Iran's Massive Plane Order: A Win-Win for All

EghtesadOnline: Iran's return to the world economy is helping planemakers cope with a downturn in global demand, providing homes for airplanes orphaned by reversals in the growth plans of airlines elsewhere.

News ID: ۷۷۵۶۰۴

22 April 2017

Planemakers are also gambling that the early delivery of such aircraft could help prop up a nuclear sanctions deal between Iran and world powers, threatened by conservative opponents in both Washington and Tehran, western sources said.

Since sanctions were lifted under the deal to reopen trade and limit Iran's nuclear program, the Islamic Republic, trying to boost its economy after years of isolation, has joined a waiting list of up to eight years for 200 new aircraft.

But efforts to meet its most immediate needs have been boosted by financial problems facing other airlines across the world, as new airplanes come onto the market at bargain prices, Financial Tribune reported.

"We hunt opportunities in the market. If there are opportunities, we can take advantage of that," Deputy Roads and Urban Development Minister Asghar Fakhrieh-Kashan told Reuters.

Despite denials by manufacturers that the downturn is hurting, Iran's return to the market has brought to light pockets of surplus aircraft. With presidential elections looming in May and keen to show the 2015 nuclear deal is working, Iran has proved only too keen to take up the slack.

So far, it has taken delivery of three Airbus jets. Industry executives say they were left on the planemaker's books when their Colombian buyer, Avianca, balked at taking delivery. Such orphan planes are often known as "white tails".

Last week, Iran also signed a deal for 20 ATR turboprops.

Unusually in a risk-averse industry with high costs, four of those are already built and ready to be delivered: short-circuiting their usual waiting time.

Although it denies they are white tails, ATR took the rare decision to build them for Iran Air before the final contract was signed. Analysts say that too is a signal of market weakness, as manufacturers wrestle with weakness in developing economies.

> Turkish Swap

The sudden reshuffling suits both sides, as Iranian President Hassan Rouhani tries to demonstrate results from the nuclear deal, which hardline candidates intend to oppose in the May elections.

It also holds up a mirror to geopolitical changes in the region, played out in the fortunes of national carriers.

While Iran's aviation industry is coming out of decades of cold storage as sanctions are lifted, Turkey has seen a slump in travel demand after a failed coup and attacks in major cities.

Now, Turkish Airlines is having doubts about taking one of the industry's key growth engines, a 350-seat Boeing 777-3000ER.

Uncertainty over next month's scheduled delivery contrasts with Iran's urgent need for the same model, the first of which is due to be delivered to Tehran in April or May next year.

Fakhrieh-Kashan confirmed that at Boeing's suggestion, Iranian representatives are now inspecting the Turkish configuration to see whether the airlines could swap deliveries. Boeing declined to comment.

Iran has ordered 15 777-300ERs as part of a deal for 80 Boeing jets. They are crucial to Boeing's efforts to steady the declining production of 777s, pending the arrival of a new model.

Bringing forward Boeing's first delivery to Iran since the 1970s could also provide broader momentum to the sanctions pact, hampered by funding problems and uncertainty about the attitude of US President Donald Trump who has said he dislikes it.

Since all planemakers need US export licenses due to the number of US parts in their planes, any decision to block the Boeing deals would likely halt European activities in Iran, too.

"It helps to bring Boeing to the same table as everyone else," said a senior European industry executive, referring to the talks to swap Turkish and Iranian deliveries.

Iranian officials have, however, been forced to defend the reshuffling from suggestions that Iran is getting cast-off airplanes. They stress the Avianca jets, for example, had been sitting unused for two years and had never flown commercially.

"It is good for Airbus and Boeing, but this is part of the game that everyone knows," Fakhrieh-Kashan told Reuters.