October 19, 2016

THE TRADINGEST PRESIDENCY EVER:

The real reason Boeing, Airbus deals with Iran matter (Saheb Sadeghi, October 19, 2016, Al Monitor)

Beyond the issue of securing licenses to sell the aircraft is the challenge of financing the deals. Hinting at this problem, Zarif told the Council on Foreign Relations in New York Sept. 23, "The US Treasury's Office of Foreign Assets Control ... tells international banks that it's OK to do business with Iran but -- and the buts and ifs are so long -- I mean there is one sentence that it is OK to do business with Iran and five pages of ifs and buts. So at the end of the day, these banks say we will take the safe road. We will forget about Iran. And that has been the outcome. No major European bank has started doing business with Iran now, eight months after the deal. And we believe that's a shortcoming."

According to what has been reported so far, the Boeing and Airbus passenger planes are not going to be bought in cash but rather financed. In practice, this means that Iran will buy the aircraft with loans and will repay the debt through revenue generated from operating the planes. Thus, not only is a bank or other financial institution needed to make the deal happen, but the loans must be long term. The broader implication is that if Iran is able to purchase aircraft through external financing, it could also do so with regard to other projects.

While negotiations to finalize the aircraft deals are still ongoing, Iranian officials say they have made good progress. Indeed, things appear to be particularly moving forward on the crucial issue of financing. On Oct. 14, Tasnim news agency quoted a source in the Iranian government as saying, "Boeing and an American bank are reaching an agreement to finance Iranian purchase of the airliners through a Japanese bank." Prior reports said that issues related to financing of the Airbus deal had also been solved. On Sept. 24, Iranian Deputy Minister of Roads and Urban Development Asghar Fakhrieh Kashan told the Iran newspaper, "A financing agreement between Airbus and a big financial institution has been finalized that has remained a secret in order to avert some enemies' plots."

Some experts are of the view that the OFAC licenses to Boeing and Airbus are a promising sign that serious banking cooperation between Iran and Europe is around the corner. This would be an important development since major European banks have remained wary of remaining US sanctions and thus refrained from resuming banking ties with Iran -- even after the formal implementation of the nuclear deal. As such, Tehran has so far relied on cooperation with smaller European banks while continuing dialogue with the bigger ones. Given the scale of the Boeing and Airbus deals and the need for financing to be long term, it is evident that small banks will not be able to finance the contracts. One can thus expect that major players are involved in the financing, and that the deals may help jump-start business between Iran and major Western banks in the near future. Indeed, beyond authorizing two major deals, OFAC's licensing of aircraft sales to Iran is giving assurance to the world's major businesses that it is now possible to resume dealings with the Islamic Republic.




Posted by at October 19, 2016 6:17 PM

  

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