Iran: Sanctions and business jets
In April 2014 GE was given permission to meet with Iran Air and supply parts to 18 engines that it had originally delivered in the late 1970s. This deal, which took place under temporary sanction relief, was the first approved US aviation deal in the Islamic Republic for 40 years.
But it looks set to be the start of many more.
US sanctions stretch back until 1979 when embassy staff were taken hostage. They have been added to several tines up until 2013. In 2002 President George W Bush said Iran was part of “an axis of evil” in his State of the Union Address.
The US sanctions are generally tougher than EU and other ones. But most international companies have dealings with the US – even just by using US dollars which are cleared in US banks- so have been careful to comply with US sanctions. The US has also enforced sanctions strongly.
In July 2015 Iran and the USA, the UK, France, Russia, China and Germany agreed what they called a Joint Comprehensive Plan of Action (JCPoA). The agreement states that once the International Atomic Energy Agency verifies that Iran is not seeking to develop or buy nuclear weapons some sanctions against Iran will start to be lifted. Sanctions can snap-back if there are any signs that Iran is continuing a nuclear military programme.
Sanctions relief will not happen until what is being called “Implementation Day.” There is no set date yet for Implementation Day and all sanctions are still in place until then. Both the UK and the US governments have said that sanctions will be robustly enforced until Implementation Day. It is thought that Implementation Day could be in late 2015.
Sanctions are being phased out in stages. The good news is that commercial aviation is one of the key areas involved in the US sanction relief – along with petrochemicals, cars, gold and precious metals, crude oil and humanitarian trade.
But the main intention is to help Iran’s airlines: “The United States will, as specified in Annex II and in accordance with Annex V, allow for the sale of commercial passenger aircraft and related parts and services to Iran;
As well as allowing for sales the US agreement also allows financiers to lease aircraft into Iran. Although it likely that this will take time.
The United States commits to: 115.1.1. Allow for the sale of commercial passenger aircraft and related parts and services to Iran by licensing the (i) export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft for exclusively civil aviation end-use, (ii) export, re-export, sale, lease or transfer to Iran of spare parts and components for commercial passenger aircraft, and (iii) provision of associated serviced, including warranty, maintenance, and repair services and safety-related inspections, for all the foregoing, provided that licensed items and services are used exclusively for commercial passenger aviation
Manufacturers and brokers will also have to be careful not to sell aircraft to individuals on OFAC’s Specially Designated Nationals (SDNs) list. There are about 200 individuals and companies still blacklisted. US citizens are generally prohibited from dealing with SDNs. One deal with a SDN could stop all aviation exports:
“Licenses issued in furtherance of Section 5.1.1 will include appropriate conditions to ensure that licensed activities do not involve, and no licensed aircraft, goods, or services are re-sold or re-transferred to, any person on the SDN list. Should the United States determine that licensed aircraft, goods, or services have been used for purposes other than exclusively civil aviation end-use, or have been re-sold or re-transferred to persons on the SDN List, the United States would view this as grounds to cease performing its commitments under Section 5.1.1 in whole or in part.”
OFAC has said that it can pre-approve any individual or company before exporting aircraft. One New York lawyer says that this will add to legal costs and delay deals.
However, this pre-approval may be useful as the term “commercial passenger aircraft” might not be seen to apply to a privately owned aircraft.
“We think the key distinction will be ‘military’ vs ‘civilian’, so we don’t expect there to be any distinction drawn between aircraft used by airlines and aircraft used for general aviation,” says Oliver Tebbit, an aviation partner at Clyde & Co in Dubai.
Only fools rush in
It is also worth stressing that it is a phased approach to sanctions relief. Companies looking to do business in Iran need to wait until Implementation Day. They will still then need to be cautious of breaking remaining sanctions.
In May the US Office of Foreign Asset Control (Ofac) started investigating the sale of nine commercial aircraft by Iraq’s Al Naser Airline to Mahan Air, an Iranian airline. Aercap, the world’s largest commercial aircraft leasing company, sold two of the aircraft to Al Naser and was subpoenaed by Ofac in June as part of the investigation. AerCap says it is cooperating fully and that an internal review has found no evidence that employees knew about the involvement of Mahan Air.
Axon Aviation has established an office in Tehran but is not conducting any business from it.
Emad Sharghi, founder & CEO of EAS, says the same is true when he visits. “Most of my trips have largely been for tourism,” says Sharghi. “I wouldn’t take a price list or any commercial material with me, let alone discuss any transactions until sanctions are removed.”