Monday, May 26, 2008

Iraqi Airways, nearly grounded by decades of mismanagement and economic sanctions under the regime of Saddam Hussein, is back on the runway with a multibillion-dollar order for a fleet of new Boeing passenger planes to service domestic routes and reclaim a share of the increasingly lucrative Middle East market.

Iraqi officials hail the deal as a symbol of the country’s slow but steady economic rebirth, and also as a sign that they are finally translating the country’s vast oil wealth into tangible gains for ordinary Iraqis.

Iraqi Minister of Finance Bager Jabor Al Zubaidy called the deal a “new beginning for Iraq,” and Iraq’s U.S. ambassador, Samir Sumaida’ie, said the Boeing order was a clear sign that his country was taking on the expense of funding its own reconstruction.

“We are willing to pay more and more and, ultimately, all of our reconstruction costs,” Mr. Sumaida’ie told The Washington Times in an interview earlier this month, acknowledging criticism from U.S. lawmakers that Iraq should shoulder more of its reconstruction bill.

One sign of the deal’s importance in Baghdad was the presence of Prime Minister Nouri al-Maliki and senior U.S. diplomats along with Boeing officials at the May 5 contract signing.

The $5.5 billion Boeing deal, with commitments and options for up to 55 new passenger planes, marked one of the largest purchase orders by the Iraqi government since Saddam’s ouster in 2003.

Airbus SAS, the European manufacturer that surpassed Boeing as the world’s largest aircraft manufacturer in 2003, was not invited to bid for the contract. Some in the industry say the omission was not surprising.

“Not to be too cynical about it, but I do expect there was a connection between the war and the Boeing deal,” said Scott Hamilton, an aviation industry consultant in Issaquah, Wash.

“From a practical standpoint, given France’s stand on the war, there was just no way this order was going to go to Airbus,” he said.

Under terms of the contract, Iraq will buy 30 Boeing 737 commercial airplanes and 10 of the Chicago-based manufacturer’s new 787 “Dreamliners,” with options to purchase at least 15 more planes. The Dreamliner, which can seat up to 330 passengers, is the first new Boeing passenger model since the 777 was introduced in 1990.

That was just one year before state-owned Iraqi Airways — the oldest carrier in the Middle East — plunged into a near-death spiral in the wake of harsh U.N. economic sanctions that followed Iraq’s invasion of Kuwait. Most of the airline’s 17 planes were flown to neighboring countries, never to return.

A U.N. “no-fly” order, enforced by U.S. and British warplanes, further restricted the airline’s operations. By the time the Maliki government came into office, Iraqi Airlines’ fleet consisted of two planes that it owned and a small handful of leased planes.

But operations re-started with a direct flight from Baghdad to Amman, Jordan, beginning in October 2004, and the first domestic scheduled service began two years later with flights between Baghdad and the southern city of Basra.

Although air traffic in the Middle East grew 18 percent last year, Iraq’s carrier could have difficulty re-entering a market with a number of established, well-funded regional competitors. The carrier’s aging fleet and reputation for poor service, coupled with Iraq’s security woes, have earned Iraqi Airways the nickname “Inshallah Airlines,” for the fatalist Arabic expression meaning, “God willing.”

Brian Walker, a spokesman for Boeing’s Middle East and Africa operations, said the company has forged a much broader relationship with Iraq than simply building its planes.

As the company has done with many African customers, Boeing has advised Iraqi transportation officials on improving the country’s aviation infrastructure, training airline staff and technicians and obtaining leased planes before the first of the new 737s and 787s are delivered.

“They’re trying to build a national airline, and that’s one reason we’ve been able to get these kinds of deals,” he said. “We can bring a lot of resources to the table.”

The first new 737s are not scheduled to be delivered until 2013, Iraqi officials said, and the last of the planes will not arrive until 2019.

While not a huge part of Boeing’s order list, the Iraq deal was well-timed. The company has been under fire for repeated delays in the new 787 Dreamliner.

Boeing’s stock fell $3.95, or 4.6 percent, on Wednesday — the biggest drop in four months — after American Airlines announced sharp cutbacks in its fleet. Boeing shares gained 7 cents on Friday to close at $81.48 on the New York Stock Exchange.

Boeing executives say overseas deals like the one with Iraqi Airways are key to its battle to overtake Airbus in the global market.

With world oil prices surging, Iraqi officials are also talking more hopefully of the future, and of rising foreign investment interest.

“Iraq is the largest ever emerging market that you can think of,” Deputy Prime Minister Barham Salih told reporters at last week’s World Economic Forum on the Middle East, held at the Egyptian resort city of Sharm el-Sheik.

“There is nothing in Iraq that doesn’t require investment, but the state cannot solve it and so we look seriously to the private sector,” he said.

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