On July 14, 2015, when the long-awaited Iranian nuclear deal was finally agreed upon between Tehran and a group of six powerful countries it had been negotiating with for years, many hoped for quick changes, the inevitable result of Iran’s economy opening up. How long before McDonald's opens branches in Tehran? Would the Amazon prime delivery service arrive soon?
Apart from such fanciful musings, there was one crucial sector for which people kindled serious hopes: Aviation. The industry has long been dominated by North American companies and the US sanctions — imposed shortly after the Iranian revolution of 1979 and the subsequent seizure of the US embassy in Tehran, when embassy employees were taken hostage — have long seriously curtailed Iran’s access to it. With the new deal, would Iran be able to buy new airplanes and update its aging fleet?
Such was the hope. And talks were already underway, with two giants of the global industry, not only the European AirBus but also the US-based Boeing. A year of Iran-Boeing talks resulted in a 16-billion-dollar contract, according to which IranAir was to buy 80 planes from the American manufacturer. A side deal with the smaller Iran Aseman Airlines promised them 30 additional planes, which brought the whole deal to becoming worth more than 20 billion dollars, one of Boeing’s most lucrative.
It is hard to overstate how life-changing this would have been to Iranian aviation. The industry had suffered from years of decline, the manifest result of which were numerous plane crashes and the downfall of IranAir from a once competitive airline to one that could hardly capture the to-and-from Tehran market. Iran Air’s last direct purchase from Boeing had been in 1975. A few weeks after the Iranian revolution of 1979, two pre-ordered Boeing planes arrived in the country, but the embassy crisis in November 1979 soon escalated, and all aviation sales were stopped.
It was only in 1994, during the early years of the Clinton administration and prior to the 1995 embargo, that Iran was able to buy four secondhand Boeing planes through an intermediary (this was during the reign of President Rouhani’s spiritual father, President Hashemi Rafsanjani, who fancied himself to be a Deng Xiaoping and hoped to open up the Iranian economy.) There were also many failed attempts during President Ahmadinejad’s term (2005-2013), including the purchase of three 25-year-old Boeings in 2011 from an Australian intermediary, only one of which ever entered Iran. Even that one plane wasn’t of much use since Iran couldn’t buy the necessary spare parts. The plane had to be sent to the United Arab Emirates for repairs, where it was duly seized on orders of the Americans.
A Deal, Finally — But Not For Long
As the above account shows, the aviation ban predates the Iranian nuclear crisis and the mere reversing of the nuclear sanctions wouldn’t have made many changes there. However, the Iranian side was determined to bring the ban into the nuclear talks.
Hamid Baedinejad, the Iranian delegation’s chief technical expert (and currently the ambassador to the UK), publicly said that Secretary John Kerry “had promised to bring the issue up in his country and it was with a lot of follow-up that this problem was solved.”
On the very same day that the deal was signed in Vienna, President Obama signed an order that would allow Iran to buy passenger planes from the United States. The Treasury Department issued licenses that were to be valid until 2025.
European AirBus didn’t want to lose out on such a massive market, and it accelerated its own talks with Iran.
The deal Iran finally agreed with Boeing had an elaborate structure. Iran was to pay the initial downpayment from its National Development Fund — which holds the country’s hard cash, earned by oil sales. Boeing was to finance the sale of six of the planes itself and the rest was to come from the global banks that, the hope was, would be increasingly open to Iran after the gradual lifting of sanctions that was to result from the nuclear deal. In reality, the latter proved to be trickier, with the devil being in the details. Afraid of the uncertainties of the Iranian economy and global politics, financial institutions were hesitant to get involved.
As the recent report by US Congress Republicans shows, the Obama government went out of its way (and beyond its obligations under the Iran Deal) to encourage legal economic ties with Iran. But the election of Donald Trump in November 2016 changed everything. This was precisely what the banks had feared. Trump had committed to leaving the Iran Deal, and even before he finally did so in May this year, the atmosphere his election created led to many companies getting cold feet.
