On January 16, 2016, the European Union and the United States announced the easing of sanctions on Iran, after the International Atomic Energy Agency determined that Iran had met the requirements for the Joint Comprehensive Plan of Action (JCPOA) (1). These sanctions were initially put in place to economically disadvantage and harm Iran; in an effort to curb Iran’s nuclear weapons development, the JCPOA offers Iran an avenue to reenter the global economy. Since the International Atomic Energy Agency deemed Iran to be compliant with the guidelines of the JCPOA, the US, UN, and EU have jointly and individually loosened their sanctions on Iranian industries that could potentially promote the development of a nuclear program. The majority of those sanctions that have been relaxed apply to non-US citizens. Although there are still sanctions for US and non-US citizens, the list has now been shortened due to perceived Iranian compliance (2). US sanctions have also been relaxed for non-US companies run by US citizens since the introduction of a carve out labeled General License H. Furthermore, sanctions have also been loosened on certain goods through the allowance of specific imports through this general license (1). Due to these policy changes, Iranian officials have put plans into action to develop their consumer airline capabilities. With plans to invest over 27 billion dollars into commercial airline ventures, Iranian officials have encountered difficulties in obtaining financing, due to the remaining sanctions.
Few industries in Iran have seen increases in import and exports because of General License H regulations still in place. Iran has begun to export a few specialty items such as rugs and food goods. The most notable increase in Iranian imports has been in the aviation and aircraft parts industry; this has been made possible by way of specific licenses obtained through an application process within the carve outs (1). Despite sanctions lifted, there is still an excessive amount of liability that is involved in importing or exporting with Iran. Potential importers and exporters must do in-depth due diligence studies to prevent trading with restricted persons or groups. They must also be sure the trade items involved cannot be used in any way that could support or contribute to the building of a nuclear weapon (3). With these carve outs in the restrictions, and the potential liability of future Iranian military uses, many foreign exporters are justifiably wary of engaging in trade.
The newly changed sanctions have been additionally controversial to international financiers due to the US jet aircraft technology. During the sanctions, Iran had been restricted to older versions of the 747’s. In order to compete with other Gulf States, Iranian officials are working towards implementing 7 different types of Boeing and Airbus jets. Financing is not the only concern over incorporating new jet aircraft models into the Tehran's Imam Khomeini airport (4). It will require increased infrastructure, demand, and marketing to accommodate the larger and more technologically advanced airplanes. In spite of the challenges to modernizing the Iranian fleet, low oil prices have incentivized the purchase of super-jumbo jets for Iran (5). Additionally, the commercial airline industry is ready for growth, as the sanctions suppressed the Iranian airlines through the refusal of parts and planes. Although there is strong competition in the Gulf, Tehran International Airport in Iran poses a great opportunity for growth, due to its populated location. Neighboring domestic competition will have a difficult time competing with a new Air Iran fleet.
Though Boeing and Airbus have prepared dealings with Iran, the House of Representatives passed the Financial Services and General Government Appropriations Act in order to halt the deal. The first amendment passed by the House involves preventing the Office of Foreign Assets Control (OFAC) from funding Iranian planes. The second bars US financial institutions from financing planes with the potential of conversion to military aircraft (6). Airbus, a European based plane manufacturer, is subsequently restricted due to key components being manufactured in the US. The Appropriations Act is yet to be completed and still requires a vote from the Senate. With the average plane in Iran Air’s fleet nearing 27 years of age, nearly 1/3 of the planes are inoperable due to lack of parts from the embargo (6). In order to grow domestically, internationally, and within the Persian Gulf, Iran will need 400-500 planes in the next decade (7). With only about 140 operational jets, immediate action is necessary. Due to the immediate need for new planes, aerospace analysts are recommending that Iran leases planes in-order to avoid Boeing’s current backorder. With Iran’s rough political situation, investors are more hesitant with purchases and consequently more interested in leasing the planes.
