Orders From Iran Help Nudge Airbus Past Boeing In The Final Order Tally For 2016

Over the last two decades, Boeing (NYSE:BA) and Airbus have contested hotly to crown themselves winners of the annual orders race. This year was no less as both companies tried hard to one up the other. However, in the end, Airbus was crowned the victor. According to a statement released last week, Airbus managed to bag 731 net orders for 2016. In comparison, Boeing only closed 668 net orders. That said, the unusual kingmaker between the two companies was Iran. Due to a slumped market worldwide, Iran’s comeback carried unusual weight in the year. While Airbus recorded its sale of 100 planes to the country in their tally, Boeing did not include the 80 planes that it sold to Iran, making it bow out by a huge margin.

What Makes The Iran Deal So Special?

Iran has been plagued by problems related to an ageing fleet of aircraft that, over the past decades, have led to the deaths of hundreds of Iranians in air crashes related to malfunctioning or poorly maintained aircraft. As of February 2016, the combined fleet size of all Iranian carries totaled about 160 planes, with Iran Air’s fleet size coming in at 45. The average age of an Iran Air plane was 26.9 years, with the youngest being six Airbus A320s that are just over 20 years old. Not surprisingly, the 747s are the oldest planes in the airline’s fleet. Hence, it should come as no surprise that Iran would jump at the opportunity to renew its fleet as soon as possible.

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.

In December, both plane manufacturers managed to close their respective deals with the controversial country. The deal comes as a blessing for the companies, at a time when the overall orders were the lowest in years thanks to a slow economy and low oil prices. This also led both companies to trim production rates for a number of its commercial offerings.

How Did Airbus Get An Upper Hand In The Game?

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 gave 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. Furthermore, this enabled Airbus to progress faster in the sales process. Iran took the delivery of its first Airbus jet on Wednesday, while Boeing’s planes will be delivered from 2018.

Why Did Airbus Formally Report The Orders While Boeing Did Not?

It is still unclear as to why Airbus reported the Iranian orders while Boeing did not, and what criteria was used by each company in making its decisions. That said, sources at Airbus have confirmed that the final order numbers for 2016 have been heavily audited.

Analysts explain that decisions on whether to formally report such figures in the final tally depend on the status of the U.S. export licenses. This is primarily because such licenses are needed by each of the companies due to their heavy reliance on U.S. parts. For example, Airbus procures more than 10% of the its commercial planes and components from ancillaries located in the U.S. Additionally, Airbus has previously stated that it spends almost 42% of its commercial aircraft procurement resources in the U.S.

People close to the deals have said that although both aircraft manufactures have received U.S. export licenses for sales to Iran, these licenses only cover a fraction of the whole delivery period that runs through 2028. In essence, both companies would still need to apply for extensions for part of their orders. Industry sources have confirmed that the same contractual conditions apply for both companies.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research