Iranian Sanctions Relief on Aviation: What’s Covered?

Posted on April 26, 2014 by Farhad Alavi — Leave a comment

I was part of a three-member panel on Voice of America Persian News Network’s Ofogh program on Wednesday (April 23) on an episode that dealt with U.S. sanctions on Iran’s aviation industry (you can watch it by clicking here). My co-panelists were Mr. Bijan Kian, former Head of the U.S. Export Import (ExIm) Bank and Captain Ali Foroughi, retired pilot for United Airlines. The topics covered were the issue of the private jet in Mehrabad Airport bearing a U.S. flag (attributed to a visit by the brother of the Ghanaian president), to more importantly, the [dismal] state of Iran’s aviation industry and the prospects of improvement following recent U.S. relief on the sale of parts for Iran Air. So what is this relief?

The previous status quo

It has been a number of years since the Office of Foreign Assets Control (OFAC) created a licensing regime for persons seeking to export parts for Iranian civilian aircraft. Generally speaking, the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560 (the “ITSR”) allowed for persons to apply for licenses to sell parts. This is specified in § 560.528, which states:

Specific licenses may be issued on a case-by-case basis for the exportation or reexportation of goods, services, and technology to insure the safety of civil aviation and safe operation of U.S.- origin commercial passenger aircraft.

A reasonable interpretation of this is that it only allows parts that are very much vital to the safe operation of an aircraft, and recent statements coming out of OFAC indicate that indeed even now jet engines are not part of the licensing regimes. I have not ever heard of anybody selling such parts under a license, although OFAC has issued at least one license that I have heard from, before the Geneva P5+1 agreement with Iran in November 2013.

The new policy

The new law provides for a more clear licensing system for companies seeking to sell parts. It appears that the definition of that are permissible is perhaps wider, but according to a Statement of Licensing Policy issued by OFAC on January 20, 2014, it is clear that this does not cover the sale of aircraft or cosmetic changes, etc.

This is a picture of me in the Voice of America studios with the only scale model of a Boeing 787 Dreamliner bearing Iran Air markings. This was given as a gift by Boeing to Mr. Bijan Kian (former head of the US ExIm Bank). Indeed there is no plan to sell such planes to Iran given the current sanctions regime, but this could be a possibility in the future if sanctions are lifted.

Currently, there have been reports of General Electric and Boeing receiving OFAC licenses to sell certain parts to Iran, and according to the VOA broadcast I was part of, this has been confirmed by the companies. So what’s covered under the law? Per the Statement of Licensing Policy, it is clear that companies can now apply for licenses to do the following types of activities:

the exportation and reexportation of: services related to the inspection of commercial aircraft and parts in Iran or a
third country; services related to the repair or servicing of commercial aircraft in Iran or a third country; and goods or technology, including spare parts, to Iran or a third country.

Notably, this only covers Iran Air, and excludes airlines on OFAC’s Specially Designated Nationals (SDN) list. Also, all work has to be completed in the 6-month window of the Joint Plan of Action (JPOA) issued following the Geneva talks. That means, unless the agreement is extended or a final agreement is reached, everything must be completed by July 20. A bit ambitious perhaps1

My co-panelist on the VOA program, Captain Foroughi, was not impressed. He cited reports stating that one of Iran Air’s Boeings is only worth about $66,000 and that these parts could cost millions, without any increase in the value. Nonetheless, this could help Iran Air procure safe parts, and not rely on an illicit market run by criminals smuggling such parts.

It remains to be seen whether Iran can iron out a deal with the P5+1 (or whether it even wants to) that would enable Iran to purchase new aircraft from companies like Boeing and Airbus. If such a thing happens, it could be a boon for such companies, as Iran’s fleet is in need of upgrading.