Contract with Boeing: Challenges and Prospects

The signing of a contract with Boeing is considered Iran's largest agreement with an American company since the revolution. This contract could revitalize Iran Air and provide greater security for thousands of passengers while creating jobs for many more Iranians. However, some conservative Iranian media outlets, such as Kayhan, Fars, Tasnim, and Javan newspapers, have begun attacking this contract, and conservatives in the U.S. have also been preparing to dismantle it. Some neighboring countries, like Saudi Arabia and Israel, are not in favor of this agreement either. Despite such opposition, what are the characteristics of this contract, and what specifications do the purchased aircraft have? Iran Air's relationship with Boeing dates back about 50 years, when the first Boeing 707s, considered a marvel of the aviation industry at the time, were employed by Iran Air. Before this model, Iran used Douglas aircraft. The Douglas DC-3, DC-4, and DC-6 formed the backbone of Iran's aviation fleet. However, the 707 changed Iran Air's story. Following the success of the 707, Iran Air went on to use the 727 and 737 until the giant of the skies, the 747, was introduced to Iran, making Iran Air one of the first buyers of the most advanced aircraft of that time. With the acquisition of the Boeing 747 SP, Iran Air began direct flights between Tehran and New York, which at that time was considered the longest non-stop flight in the world. After the revolution, the relationship between Boeing and Iran Air was severed. While the company needed new wide-body aircraft, it was deprived of purchasing new series of Boeing 747s and tried to meet its needs by buying Airbus 300s. However, after the initial nuclear agreement, Boeing was willing to cooperate with Iran Air ahead of Airbus. In October 2014, in its first contract with Iran since 1979, Boeing sold Iran Air navigation charts, maps, and data. At that time, Farhad Parvaresh, the CEO of Iran Air, told Reuters, "Iran prefers to prioritize suppliers that cooperated with the country during the easing of sanctions in 2014." Now, after several years, Iran Air has signed its first definitive contract with Boeing, ahead of Airbus. Although the memorandum with Airbus was concluded before Boeing, in terms of the final contract, Boeing acted faster than Airbus. Nevertheless, the first Airbus for Iran, model 321, is now ready for delivery, and within the next six months, Airbus will deliver five aircraft to Iran Air, while Boeing will deliver its first aircraft to Iran in 2018. Farhad Parvaresh, the CEO of Iran Air, stated: "According to the contract, Iran Air will purchase 50 Boeing 737 MAX aircraft. Deliveries of this model will start in 2021. Alongside that, Iran Air has purchased 30 Boeing 777 aircraft, 15 of which are from the 300 family, with the first one to be delivered to Iran in April 2018. In 2018, six aircraft will be delivered, and another six in 2019. In 2020, three more will be delivered. Additionally, Iran Air has purchased 15 of the latest model, the 777X, which will be delivered to Iran starting in 2021." He emphasized that technology transfer is part of the joint agreement with Boeing, stating: "As was discussed in negotiations with Airbus, the issue of technology transfer to Iran was also raised in negotiations with Boeing, and necessary follow-ups will definitely take place in this regard." But what are the specifications of the aircraft purchased by Iran? It can be said that two of the purchased models are among the most advanced Boeing models that have not yet been delivered to any airline. The 737 MAX model can be considered the best among all the selected aircraft for Iran's needs. This aircraft is the most modern narrow-body aircraft in the world and successfully completed its first flight in late January 2016. It is equipped with two turbofan engines made by CFM and is capable of flying routes of 7,000 to 9,000 kilometers. Boeing has received over 3,000 orders for this aircraft so far. The Boeing 737 MAX covers seating from 149 to 220 passengers. Due to advancements such as the use of its new advanced engines, the 737 MAX has reduced fuel consumption by up to 20% compared to previous models and, according to Boeing, has 8% lower operational costs per seat than its main competitor, the Airbus 320neo. Boeing has also redesigned the body and wings of the MAX, resulting in reduced overall weight and improved aerodynamics. The maximum range of the MAX model belongs to the MAX 9 series, which has a flight range of nearly 9,000 kilometers. This range is about 2,000 kilometers more than the highest range of the Airbus 320neo and can cover Iran Air's flight routes to the farthest points in Europe. The cruising speed of the MAX 737 is slightly more than 0.79 Mach, while the cruising speed of the Airbus 320neo is about 0.78 Mach. The first entry into service of this aircraft was announced in the third quarter of 2017 with its delivery to Southwest Airlines. The other purchased model is the 777X, which is the most advanced Boeing model that Boeing engineers are still working on. Production of this model will begin in 2020, and Iran Air will be one of the first recipients of this model in 2021. Emirates alone has ordered over 115 of this model from Boeing. The price of this model is $400 million, and purchasing it has strategic air value for Iran. This model has a capacity of 400 passengers and a flight range of up to 17,000 kilometers. The body of this aircraft is made from carbon fiber, and the reduction in the aircraft's weight and the use of more modern engines have resulted in a fuel consumption that is 20% less than the 777-300ER model. Most of the world's airlines use the Boeing 777 for their long-range aircraft. The Boeing 777 has a flight range of up to 17,000 kilometers. The diameter of a 777 engine is the same as that of a Boeing 737. The engine of this aircraft is also considered one of the strongest passenger aircraft engines in the world. The value of the contract between Iran Air and Boeing is $16.6 billion. Some critics argue that Boeing has overpriced its contract to sell aircraft to Iran, but is this true? The value of each Boeing 737 MAX is about $116 million, and airlines can increase the price based on different orders. Iran has ordered 50 of this model, which amounts to about $5.8 billion. The price of the 777X model is about $400 million. Iran has ordered 15 of this model, totaling about $6 billion. Another ordered model, the 777-300ER, costs about $320 million. Iran has ordered 15 of this model, which totals about $4.8 billion. The total of these figures is exactly $16.6 billion. Thus, it becomes clear that Boeing did not overcharge Iran. However, an important point is how the payment will be transferred to Boeing and the leasing of the aircraft to Iran. The exact method of this has not yet been announced. Some news agencies have mentioned the possibility of using Iran's blocked funds in various countries. Nonetheless, this is an issue that the next U.S. administration could obstruct in the path of purchasing the aircraft. Farhad Parvaresh, the CEO of Iran Air, has stated regarding the details of the financing agreement for the entry of these aircraft: "As stated in the pre-contract with Airbus, a significant portion of the financing of the contract with Boeing will also be done through financing. Boeing has announced that it is currently ready to finance six of the wide-body aircraft purchased by Iran, and Iran Air will have flexibility in specifying the exact conditions of financing. Regarding the details of the licenses issued by the U.S. Treasury Department for selling aircraft to Iran, the license issued by OFAC covers all 80 aircraft purchased by Iran. However, since neither their construction nor delivery will be feasible for Boeing until 2020, nor can we receive all these aircraft during this period, negotiations will need to continue again starting in 2020, as the current OFAC license is valid until that year. According to the CEO of Iran Air, in 2020, both parties will begin the necessary actions to implement the second step of this document, considering the conditions for obtaining the OFAC license and financing the aircraft for Iran." This could indeed be a significant obstacle for Iran Air in 2020, as the Trump administration could create barriers in granting licenses. Another criticism of the aircraft purchase contracts is that Iran needs narrow-body aircraft more than wide-body ones. Based on studies, Iran will need at least 500 new aircraft in the next decade, of which about 40% should be wide-body. In Iran's purchase contract with Boeing, 50 narrow-body 737s and 30 wide-body 777s are considered for purchase. This means that about 37.5% of the aircraft purchased by Iran Air are wide-body and 62.5% are narrow-body. However, in Iran Air's purchase program from Boeing, there were also four 747 series 800 aircraft, which were removed from the final orders. Perhaps the weakness of the contract lies in these four models, as some of Iran's flight routes, especially in East Asia, are very passenger-heavy and require an aircraft with a capacity of over 500 passengers. The 747 series 8 has a flight range of 15,000 kilometers and a capacity to carry 600 passengers. The Boeing 747 series 8 has advantages over the Airbus 380 in terms of power-to-weight ratio, safety, and fuel consumption. A criticism raised by hardliners in the U.S. and their media is that Iran will use these aircraft to transport weapons. However, many non-military tools can also be used for military purposes, such as the Toyota Hilux, which is a mainstay of ISIS's logistics. However, studies show that Iran Air has not transported military equipment outside Iran in the last three years, and the company Mahan has been accused of this. Nevertheless, some domestic critics of the Boeing contract believe that after Barack Obama's administration, Donald Trump will align with Congress to cancel the aircraft sales agreement. This assumption is entirely plausible. However, there are also obstacles for Trump’s administration that would make this costly for him. The Iranian government has stated that there are clauses in the contract with Boeing that require the American side to compensate for damages in case of breach of contract. Despite this, in recent weeks, tensions between Boeing and Donald Trump have increased, and the contract with Iran was signed at a time when Trump raised objections to Boeing's construction of advanced presidential aircraft. Boeing has stated that the contract with Iran will create direct and indirect jobs for 100,000 people in the U.S., and over 13,000 parts suppliers in the United States will be involved in this contract. This point made by Boeing aligns perfectly with Donald Trump's slogans for job creation in America, and if he undermines Boeing's contract with Iran, it would effectively mean blocking job creation in the U.S. However, job creation in America is a point that has also angered conservative media in Iran, which argue that why, after the extension of internal U.S. sanctions against Iran for the next ten years, should we create jobs in America? In response to these criticisms, Abbas Akhoundi, the Minister of Roads and Urban Development, stated: "With the implementation of this agreement, more than 8,000 direct jobs will be created in technical, piloting, cabin crew, engineering, and maintenance jobs. Alongside this, tens of thousands of other indirect jobs will also be formed in the origin and destination cities and remote areas of Iran, which is a fundamental solution for strengthening Iran's economy against national and international shocks." Conservative Iranian media claim that purchasing these aircraft is for the affluent class of Iranian society and that such expenses should be directed towards rail and maritime transport in Iran. In contrast, the Ministry of Roads has announced that Iran has planned over 20 billion euros for the modernization of road, rail, and maritime transport fleets with French, German, Korean, and Italian companies like Siemens and Hyundai. The Ministry of Roads and Urban Development has also stated that Iranians spend over three billion dollars annually on purchases from foreign airlines, and by purchasing aircraft, Iranian airlines can be strengthened to reduce this outflow of money from Iran. With this, Iran can become one of the aviation hubs in the Middle East, and Iran's tourism will also grow, which will create thousands of jobs in Iran. However, it should be noted that expanding Iran's airline routes is not feasible solely through purchasing aircraft, and until Iran's airports and airline management are reformed...