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Breaking Down Iran’s Blockbuster Boeing Order

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Breaking Down Iran’s Blockbuster Boeing Order

Breaking Down Iran’s Blockbuster Boeing Order
June 27
08:00 2016

MIAMI — Several months after opening its aerospace bonanza with a blockbuster order for 118 Airbus current and next generation airplanes, Iran Air is now reportedly close to placing a similarly massive order for Boeing jets. While the formal announcement of the order may not occur until the Farnborough Air Show next month, the Wall Street Journals Jon Ostrower and Doug Cameron broke news last week  of the contours of the likely deal, which still requires government approval.

In an order that mirrors its Airbus and ATR buyIran Air will acquire from Boeing both narrow and wide bodies, purchasing 80 directly from the manufacturer and leasing an additional 29 for a total of 109 added aircraft. The new build aircraft would include 40 737 MAXs, 6 737 NGs, 15 777-300ERs, 15 777-9Xs, and interestingly four 747-8s. In addition, Boeing will assist Iran Air in the leasing of 29 737 NGs for immediate lift.

Boeing order fills gaps in Airbus one, though 777-9X with A350-1000 is an odd fit

The Airbus order included 21 A320ceos, 24 A320neos, 27 A330ceos, 18 A330-900neos, 16 A350-1000s, and a dozen A380s. In that sense, Iran Air now has a strong fleet mix, that will span from 150 – 450+ seats and from short haul to ultra long haul flights. Our view is that Iran Air is likely to focus the Airbus narrow body order on the A321, particularly on the A321neo, while mostly taking Boeing 737-800s and 737 MAX 8s. This will become an increasingly common fleet mix for airlines around the world as availability constraints and economies of scale in massive subfleets take hold.

The 737-800 is probably the right sized aircraft for the Iranian market given current demand, and moving forward would be a good choice for the core of the narrow body fleet given that there are fewer routes from Tehran that would require the A321’s capacity that could not sustain the A330ceo/neo. Indeed, the 737-800s and MAX 8s are likely to be used on trunk domestic and regional routes, whereas the A321s are likely to be earmarked for longer and thinner routes to Europe, the Indian subcontinent, and Africa.

The A330ceos are a perfect fit for mid-distance routes to Europe, Africa, and Southeast Asia (all core markets for Tehran), and the A330neos fit the same mission several years out. There might have been a place for the 787 in Iran Air’s fleet, and arguably it would have made sense to buy 15-20 787-9s in lieu of one of the A350-1000 or the 777-9X (see below), but regardless the A330-900 can perform 75-80% of potential 787-9 missions without an issue.

The long haul order for both 777-9Xs and A350-1000s feels a little bit like overkill, especially with both the 747-8 and A380 on tap for the highest volume routes like Los Angeles, New York, London, and Tokyo. In fact it’s hard to see where Iran Air will deploy close to 30 350-400 seat aircraft on long distance routes with those cities excluded. Shanghai, Beijing, Seoul, and Hong Kong are certainly four no brainers, as are Sydney and Melbourne, but outside of these obvious candidates, there’s not a lot of immediately apparent options. The 777-9X feels like a lot of plane for Johannesburg, or certainly destinations like Manila, Osaka, Guangzhou, or Taipei. Kuala Lampur and Jakarta have enough volume but little premium demand, and Bangkok may soon develop as an outbound tourist destination. Outside of New York and Los Angeles (which are probably earmarked for the A380/747-8), nowhere in the Americas has anywhere near enough demand to sustain anything larger than a 787. London and Paris probably have the volume to sustain the 777-9X, but would either justify the A380 or multiple daily frequencies on the A330ceo/neo. All in all, this order feels heavy on the 350-400 seat planes.

Boeing gets an inevitable deal

At list prices, the order is worth in the neighborhood of $17.6 billion, and even applying a standard discount of 45%, Boeing is still walking away with $9.5-10 billion in actual revenue. This represents by far the largest deal between Iran and a U.S. company, and it was inevitable as a result of the relaxed restrictions on Iran’s economy. The Islamic country is certainly aware that its position amongst U.S. politicians, particularly Republicans, is precarious. Accordingly, this order was almost a certainty — as it immensely increases the cost and pain of resuscitating sanctions were the Republicans to attempt such a gambit. Still, a win is a win, and Boeing has won more orders to fill its production gap on the current generation 777 (especially powerful given the rate cut), as well as more orders for the 737 MAX, 777-9X, and critically for the 747-8 (adding a few months of additional production to the backlog).

