The United States and several members of the UN Security Council concluded a landmark deal last summer, rolling back Iran's nuclear weapons program, lifting economic sanctions imposed in retaliation for its nuclear weapons research, and returning Iran to the international oil market. The ink's barely dry on this deal, but already its effects are beginning to be felt... in Europe.
Last week, Iran announced a deal to buy 114 new and used airplanes -- not from American planemaker Boeing (NYSE:BA), but from European planemaker Airbus (NASDAQOTH:EADSY). Outlining plans to draw upon "tens of billions of dollars" worth of revenue from past Iranian oil sales, previously frozen, Iranian transport minister Abbas Akhoundi announced last week that Iran's several airlines intend to purchase nearly 10 dozen assorted new and used Airbus A320 and A340 aircraft.
That could be only the beginning. Airbus CEO Tom Enders waxed optimistic about the opportunities in Iran last Sunday, predicting that Iranian carriers could buy as many as 400 to 500 new aircraft during the next decade. Embraer (NYSE:ERJ) commercial aircraft head Paulo César de Souza e Silva seconded that emotion, saying there's "a huge opportunity" to upgrade Iran's small regional jets -- a class of plane in which Embraer specializes, but which Airbus and Boeing do not produce -- as well.
In total, Association of Iranian Airlines Secretary Maqsoud As'adi-Samani says Iranian plane purchases will ultimately rise to 581 aircraft across all models, and experts suggest as many as 300 of those planes could be bought during just the next five years, possibly including A350 widebodies, and even Airbus's super-jumbo A380 airliner.
What about Boeing?
So far, this story is sounding awfully good for Airbus -- but for American producers, not so much. Iran also threw the boys from Boeing a bone, with at least some officials expressing a willingness to consider Boeing 737s and 777s as alternatives to Airbus A320 single-aisle aircraft, and A350 widebodies, respectively.
With fewer than one-quarter of planned plane purchases accounted for by this week's announcement, Boeing can still at least hope.
How much money are we talking here?
Minister Akhoundi predicts Iran may spend as much as $20 billion during the coming decade. But how many planes would that really buy? Iran's curious interest in the Airbus A340 may provide a clue.
Consider: $20 billion in planned plane purchases, if spread across a fleet of 581 aircraft to be acquired, works out to an average budget of roughly $34.4 million per plane. But that's about one-tenth the list price on a new Boeing 777-300ER, or one-twelfth the cost of an Airbus A380. If $20 billion is all Iran has to spend, then it might run out of money pretty quickly.
But what if some of those planes purchased are bought used?
Currently out of production, Airbus's A340 was originally priced at $219 million. A340-300 aircraft have been spotted on the used airplane market, however, going for as little as $20 million. The more used Airbuses Iran buys on the cheap, the more money it would have left over to buy shiny new Airbus A320s, A350s, and A380s -- and Boeing 737s and 777s, and Embraer birds to boot -- at something closer to list price.
Don't call off the bonanza just yet, folks. I've got a suspicion more plane purchases may be coming down the pike.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 245 out of more than 75,000 rated members.
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