Boeing CEO Downplays Loss of $20 Billion Contract With Iran

Posted May 9, 2018 3:57 p.m. EDT

WASHINGTON — The chief executive of the aerospace giant Boeing downplayed the fallout from the president’s decision to withdraw from the Iran nuclear pact, saying on Wednesday that the company would abide by the Trump administration’s decision to cancel Boeing’s licenses to sell $20 billion of aircraft to Iran.

“We will continue to follow the U.S. government’s lead,” Dennis A. Muilenburg, the chief executive, told a luncheon crowd at the Economic Club of Washington.

He said Boeing had not committed to any production slots for the planes the company had planned to build for Iran, given there was a chance the United States would pull out of the 2015 pact.

Muilenburg spoke a day after the administration said Boeing would see its $20 billion contract to supply aircraft to Iran terminated because of the United States’ withdrawal from the nuclear deal, thus restoring stringent sanctions it had imposed previously. Boeing’s rival, Airbus, will also lose its license to sell to Iran, administration officials said.

“Under the original deal, there were waivers for commercial aircrafts, parts and services, and the existing licenses will be revoked,” Treasury Secretary Steven Mnuchin said Tuesday, in reference to Boeing and Airbus. “The licenses are coming down. The objective is to put and maintain maximum sanctions on Iran; that is the objective here.”

The announcement means Boeing will lose out on a lucrative new market for jetliners, but the move will likely cost the company less than it will Airbus. Boeing agreed to sell 80 passenger jets to Iran Air for about $17 billion in 2016, but it never began building the planes or factored them in as future revenue. Airbus, on the other hand, already sent Iran three planes and booked the $19 billion Iran Air order for 100 new planes as a part of its backlog.

“Boeing played it a lot more conservatively than Airbus,” said Richard Aboulafia, vice president of analysis at Teal Group Corp., a consulting firm in Fairfax, Virginia.

Scrapping the Iran deal may end up boosting Boeing, analysts said, as tensions in the Middle East inflate demand for the fighter jets, attack helicopters, bombs and missiles that Boeing produces. Saudi Arabia and Israel are both major operators of the F-15 fighter jet, and Boeing won a $6.2 billion order for the jets from Qatar in December. Kuwait recently completed a deal to buy more than two dozen of Boeing’s Super Hornet jets.

“It is now a better market for arms sales, period,” Aboulafia said. It’s also possible that nixing the deal pushes up oil prices, padding coffers in countries like Saudi Arabia, Qatar and Kuwait. “Higher fuel prices could mean more buying power for Middle Eastern customers,” he said.

Investors seemed to be buying that more optimistic assessment on Wednesday. After dipping late Tuesday on the Iran news, Boeing’s stock price had risen by more than a percentage point by midday Wednesday.

Boeing has enjoyed a successful, but sometimes turbulent, ride under the Trump administration, simultaneously lifted and jostled by President Donald Trump’s economic policies. Boosted by resurgent global aircraft demand, Boeing’s share price has more than doubled since the beginning of 2017.

Other businesses are also scurrying to assess the economic fallout of Trump’s decision to reject the agreement, including several European companies that moved quickly to invest in Iran after the multilateral deal was reached. Those companies include the automaker Daimler, the German manufacturer Siemens and the French energy giant Total. Boeing was the most notable American company on the list.

Boeing’s after-tax revenues have surged thanks in part to the tax cuts Trump signed into law at the end of last year. The company reported that the cuts helped it save more than $1 billion in the fourth quarter of 2017, and it said last month that the cuts continue to lift its post-tax earnings.

In December, the company announced that it would spend $300 million of its tax savings on workforce investments and charitable donations. Muilenburg detailed $54 million of those charitable donations on Wednesday, including an increased gift to the John F. Kennedy Center for the Performing Arts in Washington. He said the company would use other proceeds from the tax bill to invest in innovation.

The tax cut, Muilenburg said, is “the single most important thing we can do to unleash job growth in the U.S. and invest those savings in the future.”

Trump’s trade agenda, including an escalating standoff with China and tariffs the administration has levied on imported steel and aluminum, has put the company in a more perilous situation. Boeing sells about 70 percent of its commercial aircraft abroad, and it would stand to lose heavily if Chinese officials limit American companies’ access to their fast-growing aircraft market.

Muilenburg addressed those concerns only briefly in a question-and-answer session with David Rubenstein, the economic club president. He said the company was closely monitoring trade issues and discussing them with government officials. “Trade policy is really important to us,” Muilenburg said. “We need trade agreements that allow us to compete globally, sell globally.”

He acknowledged a possible hit on the company from the aluminum tariffs but said it had not appeared yet: “The way we risk-managed that and hedged our positions, we don’t see the current tariffs having a material effect” on Boeing’s bottom line, he said.

Muilenburg also briefly made a plea for the resurrection of the Export-Import Bank, which has been effectively crippled by the Trump administration and has, in the past, benefited Boeing through loan guarantees. “We’re great supporters of the Ex-Im Bank,” he said. “We’re still hopeful it will get back up to full operations.”