vote, lawmakers (mostly Republicans) introduced legislation that would prohibit the Treasury Department from issuing any licenses U.S. banks would need to complete the transactions with Iran. Despite all this, Boeing completed an almost $17 billion sale of 80 airplanes to Iran Air.

The deal is a byproduct of the 2015 nuclear deal between the U.S. and Iran. It also is the first time that Boeing will be supplying planes to the middle-eastern country since the 1970s. While Boeing’s press release mostly stressed on the political backdrop and the planes’ technological capabilities, a sizeable portion of the text was devoted to the immense possibilities of job creation – its main selling point.

The company has stated that the deal has the potential to support more than a 100,000 American jobs going forward. Boeing had previously shied away from talking about jobs in its preceding order announcements, but this time it comes as a necessary declaration considering the present political climate. The carefully worded Iran statement could be seen as a peace offering to Donald Trump, who has made the creation and retaining of American manufacturing jobs a key pillar of his presidential campaign.  It is of the company’s belief that such an announcement has the potential to soothe Trump’s mind about the deal.

Since the deal was announced earlier in the year, most Republicans have opposed it calling it un-American. It is their belief that Iran is the biggest sponsor of terrorism and that the country will use its commercial aircraft to propagate terror further. Back in 2011, it was noted that Iran used commercial airplanes to transport military vehicles and weapons to Syria in a covert operation to supply Hezbollah active in the region. It is of their opinion that the monetary trade-off is just not worth the risk.

Since the Iran deal involves a state-owned airline, the sales require approval from the U.S. Treasury, State Department and Congress, linked mainly to any potential financial arrangements. It is for this reason that the Congress, led by the Republicans, acted on blocking financial aid from U.S. institutions through a legislation passed last month, as mentioned previously. 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. 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 the long arm of the U.S. law. There could also be a combination of the two options.

The deal covers the sale of 15 777-300ER long-haul jets and 15 of the newer 777X widebody aricraft which is currently under development. Apart from this, the deal also includes the sale of about 50 737MAX single-aisle jets. Boeing had previously stated that it might need to trim production of the current 777 jets unless it won fresh orders. This could also lead to a loss in jobs. No news has been provided on whether the finalisation of the deal with Iran reverses this happening.

At present, Boeing has more than 5,700 firm orders valued at close to $500 billion. That said, the company has suffered from lower than average orders this year which has put immense pressure on revenues and profits. Boeing really needs this deal with Iran to go through so as to avoid ceding market share to Airbus in Iran, where pent-up demand for domestic travel could realise the potential for more than 400 new planes going forward.

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