Boeing and Airbus have major restrictions that are not consequential to ATR, a European turboprop plane manufacturer. In February, a deal was finalized between Iran Air and ATR for 20 planes, with an option for another 20. With planes arriving in November, the turboprop planes are expected to increase domestic mobility. Nearing a billion dollars, ATR’s contract is the biggest finalized aircraft dealing for Iran since 1995. With another estimated 50 billion dollars stalled in US legislation, the Iranian government may have to reconsider their alleged support for the Islamic Revolutionary Guard Corps-Qods Force and other hostile groups in the region (9). Furthermore, many other companies are watching the ATR deal in order to determine the feasibility of doing business with Iran as a US based company. One of the obstacles being watched is whether or not Boeing will be able to carry out the sale of the planes without the use of the US currency or financial system. Though the US would like to restrict Iran from any object with possible military use, they cannot block every deal with Iran, as that would essentially render the JCPOA worthless. There is a fine line that must be drawn in order to allow for economic opportunities in Iran while keeping Iran disarmed.
With the reduction of sanctions imposed due to the meeting of the requirements of the JCPOA, the Iranian government has made a bold effort to modernize their airline industry. Though Iran has met the JCPOA requirements, the relationship still must be treated as fragile for all parties involved. If the sanction reductions are reversed, over 50 billion dollars is at risk, due to the difficulty of repossession in a hostile country. Additionally, national security must be considered when giving Iran this much freedom, yet freedom will also give Iran the opportunity to rebuild economic stability lost during the embargo. With the vast amount of changes occurring, there are many ways US/EU/UN relationships could wind up going badly. Close attention is a necessity.
(1) "Changes to Iran Sanctions Provide a Few Business Opportunities, but Many Hurdles." Changes to Iran Sanctions Provide a Few Business Opportunities, but Many Hurdles. N.p., 8 Feb. 2016. Web. 20 Aug. 2016. <http://www.shipmangoodwin.com/changes-to-iran-sanctions-provide-a-few-business-opportunities-but-many-hurdles>.
(2) "Joint Comprehensive Plan of Action." U.S. Department of State. U.S. Department of State, 14 July 2015. Web. 20 Aug. 2016. <http://www.state.gov/e/eb/tfs/spi/iran/jcpoa/>.
(3) "Joint Comprehensive Plan of Action." U.S. Department of State. U.S. Department of State, n.d. Web. 20 Aug. 2016. <http://www.state.gov/e/eb/tfs/spi/iran/jcpoa/>.
(4) Hepher, Tim. "Doubts Grow over Airbus A380 Sale to Iran: Sources." Reuters. Thomson Reuters, 27 June 2016. Web. 20 Aug. 2016. <http://www.reuters.com/article/us-iran-a-idUSKCN0ZD2LJ>.
(5) Reuters, and Fortune Editors. "Airbus Raises Plane Production, Boosted by Low Oil Prices and Iran." Fortune Airbus Raises Plane Production Boosted by Low Oil Prices and Iran Comments. Fortune, 23 Feb. 2016. Web. 20 Aug. 2016. <http://fortune.com/2016/02/24/airbus-production-iran-oil/>.
(6) Zhang, Benjamin. "Boeing CEO: If We Can't Sell to Iran Air Then Nobody Can." Business Insider. Business Insider, Inc, 11 July 2016. Web. 20 Aug. 2016. <http://www.businessinsider.com/boeing-ceo-iran-air-order-farnborough-2016-7>.
(7)Spanner. "ATR: Agreement with Iran Air Company for Ordering 20 Aircraft." Life in France. CHB44, 1 Feb. 2016. Web. 20 Aug. 2016. <http://chb44.com/2016/02/atr-agreement-with-iran-air-company-for-ordering-20-aircraft/>.
(8)"Iran Air Signs Agreement to Buy Boeing 737, 777 Aircraft | The National." The National. Bloomberg, 21 June 2016. Web. 20 Aug. 2016. <http://www.thenational.ae/business/aviation/iran-air-signs-agreement-to-buy-boeing-737-777-aircraft>.
(9)"ATR Denies Reports of Dialogue with Iran's Meraj Air." CH Aviation. N.p., 3 Feb. 2016. Web. 20 Aug. 2016. <http://www.ch-aviation.com/portal/news/43645-atr-denies-reports-of-dialogue-with-irans-meraj-air>.
Image: © Alpiee | Dreamstime.com - EP-MMN Mahan Air, Airbus A310-304 Photo