US Exits Iran Nuclear Deal: Aerospace and defense manufacturing giants Boeing (NYSE:BA) and Airbus (OTC:EADSY) are set to lose a combined $39 billion in contracts after president Donald Trump announced that the US will pull out of the Iran nuclear deal.
The Iran nuclear deal is a pact between major global powers including China, the U.K., France, Germany, and Russia, who agree that harsh economic sanctions on Iran will be lifted in return for the cessation of the country’s nuclear program. Until now, the US was part of that deal.
The US Exits Iran Nuclear Deal
President Trump has called the deal “defective at its core”, claiming that it is not enough to prevent the creation of an Iranian nuclear bomb, despite the reduction of Iran’s uranium stockpile by 98% and mandatory access for independent international bodies to inspect nuclear facilities.
So what does this mean? Firstly, it means that the US now plans to reimpose sanctions on Iran, meaning that business between the two countries could grind to a halt. And one of the firms expected to suffer from this is US-based Boeing, the largest commercial airline manufacturer in the world.
Currently, Boeing has two deals with airline companies in Iran — Iran Air and Aseman Airlines — to deliver 80 and 30 planes respectively to rejuvenate their aging fleets. In total, the deals are valued at $20 billion USD. And now, with the reintroduction of economic sanctions on Iran, it looks like they aren’t going to be happening.
But Boeing doesn’t seem to be too bothered, and neither do its shareholders. Today, Boeing stocks are up 2.15% to $345.65 USD each. To be fair, the Iran orders account for a very small proportion of Boeing’s delivery list. In fact, according to CNBC, the company hadn’t even included the orders in its order book, so financials shouldn’t be affected much and its backlog remains unchanged.
Speaking to Gizmodo about what Boeing is expected to do next, Gordon Johndroe, VP of Boeing’s Government Operations Communications said: “We will consult with the U.S. Government on the next steps. As we have throughout this process, we’ll continue to follow the U.S. Government’s lead.” A pretty placid response, considering a potential loss of $20 billion.
But the sanctions could be much worse news for Boeing’s main rival Airbus. The French firm currently has a contract with Iran Air for 100 planes worth about $19 billion according to Gizmodo and, unlike Boeing, the firm has included its deals with Iran in its order book. What’s worse, although Airbus is based in France, it still must abide by US sanctions because of its US facilities and operations, even if France stays in the nuclear agreement. Despite this, Financial Investment publication Barrons claims it is “too early to tell” how new US sanctions will affect the firm. Currently, Airbus stocks are down -1.08% in Paris to 99.16 Euros per share.
Time will tell how the airline industry and stocks therein will react to renewed US sanctions on Iran as more details come to the surface. But for now, Boeing remains aloof.
Featured image: AviationIran.com / Airbus