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Can Boeing (BA) Pull Off $17 Billion Iran Air Deal?
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In a bid to expand its international presence, TheBoeing Company (BA - Free Report) inked a high-value deal with Iran Air yesterday for 80 jetliners. Valued at $16.6 billion, this marks the first-of-its-kind transaction between a U.S. company and the Islamic Republic.
Interestingly, this deal was finalized less than a month after the Republican-led U.S. House of Representatives passed legislation prohibiting the Treasury Department from issuing commercial aircraft sales licenses to Iran.
So, although the deal received a nod from the acting U.S. government, its fate looms in uncertainty. Chances are high that the Congress will strongly oppose it and President-elect Trump will pose serious impediments to its execution.
Details of the Deal
The aforementioned deal was first disclosed in Jun 2016 by Boeing, when it announced its plans to sell 100 jets to Iran’s national airline. However, financial details of the agreement were kept under wraps then.
In Jan 2016, Iran Air had inked a similar deal for 118 jets, worth $27 billion, with Airbus Group SE (EADSY - Free Report) , Boeing’s direct rival in the commercial airlines space. However, given the huge amount of U.S.-built aircraft parts involved in the deal, it is subject to extensive regulatory approvals by the U.S. government. In fact, it was finally in September that the Obama administration approved the deals.
Coming back to the latest deal, now it’s Boeing’s turn to deliver 50 737 Max 8, 15 777-300 ER and 15 777-9 models to Iran.
Notably, the 737 MAX, which is 14% more fuel efficient than the next-generation 737, has the capability to deliver the highest efficiency, reliability and passenger comfort in the single-aisle market.
On the other hand, the 777-300ER model is the most reliable twin-aisle aircraft in the world with the highest cargo capacity of any passenger airplane. Meanwhile, the 777X builds on the passenger-preferred and market-leading 777 model and brings on board technologies used by Boeing’s most successful aircraft to date, the 787 Dreamliner. The 737 Max is scheduled to begin service in 2017, while the 777X will start operating in 2020.
Benefits of the Iran-Boeing Deal
According to Boeing’s management, the deal will create employment opportunities for 10,000 U.S. citizens directly in relation with the production and delivery of the 777-300ER models. Going forward, the company expects to create another 100,000 jobs in the U.S. aerospace value stream for the full course of deliveries of these planes. Therefore, upon successful execution, the deal will significantly improve the employment scenario in the country and in turn, contribute to the economy’s overall GDP.
Besides its economic advantages, the deal is projected to bolster Boeing’s international business mix and fuel margin expansion, once the company begins rolling out deliveries in 2018, thereby boosting shareholder value either through dividend hikes or a higher share price.
Our View
Note that Trump has all along criticized the Jan 2016 Iran nuclear deal, which curbed the Islamic Republic’s participation in nuclear activities in exchange for relaxing trade restrictions, in particular on the export of crude oil from Tehran. However, it is courtesy of this agreement that Boeing received such a huge order from Iran.
Nevertheless, last month’s legislation is preventing the Treasury Department from authorizing U.S. bank transactions for the sale and even barring the Export-Import Bank from helping Iran financially. Since Iran is not economically well positioned, this could prove to be a serious headwind for the successful closure of this deal.
Considering this, Trump’s expected focus on economic growth stands against Congressional opposition. Moreover, given that he has not yet made any comment on this deal, it is uncertain as to how exactly he will react once he steps into the Oval Office next month.
However, Trump’s reaction to the finalization of the deal is even harder to predict, given that he recently slammed Boeing for its ‘out of control’ Air Force One expenses and subsequently called for cancellation of all orders last week.
On the bright side, if the deal is indeed successfully closed, it will bolster the company’s growth trajectory and consolidate its leadership position in the aerospace industry.
However, budget volatility, uncertainties related to high-cost programs, risks associated with key project executions and order cancellations have all plagued this aerospace major for quite some time now. That could be why, on a year-to-date basis, Boeing’s stock has climbed 8.23%, underperforming the Zacks categorized Aerospace-Defense industry’s gain of 12.83%. The company has also put up a weak show in comparison to other major players in the same space like Northrop Grumman Corp (NOC - Free Report) and Lockheed Martin Corp (LMT - Free Report) , both of which outperformed the industry.
