Any progress that Iran hopes to make with new aircraft orders is likely take 12 months or even longer, as its economy continues to falter in a low-oil-price environment. Analysts continue to warn that the reduction of sanctions will be a complex, multi-facetted process.
Iran is evidently keen to proceed with replenishing aircraft for its airlines, which include Iran Air, Mahan Air and Iran Aseman Airlines, but financing is unlikely to be readily available for the quality of aircraft it is talking about. Such financing also seems particularly optimistic given potential sanctions ‘snap-back’ clauses in the event the Islamic Republic steps out of line again in future.
“Iran will buy a total of 80-90 planes per year from the two aviation giants in the first phase of renovating its air fleet,” Mohammad Khodakarami, the caretaker director of Iran’s Civil Aviation Organization (CAO), was quoted as saying in August by Iran’s official Islamic Republic News Agency (IRNA).
“Based on this, the CAO has put the renovation of the country’s air fleet on its agenda. To the same effect, we will purchase planes from Boeing and Airbus in equal numbers,” he added.
According to the IRNA report, Khodakarami said Iran needs to add at least 80 new airliners to its fleet each year so that the total would increase to 300 within five years. Officials have previously announced that Iran would need 400-500 civilian aircraft worth at least $20 billion in the next decade to renovate its aging fleet.
French Prime Minister Laurent Fabius visited Iran July 29, meeting with Iranian President Hassan Rouhani, his counterpart Javed Zarif and several other ministers, to discuss an increase in flights involving Paris. French reports were careful not to mention any inclusion of Airbus officials in the French delegation to Tehran, but many believe they were present. Meanwhile, Dubai is awash with rumors that Airbus and Boeing officials, as well as middlemen, are seizing the opportunity to visit Iran.
Enforced isolation has left much of the world in the dark about the present-day domestic economic and business climate in Iran. In September, The Financial Times reported that Iran’s domestic car industry was faltering because Iranians had postponed orders in hopes of buying superior models from outside the country, instead. “[A]ny dividends from the nuclear deal will take many months to materialize, and Iran’s economy remains mired in stagnation,” it said.
There are certainly differing opinions about what the immediate future holds.
The Sydney, Australia-based Centre for Aviation (CAPA) said the Joint Comprehensive Plan of Action (JCPOA) signed in Vienna in July between Iran and the international powers was a “significant step for aircraft and engine manufacturers and lessors to bring new aircraft into Iran.” However, CAPA added that, “Business has not been entirely prevented but has been heavily restricted, with exceptions made for safety of flight business transactions which are low volume but strategic, as they help to maintain business ties to Iran’s aviation sector.”
CAPA said Iran’s stated intentions could be a stretch. “Growth along the lines of 80-90 aircraft a year would be impressive and buck industry norms. [Some] 80-90 aircraft may not seem like a lot for an entire country. After all, American Airlines in 2014 received 82 new aircraft while China’s four big airlines took delivery of 184. But Iran is no U.S. or China.”
In August 2015, Iran’s in-service fleet stood at 215 aircraft, according to CAPA’s fleet database. “Even if there is demand and willingness to take 80-90 aircraft a year, that places sudden pressure on regulatory oversight, training of employees, maintenance and the like,” it added.
Richard Aboulafia, vice president of analysis with Teal Group, is more dogmatic. In a July commentary, he hazarded a guess: “the Iran post-sanctions aviation market will be good for exactly zero new aircraft.”
Aboulafia cited low oil prices reducing spending power; the wariness of aircraft finance houses over possible sanctions snapbacks; unexploited “back channels which could have allowed Iran to purchase aircraft if it really wanted them” during the time of sanctions; and “dismal brands” in the face of the Gulf super-connectors, to show that “an aging legacy fleet doesn’t necessarily indicate a strong replacement market. In fact, very often it indicates that there’s really no market at all.”
In an interview with AIN, Aboulafia substantiated his argument. “The OEMs are much too smart. No sober view supports the idea that [Iran needs] more than a handful of jets. The biggest thing: aviation is a global business. If I were an Iranian air traveler, why would I change my plans [of going through the UAE]?
“If there were demand for 80-90 jets a year, why haven’t they been taking them [through back-channel sources]? It costs a bit more, and involves grey market spare parts. The lack of the right replacements is a comment on bad economics more than political impossibility.”
