For Boeing And Airbus, It's Tehran Or Bust

Boeing Co. and Airbus Industrie are adversaries on a global scale. And nowhere is the rivalry between the preeminent U.S. airplane maker and the European consortium more impassioned than in the Mideast. From Riyadh to Karachi, the two have ardently pursued new business. Now, Boeing and Airbus are jostling for sales to the Islamic Republic of Iran -- a competition that has them on a collision course with the Bush Administration.

Although the U.S. has imposed what amounts to a trade embargo against Iran, BUSINESS WEEK has learned that Boeing has reached a preliminary agreement to sell Iran Air at least 16 737-400 airliners, a deal worth some $ 900 million, including parts and training. "We're looking to buy the best technology we can," explains Iranian Finance Minister Nour Bakhsh. "Boeing could be an option." More details were set to surface on Sept. 25, when the Iranian airline was to file a brief with the U.S. Court of Appeals in Washington on a related dispute with the Commerce Dept. Boeing confirms that it has been negotiating with Iran Air, and it hopes "to compete for whatever business there might be with Iran Air," says a spokesman.

In doing so, Boeing is flying against Administration efforts to control high-tech exports to unfriendly Third World states. The conflict underscores how U.S. foreign policy and commercial interests often work at cross-purposes in an era of brutal international competition. To Boeing, the problem is simple: If the U.S. doesn't approve the pending sale, it risks forgoing one of the region's largest markets. Airbus, based in Toulouse, France, in April won a deal to deliver two of its A300-600R widebodies to Iran Air.

It's not hard to see why both companies have sales teams rushing around the Mideast. The area, after Asia, comprises the second-fastest-growing market for aircraft in the world. Some $ 8 billion in new orders will be up for grabs in the region over the next 12 months, figures Peter M. Musser, an analyst with Ragen MacKenzie Inc. in Seattle. State-owned Iran Air, which hasn't had a major upgrade for a decade, plans to spend up to $ 2 billion, says Bakhsh, an Iran Air director.

`VERY TROUBLING.' To get a piece of the action, Boeing faces a tough sell in Washington. Iran opposes the ongoing Israeli-Arab peace talks and has been linked to the Hezbollah terrorists in Lebanon. In 1984, the State Dept. declared it a sponsor of terrorists. Last month, Iran was caught red-handed smuggling arms to Muslims in the Yugoslavian civil war.

Further complicating matters is a recent move by Commerce -- sensitive about its own pre-gulf war technology exports to Iraq -- to punish Iran Air. In late August, Commerce slapped a two-year ban on U.S. exports to the airline, while imposing a $ 100,000 fine. The charge: In 1985, Iran Air illegally sent three signal generators -- testing equipment used to calibrate airborne electronics -- from the U.S. to Tehran.

The ban affects everything from exports of Coca-Cola for in-flight service to vital engine parts. Iran Air attorney Thomas J. Whalen, who says the diversion resulted from a paperwork snafu, sees election-year politics at work. The Administration, he asserts, has "been under fire for being soft on Iraq."

Whalen, who plans to ask the appeals court to block the sanctions in his Sept. 25 filing, notes that the government waited until two days before the statute of limitations ran out to file its charges, and that the signal generators can be bought from many sources, some outside the U.S. What's more, Commerce's own administrative law judge dismissed the case three times. Should the export ban hold, Airbus could be nipped, too. Its A300-600R jets use General Electric Co. engines and thus fall under the sanctions. Boeing officials fear Airbus will renegotiate the order to include other jets that use British Rolls-Royce engines.

Amid a tough campaign, the Administration has shown a willingness to bend foreign policy goals to save jobs. Yet when it comes to the mullahs of Tehran, don't count on the White House to lend a helping hand.

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