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Can Boeing (BA) Pull Off $17 Billion Iran Air Deal?
In a bid to expand its international presence, The Boeing Company (BA - Free Report) inked a high-value deal with Iran Air yesterday for 80 jetliners. Valued at $16.6 billion, this marks the first-of-its-kind transaction between a U.S. company and the Islamic Republic.
Interestingly, this deal was finalized less than a month after the Republican-led U.S. House of Representatives passed legislation prohibiting the Treasury Department from issuing commercial aircraft sales licenses to Iran.
So, although the deal received a nod from the acting U.S. government, its fate looms in uncertainty. Chances are high that the Congress will strongly oppose it and President-elect Trump will pose serious impediments to its execution.
Details of the Deal
The aforementioned deal was first disclosed in Jun 2016 by Boeing, when it announced its plans to sell 100 jets to Iran’s national airline. However, financial details of the agreement were kept under wraps then.
In Jan 2016, Iran Air had inked a similar deal for 118 jets, worth $27 billion, with Airbus Group SE (EADSY - Free Report) , Boeing’s direct rival in the commercial airlines space. However, given the huge amount of U.S.-built aircraft parts involved in the deal, it is subject to extensive regulatory approvals by the U.S. government. In fact, it was finally in September that the Obama administration approved the deals.
Coming back to the latest deal, now it’s Boeing’s turn to deliver 50 737 Max 8, 15 777-300 ER and 15 777-9 models to Iran.
Notably, the 737 MAX, which is 14% more fuel efficient than the next-generation 737, has the capability to deliver the highest efficiency, reliability and passenger comfort in the single-aisle market.
On the other hand, the 777-300ER model is the most reliable twin-aisle aircraft in the world with the highest cargo capacity of any passenger airplane. Meanwhile, the 777X builds on the passenger-preferred and market-leading 777 model and brings on board technologies used by Boeing’s most successful aircraft to date, the 787 Dreamliner. The 737 Max is scheduled to begin service in 2017, while the 777X will start operating in 2020.
Benefits of the Iran-Boeing Deal
According to Boeing’s management, the deal will create employment opportunities for 10,000 U.S. citizens directly in relation with the production and delivery of the 777-300ER models. Going forward, the company expects to create another 100,000 jobs in the U.S. aerospace value stream for the full course of deliveries of these planes. Therefore, upon successful execution, the deal will significantly improve the employment scenario in the country and in turn, contribute to the economy’s overall GDP.
Besides its economic advantages, the deal is projected to bolster Boeing’s international business mix and fuel margin expansion, once the company begins rolling out deliveries in 2018, thereby boosting shareholder value either through dividend hikes or a higher share price.
Our View
Note that Trump has all along criticized the Jan 2016 Iran nuclear deal, which curbed the Islamic Republic’s participation in nuclear activities in exchange for relaxing trade restrictions, in particular on the export of crude oil from Tehran. However, it is courtesy of this agreement that Boeing received such a huge order from Iran.
Nevertheless, last month’s legislation is preventing the Treasury Department from authorizing U.S. bank transactions for the sale and even barring the Export-Import Bank from helping Iran financially. Since Iran is not economically well positioned, this could prove to be a serious headwind for the successful closure of this deal.
Considering this, Trump’s expected focus on economic growth stands against Congressional opposition. Moreover, given that he has not yet made any comment on this deal, it is uncertain as to how exactly he will react once he steps into the Oval Office next month.
However, Trump’s reaction to the finalization of the deal is even harder to predict, given that he recently slammed Boeing for its ‘out of control’ Air Force One expenses and subsequently called for cancellation of all orders last week.
On the bright side, if the deal is indeed successfully closed, it will bolster the company’s growth trajectory and consolidate its leadership position in the aerospace industry.
However, budget volatility, uncertainties related to high-cost programs, risks associated with key project executions and order cancellations have all plagued this aerospace major for quite some time now. That could be why, on a year-to-date basis, Boeing’s stock has climbed 8.23%, underperforming the Zacks categorized Aerospace-Defense industry’s gain of 12.83%. The company has also put up a weak show in comparison to other major players in the same space like Northrop Grumman Corp (NOC - Free Report) and Lockheed Martin Corp (LMT - Free Report) , both of which outperformed the industry.
Zacks Rank
Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>