A sign of the changed atmosphere arrived in March 2018, when a federal district judge ordered Boeing to make the terms of its contract with Iran available to the family of Novam Leibovitch, a seven-year-old Israeli girl who had been killed in an attack by Palestinian Islamic Jihad in 2003. As the group is famously backed by Iran, the judge ordered that Iranian assets could be seized to pay for the $67-million judgment against the country (the judgment was awarded automatically when Iran failed to respond to the lawsuit the Israeli family filed in the US court.)
Around the same time, signs of the final death of the Boeing deal appeared. Gholamreza Sami, a deputy roads minister, said it was unlikely that the deal could go forward. In April, Trump officially nullified the license. Years of talks had once more hit a deadlock.
Boeing has moved to terminate its contracts with Iran. This has led to the country signaling its decision to sue the US company in international tribunals, as claimed by Taqi Kabiri, an MP who sits on the parliament’s Economic Committee.
Speaking to IranWire, Boeing officials confirmed that they are complying with US orders and have ceased years of talks with Iran.
“We have followed the US government’s lead with respect to all Iran engagements,” Fakher Daghestani, Boeing’s UAE-based regional director told IranWire. “We no longer have a license to sell aircraft to Iran, so there will be no further discussions with Iranian airlines at this time.”
The US Treasury Department didn’t return IranWire’s request for comment. But a US diplomat who agreed to speak to IranWire on condition of anonymity, said that the administration was intent that the Boeing deal or anything resembling it would not go forward. “Selling planes to Iran? Our current plan is to make sure that stuff that are hell of a lot less important than planes won’t be sold to Iran,” the diplomat said.
AirBus, the European Alternative
The US government’s tough stance has promised the harshest sanctions in history against Iran, and this means that European deals are not immune. Treasury Secretary Steve Mnuchin has ordered the sales of all commercial aircraft to cease by August 6 and has threatened to bring secondary sanctions against all those who don’t comply. European leaders are reportedly lobbying for a license of exemption for AirBus, but the US diplomat we spoke to said chances of such a license were next to impossible. More importantly, people in the industry point out that AirBus and other manufacturers are unlikely to want to put up with the risks and complications of a deal with Iran.
Iran did have a deal with AirBus to buy 118 planes from the European company — which includes enough US shareholders to not be immune from the country’s sanctions (let alone be immune from the secondary sanctions that would hit any company dealing with Iran.)
This isn’t the first time in recent memory that an AirBus deal with Iran has been canceled due to complications emerging from sanctions. When Iran’s reformist president Mohammad Khatami traveled to France in 1999, Iran and AirBus signed a modest deal for the purchase of four planes. Iran paid $41 million as a down payment. It took five years for both sides to realize that the deal would contravene the 1995 embargo, and that they were forced to cancel it.
This time around, AirBus waited for the Iran-Boeing deal to be signed before signing its own deal in order to avoid the 1999 experience. But when the Treasury Department canceled Boeing’s licenses, AirBus quickly withdrew, saying that it would sell the planes meant for Iran to its Arab neighbors in the Persian Gulf. These countries dominate much of the global aviation industry (All four “big connector” global airlines are located in the Middle East, in the vicinity of Iran, with three being based in Arab countries in the Persian Gulf.)
Opponents of the Iran Deal celebrated this cancelation of plane sales to Iran. On June 6, when Agence France Presse (AFP) broke the news that Boeing had confirmed it wouldn’t sell any planes to Iran, one pundit took to Twitter to celebrate. “That sound? That’s the Iranian terrorist airlift skidding off the runway,” Jonathan Schanzer, a senior vice-president of the Foundation for Defense of Democracies, tweeted.
“That’s innocent Iranians dying because Iran Air can’t buy new planes,” was the quick retort from fellow DC pundit Barbara Slavin, director of the Future of Iran Initiative at the Atlantic Council.
With additional reporting by Arash Azizi