A New Era for Iranian Aviation?

Iran Air, Iran’s main national airline, is believed to operate two of the world’s oldest passenger 747s, which were built in 1976 and 1981. According to aviation market analysis organization CAPA, the average age of Iran’s commercial aircraft is 24. Ageing and poorly maintained planes have long caused Iranians anxiety, since most can recall the horrors of hundreds of air disasters that have taken place in their country since the 1979 revolution. Plane crashes, in turn, have caused Iranian resentment against the United States, since US trade sanctions imposed following the 1979 Iran hostage crisis prevented the sale of US-made aircraft and aircraft components to Iran. In recent years, European sanctions related to Iran’s nuclear program also affected what Iran could buy.

Now, under the terms of Iran’s nuclear deal with the US and five other world powers, most sanctions affecting civil aviation have been removed. Iran is preparing for a modernization spending spree that has much of the aviation industry on notice. Last week Abbas Akhoundi, Iran’s Minister of Transportation, said Iran would buy 114 Airbus jets. The purchase will just be part of Akhoundi’s grand vision for Iran’s aviation sector, which he has said will involve the purchase of 500 aircraft over the next ten years, renovation of Iran’s airports, and transportation of 50 million passengers a year. To support his objectives, trade organizations are planning big, Iran-focused aviation summits in Tehran and Dubai this year.

“The lifting of sanctions creates a huge opportunity for Iran to join in with new, fuel-efficient, environmentally friendly aircraft, and hopefully safer aircraft,” says Alan Peaford, editor of Arabian Aerospace, and conference chairman of Aviation Iran, the summit that will take place in Dubai in September. “The beauty of Iran, looking at business opportunities, is you've got a population of 70-80 million, and a large, growing middle class. That allows people to travel. A new fleet will give the Iranian people the opportunity to fly with national carriers to more countries on more modern aircraft, fitted with decent in-flight entertainment, connectivity, all of the things that have made airlines such as Etihad and Emirates and Qatar so successful.”

The main question now is how fast manufacturers can meet Iranian demand. “The sheer numbers that they want would pick up a lot of a manufacturer's production capabilities,” Peaford says. “Manufacturers like Airbus and Boeing wouldn't lose the rest of the world's trade just to satisfy Iran.” Iran’s solution, he says, is to buy used aircraft, which can be supplied quickly. Based on conversations with airline executives, Peaford believes some of the first planes Iran will receive will be used A340 aircraft, which other airlines have dropped because of maintenance costs. “Those aircraft are coming back, conveniently, at a time when oil price is down to 30 dollars a barrel, which means that the cost of the fuel is not as great as it would have been a year ago.” Double-decker A380s being phased out by Emirates, he says, “will be superb for Iran Air to use on its routes to the United States or Canada.”

Expect Turbulence

Despite the enthusiasm surrounding Iran’s new aviation trade, questions remain about how remaining US sanctions pertaining to US-made planes and components will continue to affect the trade. “Everyone I know wants to sell a used aircraft to Iran or supply parts and services” says Paul Briggs of Bird and Bird, an international law firm that counts aviation among its areas of expertise. “It is essential to remember that all relevant aircraft have 10 per cent US content, so US Office of Foreign Assets Control approval is still required [to sell them].”

Big airlines, so far, have little to say about the trade. An Airbus spokesperson told IranWire, “We are studying our way forward in view of the latest development on the Iranian situation - in full compliance with all international laws.” A Boeing representative did not reply to a comment request via email.

Much will depend on the view western governments take of Iran’s use of its civil aviation industry, and its proximity to military endeavors. One of Iran’s ostensibly civilian airlines, Mahan Air, is already under sanctions over improper use. “Mahan Air are using their commercial fleet to transport weapons and military personnel back and forth to Syria,” says Emanuele Ottolenghi of the Foundation for Defense of Democracies. “They violate standards, falsifying their manifests, broadcasting false flight numbers, switching off transponders, landing without lights on in the middle of the night. So it's not just that Iran has been unfairly denied access to service, spare parts and new planes. It's also that they have conducted reckless actions in the way they handle their commercial fleets.”

American and European manufacturers hoping to do business with Iranian airlines could face sanctions risks if clients misuse material they have provided. “The biggest issue will be, will these planes remain in the hands of these airlines, or will they at some point be transferred on to those Iranian airlines that remain under sanctions,” Ottolenghi says. “If you see a plane that is sold tomorrow to, say, Iran Air, flying to Damascus, probably with weapons, that may bring consequences to suppliers. If you see one of the planes sold to Iran Air being sold off a year down the line to Mahan Air, that also will bring consequences.”

One question western manufacturers will have to ask themselves is, how well do they need to know their clients? Ottolenghi says the US Treasury and authorities in Europe should publicly designate and name companies that are affiliated with the Islamic Revolutionary Guards Corps, a group that also remains under sanctions, and plays a sometimes obscure role in Iran’s economy. “You cannot expect private companies, even large corporations like Airbus and Boeing, to have better intelligence on Iran's fairly opaque corporate world than the US government,” he says. “The bottom line for the aviation industry is, will they be expected to exert enhanced due diligence as they sign contracts with Iranian airlines? Can they do their due diligence in a way that the US government or European governments are not capable of or are not willing to do themselves? You cannot expect the corporate world to be more Catholic than the pope.”

Less Ignorance, Better Business

Potential hitches abound in Iran’s aviation sector, and in the wider economic neighborhood as well. The Aviation Iran summit was first supposed to take place in March, but has been postponed to September because of political tensions between the Iran and the United Arab Emirates over Yemen. Peaford is aware, too, of suggestions of improper use surrounding Mahan Air, and of other controversies such as those surrounding to potential dual-use items such as helicopters.

Even so, Peaford remains optimistic. “The civil aviation market shouldn't, in theory, be affected too much by sanctions. I don't think it is beyond the wit of the people involved to see the changes that are going to be necessary. It's going to take several years to get through the whole thing. Once first stage with the airlines goes though, there will be less ignorance about what is happening in Iran, and with that greater understanding. Hopefully there will be more ways for the business to grow with all the departments that are not involved with terrorism, or anything else that would cause sanctions.”

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