There are still some outstanding questions, including how Iran Air will finance these aircraft (export financing has been an issue even in Europe), and whether the 747-8 orders are new build or those planned for Transaero. But irrespective of some uncertainty, this is nothing but a win for Boeing.


About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. @TheABVinay

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  1. Gennadius
    Gennadius June 27, 17:06

    The Iran Air Airbus A380 deal was for 12 and not 4. However, from reports today, it looks like that portion of the potential order is now in question. The four 747-8s look to be one for one replacements for their current fleet of old 747s, but the numbers are simply from a source recounting the numbers that were given in a letter to two lawmakers.

    It is possible that there are more 747-8s that Iran Air will actually take once the deal is actually formalized if they decide they need more immediate lift. This becomes especially true if they get out of their A380 commitment. This would also set them up nicely for a single fleet type to overlap with cargo, once the freighter restrictions are lifted and they can order 747-8Fs as well.

    From what I have read, the two Transaero frames that have been built will be earmarked for Iran Air once the deal is formalized. I would expect the other two frames to be new builds, unless Boeing really wants to get LN 1435 off their hands and offered Iran Air a good deal on the ex-test frame.

  2. AP
    AP June 27, 17:58

    Where do you get that aircraft gets 45% discounts? That’s unheard of.

    I am sure there will be some more negotiations this week or so because there is a lot of money involved with many groups of buyers of over 2 dozen billion that will create more jobs and revenue and stock dividends would you not say so?

    It also means extra tax revenue for the government. Think of it 36%?

    For them to just be told no and have to walk away over a power play is foolish.

    Rouhani is trying his best. He should not be punished because the previous corrupt president leader took a dump on the country decades ago.

  3. Phoenix
    Phoenix June 27, 23:09

    @AP discounts of this magnitude are fairly commonplace, especially for large bulk orders or “conquest” customers. Look at the AC and DL BBD Cseries orders or UA’s order for 737-700s.

    @Vinay I get the feeling that Iran doesn’t really know what their own needs are given their isolation from the international community for so long. I do know they have a very far-flung and substantial diaspora worldwide, not just in Europe or Middle-East, and at least in the short-medium term tourism traffic will be very high, but after that tapers off I’m not sure if anyone can peg the level of steady-state traffic levels.

    Also, I hope the Iranian government is also tackling infrastructure upgrades at the same time. Their current capacity is likely some fraction of the combined AIB or BOE aircraft order (pure speculation, I don’t have a citation.)

    Regardless, congrats on the new website! Can you kindly turn on commenting for the podcast article if that hasn’t been done? Thanks so much.

  4. Glen
    Glen June 28, 02:58

    Looking at how many aircraft they have ordered. I do a feeling that they will have a lot of problems filling that many seats. Unless they get huge amounts of tourists wanting to visit Iran which could be possible. Only time will tell I guess

  5. JeffinMass
    JeffinMass July 02, 10:47

    As of today I understand the A380 deal may not come to fruition. I am surprised Iran did not order B789s. As far as the B748 deal I certainly hope that goes through.

  6. Colon
    Colon July 02, 11:48

    Remember that Iran needs a lot of airliners NOW and is probably willing to take what it can get quickly with the aim of operating them for a short time before the newer tech can arrive. Just because it’s ordering all these aircraft doesn’t mean it intends to use them forever.

  7. Gennadius
    Gennadius July 04, 14:35

    @Colon, all of these frames, both in the Boeing commitment and the Airbus commitment, are “newer tech”. They are modern airliners, and wile the “latest tech” would be the 350s and 779s since they have the newest generation engines, all of them are relatively new in the sense that they are all either new variants or have been constantly PIPed and updated.

    Unless it is on a lease, it would be a tremendous waste of capital for Iran Air to buy new builds, only to turn around and get rid of them in 5-7 years time.

  8. Amir
    Amir September 22, 02:41

    Very good.

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