Why Boeing and Airbus Stand to Lose Billions of Dollars Due to New Iran Sanctions
On Tuesday, Trump announced that the U.S. would withdraw from the Iran nuclear deal, and that strict sanctions would be reintroduced. Germany, the United Kingdom and France want to stay in the deal, despite calls from the U.S. to pull out.
The original deal lifted sanctions against Iran in exchange for Iran curbing its nuclear program. Companies like Boeing and Airbus were then able to do business with Iranian airlines, which have outdated fleets. Combined, the two companies had won around $40 billion in contracts.
“The Boeing and Airbus licenses will be revoked,” Treasury Secretary Steven Mnuchin told the Washington Post. “The existing licenses will be revoked.”
On Wednesday, Boeing’s chief executive Dennis A. Muilenburg said that the company would “continue to follow the U.S. government’s lead,” according to the Times. He acknowledged that Boeing’s $20 billion in contracts with Iranian airlines would be terminated. Boeing, however, had not yet started building or even slotted production for the planes because of the nuclear deal’s uncertainty, the New York Times reported.
Airbus, however, had already delivered three planes as part of its 100-plane order to Iran Air. And despite the fact that Airbus is a European company, it is impacted by the new U.S. position because more than 10% of parts come from the U.S., according to the Post. The company said it would comply with U.S. sanctions.
While it is a loss of a new market—the Post explained that after the Iran deal went into place “aircraft sales were among the most sought-after contracts”—the cancellation of the deals are not expected to impact the companies in a major way. “The total number of orders affected represents just 2% of the companies’ combined order backlogs,” Bernstein Research told the Wall Street Journal.
The Times also notes that the current tensions in the Middle East may even help Boeing sell fighter jets and other defense technology. “It is now a better market for arms sales, period,” Richard Aboulafia, vice president of analysis at Teal Group, told the Times.
In addition to the aerospace industry, the oil industry was also affected by Trump’s decision on Iran: sanctions could force some companies to look for other supply lines outside of Iran, which provided 3% of global oil demand in April of this year.