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Boeing’s Big Bet in Iran

The bulk of the controversial Iran Nuclear Deal covered just that: nuclear activity. Known officially as the Joint Comprehensive Plan of Action, or JCPOA, the deal limits Iran’s ability to produce plutonium and uranium to sub-military grade levels, ostensibly preventing the nation from developing nuclear weapons. To ensure Iran is meeting the terms of the deal, the International Atomic Energy Agency will conduct frequent examinations of the country’s nuclear sites.

In exchange, world powers agreed to lift sanctions that have been in place for decades. The chief benefit, to Iran at least, is access to billions in frozen assets overseas and the ability to resume the export of oil.

But there is also an ancillary benefit—albeit a risky one—to private companies in the West. Rescinded sanctions don’t just allow Iran to do business outward, they allow foreign investment into the country—and demand is huge. Iran’s economy and infrastructure has been decimated by western sanctions, leaving the country decades behind the rest of the world. The newly opened economy allows Iranian companies (many of them state-owned) to modernize by purchasing assets from foreign entities—not just shiny new high-technology items, but also the spare parts for their older assets that are still in service.

The gold rush started early this year when European consortium Airbus inked a deal to supply Iran Air with more than 100 planes. Nearly the same day, French car manufacturer Peugeot-Citroen agreed to a $435 million joint venture with Iranian firm Iran Khodro to produce 200,000 cars a year at a newly built factory outside Tehran.

But investment from the United States—the world’s largest economy—has been slow. Fearful of regional instability, political risks, and reputational damage, American companies haven’t tested the Iranian waters to nearly the extent of their European competitors. And who can blame them? Despite the landmark nuclear deal brokered by the Obama administration, American relations with Iran have never been rosy. Even now, the U.S. and Iran find themselves backing different factions in sectarian conflicts in Syria and Yemen.

The tenuous-at-best relationship hasn’t lent itself to fruitful trade agreements, but aerospace giant Boeing looks poised to be among the first to take the leap. On June 15, Iran’s state news agency reported that a deal to purchase 100 commercial passenger planes from Boeing was imminent. This deal, if approved by the Treasury Department, would be the most prominent trade agreement between the U.S. and Iran since the 1970s.

For both the Obama administration and economic liberals in Iran, the deal is exactly what was intended when sanctions were lifted. A boon to U.S. manufacturing and jobs? Check. Modernization of Iran’s aging transportation fleet? Check. Normalization of trade relations? Check. But what about the company that is making it happen?

Boeing faces considerable risks in this undertaking. In the United States, 79 percent of the public still view Iran unfavorably. On Capitol Hill, the nuclear deal with Iran faced serious opposition. Republicans in the Senate almost succeeded in derailing the deal entirely, coming up only two votes short of passing a resolution of disapproval.

Doing business with a country many still view as a serious threat to the United States and its allies (especially Israel) could have a detrimental effect on the company’s reputation and its bottom line. Many of the aforementioned senators who opposed the nuclear deal are the same members who approve appropriations for military equipment that Boeing competes for on a regular basis. Defense contracting makes up nearly 40 percent of Boeings total revenue.

Boeing is in a tough spot here. It has to delicately communicate its decision to stakeholders, especially those on the Hill. If it’s not careful, Boeing could find its reputation tarnished in the minds of the very people who decide whether or not it receives billion dollar contracts.

Even if it successfully accomplishes this objective, there are serious vulnerabilities down the line. Obama administration decision-makers might welcome Boeing’s decision, but what if Donald Trump—who has vowed to tear up the Iran nuclear deal on day one—takes the presidency in January? What if Boeing-made planes or parts show up in Syria in the hands of Iranian ally (and American enemy) Bashar al-Assad? What if significant institutional shareholders of Boeing stock (pension plans, etc.) decided to take a stand against investment in the pariah state?

Boeing’s bravery (or naivety) could open the doors to more investment from large American companies if its deal goes well. On the other hand, a reputational disaster could permanently dissuade American investment in Iran. With an issue this complex and politically charged, success could thoroughly depend on how well this deal is messaged to stakeholders.

Bryant Madden is a Senior Account Executive at LEVICK and a contributing author to Tomorrow.

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