ATR, Iran Air Sign Deal for 20 Jets

EghtesadOnline: Deputy Roads and Urban Development Minister Asgahr Fakhrieh-Kashan said Iran Air has signed a contract with ATR to purchase 20 short-haul passenger jets.

News ID: ۷۴۰۸۹۲

12 April 2017

“Based on the secured contract, Iran will receive four of these planes in 15 days. Nine others will be delivered by the end of 2017 and the rest will be received in 2018,” he was quoted as saying by the Ministry of Roads and Urban Development’s news service on Monday.

Iran Air signed a draft agreement with ATR soon after sanctions on Iran’s aviation industry were lifted on January 16, 2016, as part of a nuclear accord Tehran inked with the world powers earlier in 2015.

The contract worth $450-500 million based on list prices, comes after tough negotiations that official says almost stopped amid uncertainties over the after-sales services of the Canadian engines of the planes, according to Financial Tribune.

“The manufacturer of the engines of the ATR planes, which is a Canadian company, was not willing to provide the after-sales services,” said the deputy minister. “We had lengthy talks with this company … Its executives travelled to Iran a few times."

The engines are made by a Canadian subsidiary of Pratt & Whitney. It is America's top military engine-maker that supplies the F-35 fighter project.

Political risks of dealing with Iran have forced the company to take a cautious stance, at a time when US President Donald Trump is attacking aerospace firms for going over budget.

“We suspended the talks for some time and pressured ATR to bring the Canadian company back to the negotiation table. However, for whatever reason, their attempts failed,” Fakhrieh-Kashan said.

“So we announced the cancelation [of talks] to ATR. But later ATR said they would provide the services themselves and that Iran can receive the after-sales services directly from the French-Italian company.”

> Nothing Out of Ordinary

Saj Ahmad, chief analyst at StrategicAero Research, told Financial Tribune that contracts invariably allow for special conditions such as this.

“ATR will obviously work close with the engine maker anyway, so this deal will be an extension of that as a middleman, rather than Iran Air dealing with the engines themselves,” he explained.

Both ATR and Iran Air have yet to confirm the deal, which comes atop two multibillion dollar agreements the Iranian flag carrier has signed with the European plane manufacturer Airbus and its American counterpart Boeing to purchase a total of 180 planes.

Airbus has already proceeded to deliver three planes, including a single-aisle A321 and two wide-body A330 jetliners.

Also earlier, Fakhrieh-Kashan said the first passenger jet from Iran Air’s Boeing order will join Iran’s air fleet within a month, much earlier than the official delivery in 2018. The brand-new aircraft is said to be one initially ordered by Turkish Airlines that had cancelled the order.

Reuters quoted “industry sources” as saying Boeing was in negotiations to release "at least" one 777-300ER originally built for Turkish Airlines, which is deferring deliveries due to weaker traffic following last year's failed coup attempt in Turkey.

It would be the first new US-built jet delivered to Iran since the 1979 Islamic Revolution. The long-haul 777 is worth $347 million at list prices but is likely to have been sold for less than half that, according to industry estimates.

Its return to the aviation market after decades of sanctions comes at a time when airlines elsewhere are having second thoughts about purchases due to concerns about the economy and looming over-capacity among wide-body jets.

That trend has made a number of unused jets available for quick delivery at competitive prices, including three Airbus jets recently delivered to Iran, and has allowed Iran Air to jump the usual waiting list of several years.

> Doubts Remain Over Credit Financing

Aviation sources say the first aircraft were paid directly from Iranian funds, but doubts remain over credit financing needed to secure almost 180 jets still on order.

Western banks continue to shy away from financing deals between Iran Air and western companies, fearing US banking sanctions that remain in force or a new chill in relations between Tehran and the West under Trump. Boeing has stressed the benefits to US jobs of the plane deals.

Although many believe Trump’s unclarified stance on economic engagement with the Islamic Republic endangers the plane deals, the urge to take advantage of Iran’s untapped aviation market seems to be strong.

Boeing confirmed earlier a preliminary deal with Iran Aseman Airlines, the Islamic Republic’s third largest carrier, to supply 30 B737-Max jetliners worth $3 billion based on list prices. It was the first Boeing deal since the hardline US president and an opponent of the nuclear deal took office.

Iran Air’s shopping list includes all sorts of planes, but the regional planes are of special importance for the company to resolve the issue of uneconomical flights to small airports in regional destinations.

Iran has the capacity to add 50 regional planes to its fleet within the next 10 years, in addition to the 20 turboprop ATR aircraft, the CEO of flag-carrier Iran Air said in August 2016.

“The ATR jets will meet the needs of 60% of Iran’s small airports. Given Iran’s huge land mass, regional jets like ATR are far newer and better than rival offerings from Bombardier. As Iran expands its aviation and airport network, from a domestic standpoint, the ATRs will become an integral part of Iran Air's future fleet,” Ahmad, the technical analyst, said.