Wednesday, May 9, 2018

Aircraft manufacturers expect to lose Iran orders

Airbus expects to be bound by the Trump administration’s new prohibitions against selling US aircraft and parts to Iran even if Europe maintains a more business-friendly approach to the Persian Gulf nation, a top executive said.

“In this case, they are two opposing forces, but the fact of the matter is we will follow the rules and that means we’re going to follow the sanctions and regulations; it’s as simple as that.” Airbus Americas chairman and CEO Jeffrey Knittel said after President Donald Trump’s May 8 announcement that the US will withdraw from the Iran nuclear accord.

The accord was enacted during the Obama administration and lifted sanctions on the export of goods including aircraft and aircraft parts.

In a sitdown interview at his Herndon, Virginia, headquarters in suburban Washington, Knittel said his European-based company would have to carefully review the final White House order and subsequent US Department of Treasury actions, but the company essentially believes there will be limits on the sale of aircraft to Iran. “Our goal is to sell airplanes,” he said. “But we have to do that within the bounds and rules and laws of the country and of the world, and we will do that.”

Boeing made a similar statement: “We will consult with the US government on next steps,” Boeing VP-government operations communications Gordon Johndroe said. “As we have throughout this process, we’ll continue to follow the US government’s lead.”

After Trump announced the US withdrawal, the US Treasury said previously issued licenses to original equipment manufacturers (OEMs) would be revoked. While most financial analysts thought the lost sales were not significant to the bottom lines of Airbus, Boeing and Embraer, they were still noteworthy.

For instance, Boeing had agreements with Iranian airlines for about $20 billion worth of new airliners, ostensibly at list prices, including 110 737 MAXs and 30 777s.

Airbus was first to sign a preliminary agreement with Iran Air in January 2016 for up to 118 aircraft, including 21 A320ceos, 24 A320neos, 27 A330ceos, 18 A330-900s and 12 A380s.

And, Embraer was believed to have at least 20 195s lined up worth more than $1 billion at list prices.

“The Trump administration will now look to re-negotiate with Iran, but we believe the potential for firm orders, or deliveries by Boeing into Iran, are now well into the future,” Canaccord Genuity analyst Ken Herbert said. “Near-term, we believe the re-imposition of sanctions will contribute to rising crude prices, and could be a tailwind for sentiment around defense stocks, but [it] does not have a material negative impact on Boeing’s backlog.”

Expectations that the sales would be lost had been growing for months as Trump openly criticized the Iranian deal and threatened to pull out. As such, industry was not surprised, according to many stated reactions, and had been preparing, if only for public relations.

“There were indications of what could happen,” Knittel said. “But, I think the most important thing is to make sure we have all the facts, and then once we have those facts to take the appropriate action. But whatever we do, it’s going to be in compliance with the laws.”

Boeing CEO Dennis Muilenburg on April 25 assured analysts and reporters that his company had continued to build risk mitigation into its 777 production plan. “The good news is that the fundamental strength of the 777 product line and the increased sales volume that we're seeing in the marketplace both for 777-300ERs and for the 777 freighters has only bolstered our confidence in that line,” he said. 

(Michael Bruno - Aviation Week / ATWOnline News)

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