Saffana Michael, Boeing’s spokesman in Dubai, was non-committal in August in response to a request from AIN for an update. “At this stage, I don’t think we have much to say. We are awaiting guidance from the U.S. Government on next steps, so nothing is imminent,” she said.
“The timeline for the lifting of sanctions against Iran is mid-2016, or the first quarter of the year at the earliest. It is going to take a while for Iran to carry out concrete measures and secure verification from the International Atomic Energy Agency. I don’t expect any Iranian aircraft orders before mid-2016,” Torbjorn Soltvedt, an Iran analyst at UK-based risk consultancy, Verisk Maplecroft, told AIN.
“There will still be a trade embargo for U.S. companies, although aviation companies will be allowed to export,” he said, while adding that in the U.S., at least, several factors still make deliveries difficult. “There is strong bipartisan opposition in the U.S. to rapprochement with Iran. For U.S. companies, it will be extremely difficult to deal with Iran even under the current administration.”
Still, there is some acknowledgement inside the Iranian debate that even if OEM order slots become available next year, it will take around seven years for fresh metal to enter its fleets.
UAE Flights
Bigger players have not been slow to explore the Iran opportunity. Surprisingly, Tehran served as Emirates Airline’s sole Iranian destination until earlier this year–the airline began flights to the Iranian capital in 1990. It began flights to a second Iranian city, Mashhad, on September 1, with five weekly scheduled flights using Airbus A330-200 aircraft. This does not reflect a lack of UAE interest in Iran: in addition to Tehran and Mashhad, Sharjah’s Air Arabia also serves Abadan, Isfahan, Lar and Shiraz. In addition to all these routes, except Abadan, Flydubai also serves Tabriz, Hamadan, Ahwaz and Bandar Abbas.
Speaking on the sidelines of the ATC Global conference in Dubai October 5, Emirates CEO, Sir Tim Clark, said increased penetration into Iran by the airline might be possible, after the Mashhad launch. “Obviously we are looking at that. We have four flights a day into Tehran. Whether or not we’ll go to regional points, like Bandar Abbas, Shiraz, Isfahan and others, we’ll have to see. We’ll have to see what the Iranians do with regard to the political arrangements, whether they will let us in or not,” he said.
“It’s not for us to say whether we are going to go to all these places: they have to allow us in. And that’s a negotiation process: although they have a very generous allowance of flights and carriers into Dubai, it’s not necessarily reciprocated.”
The UAE claims to be Iran’s biggest non-oil trading partner. It is also Iran’s biggest source of imported goods, worth more than $25.5 billion in 2014, while Iran is said to export goods to the UAE valued at just over $1 billion, according to the UAE Ministry of Economy.
“Last year, Emirates carried more than half a million passengers to and from Iran. The country also has 17 UNESCO-registered world heritage sites and plans to boost its total travel and tourism contribution to GDP to $8.9 billion by 2024 (or 7.5 percent of GDP), according to the World Travel and Tourism Council,” the airline reported.
Aviation Iran, a conference organized by Times Aerospace Events in partnership with Aerocomm Ltd and Access Group, will take place March 2-3, 2016, in Dubai. One focus of the conference will be air safety; during the period of sanctions the country has witnessed several air disasters that have plagued the aviation sector, many directly attributable to the dilapidated fleet.
In marketing its event, Times Aerospace Events said: “The lifting of sanctions will rejuvenate the aviation industry and provide a number of economic and social incentives. It is expected to lead to the creation of much-needed jobs for the local population; the re-appropriation of passenger volumes lost to regional and European carriers; and a boost to the domestic and international tourism sectors that would in turn create opportunities in the Iranian hospitality sector.”
“If sanctions are lifted on Iran and the country opens up, it will make a difference. The size of the difference I don’t know…[but] there is a lot of demand,” said Ken Gile, Flydubai COO.
Officials at Dubai Airshow 2015 organizers, F&E Aerospace, said it already had a strong base of Iranian attendees at its various industry events, and that they’d continued to attend over the years in order to keep up with the industry and maintain relationships.
“Dubai Airshow welcomes all opportunities that encourage trade between our exhibitors and attendees, so we will be continuing to welcome Iranian attendees and delegates to our events,” an official said.