Boe­ing cleared for Iran talks af­ter $27 bil­lion Air­bus haul

The Pak Banker - - COMPANIES/BOSS -

Boe­ing Co. is fi­nally open for busi­ness in Iran. The U.S. govern­ment cleared the man­u­fac­turer to be­gin talk­ing with ap­proved Ira­nian car­ri­ers about their fleet needs, a first step to­ward en­ter­ing the coun­try's resur­gent air­craft mar­ket, Boe­ing said Fri­day. The plane­maker will still need a sep­a­rate li­cense to com­plete any com­mer­cial jet­liner sales.

Europe's Air­bus Group SE, which faced fewer re­stric­tions, grabbed an early lead with a $27 bil­lion or­der an­nounced on the day nu­clear sanc­tions were eased last month. While Euro­pean aero­space ri­vals be­gan scop­ing out po­ten­tial sales last year, Boe­ing wasn't al­lowed to veer be­yond safety-re­lated items such as the air­craft main­te­nance man­u­als it sold to Iran Air Tours. Boe­ing had been a no­table no-show as the coun­try's avi­a­tion mar­ket re-opened, skip­ping a Jan­uary avi­a­tion gath­er­ing in Tehran and caus­ing Iran Air Chair­man Farhad Par­varesh to sug­gest that the com­pany was "lag­ging be­hind a bit." The plane­maker said it was fol­low­ing a li­cens­ing process out­lined by the U.S. govern­ment.

"We un­der­stand that the sit­u­a­tion in the re­gion is com­pli­cated and ever chang­ing and we will con­tinue to fol­low the U.S. govern­ment's guid­ance," Boe­ing said in an e-mailed state­ment Fri­day. Boe­ing shares fell 2.1 per­cent to $115.16 at the close in New York. The stock has dropped 20 per­cent this year, the se­cond-worst per- for­mance among the 30 mem­bers of the Dow Jones In­dus­trial Av­er­age.

Boe­ing faces risks and un­cer­tain re­wards as it vies with Air­bus and oth­ers to re­place Iran's mu­seum-vin­tage fleet. There's the prospect of political back­lash, given the Ira­nian lead­ers' pen­chant for anti-U.S. and anti-Is­raeli rhetoric. Boe­ing also may need to leave wig­gle room to back out of any deals for po­ten­tial or­ders if the next U.S. pres­i­dent de­cides to re­in­state sanc­tions.

"Sell­ing to Iran is a lot dif­fer­ent than sell­ing to Dubai," says Loren Thomp­son, aero­space an­a­lyst at the Lex­ing­ton In­sti­tute. "They may be in the same part of the world, but the lead­ers in Tehran are very con­tro­ver­sial in Wash­ing­ton." The po­ten­tial de­mand left un­tapped af­ter Air­bus's 118- plane bo­nanza isn't clear. While Ira­nian lead­ers have spo­ken of a need for hun­dreds of jets, avi­a­tion con­sul­tant As­cend World­wide sees an "ini­tial re­place­ment op­por­tu­nity equiv­a­lent" to the 160 air­craft cur­rently in ser­vice in Iran, said Rob Mor­ris, head of the con­sul­tancy.

"As­sum­ing that the thaw does in­deed con­tinue, the po­ten­tial op­por­tu­nity may be sig­nif­i­cantly greater than this though," Mor­ris said in an e-mail. One mea­sure of the po­ten­tial is Turkey, Iran's sim­i­lar-size neigh­bor with a vastly more de­vel­oped tourism in­dus­try, he said. Turkey has 450 com­mer­cial jets in ser­vice and more than 320 more planes on firm or­der. Over a decade, that fleet may grow to about 650 planes, Mor­ris said.

Western man­u­fac­tur­ers still don't have un­fet­tered ac­cess to Iran's 78 mil­lion con­sumers. Rather, com­pa­nies like Boe­ing are cleared to do busi­ness in Iran by an of­fice of the U. S. Trea­sury Depart­ment that en­forces eco­nomic and trade sanc­tions. Europe's Air­bus, Mon­treal- based Bom­bardier Inc. and Brazil­ian plane­maker Em­braer SA are also re­quired to gain per­mis­sion if Amer­i­can com­pa­nies pro­vide more than 10 per­cent of their air­craft com­po­nents.

As part of the sanc­tions lifted Jan. 16, the Trea­sury's Of­fice of For­eign As­sets Con­trol es­tab­lished pro­ce­dures to al­low the sale of wide-body, nar­row-body, re­gional and com­muter planes, along with re­lated parts, for pas­sen­ger travel. Many other trans­ac­tions are still banned, in­clud­ing sell­ing cargo planes, state air­craft, drones, and mil­i­tary planes. Boe­ing and its ri­vals could also lose their li­censes if a middle man or counter-party turns out to have un­sa­vory ties or is black­listed by the U.S. govern­ment. "This is not a free-forall," said Adam Smith, a for­mer se­nior sanc­tions of­fi­cial for the Obama ad­min­is­tra­tion who is now of coun­sel to Gib­son Dunn & Crutcher in Wash­ing­ton. "It is a very con­trolled sit­u­a­tion."

The strin­gent re­quire­ments aren't lim­ited to air­frame man­u­fac­tur­ers. Gen­eral Elec­tric Co., the world's largest maker of jet en­gines, has also ap­plied to do busi­ness in Iran, said Rick Kennedy, a spokesman for the com­pany's avi­a­tion unit.

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