While Iran has started to re-equip with modern airliners from the West, freed at last from sanctions, it is still having to look East for purchases of fighters and other defense equipment, strengthening ties with Russia in particular.
When, in 2002, the country hosted its first-ever international airshow—in the free trade zone on Kish Island—the intention was to find a way to re-integrate its industry into the world aerospace community. What had been interpreted as the start of an eventual rapprochement between Tehran and Washington had generated expectations that the country would soon be freed from international isolation.
The long-awaited ability to purchase Boeing and Airbus commercial aircraft—badly needed for Iran to respond to rapidly growing demand for air passenger services—was thought to be just around the corner.
Fifteen years later, the promise of Iranian commercial carriers to acquire the latest Western airliners is finally being realized. In the past year both Boeing and Airbus have announced several deals with Iranian airlines which, once finalized, could amount to an aggregate of 300 aircraft, representing approximately $40 billion in sales for the two OEMs.
In the larger picture, these sales are not “make-or-break” numbers on the companies’ balance sheets, “But it is definitely good for both Boeing and Airbus,” financial analyst Douglas Harned recently told ABC News.
Airliner Sales
Putting the sales in perspective, last year, Boeing’s total revenue was $94.6 billion and Airbus earned €66.6 billion ($78.7 billion). At the end of last year Boeing reported a sales contract with Iran Air, the national carrier, for $16.6 billion that included 30 stretch models of the 777 long-haul airliner and 50 of the 737 Max 8 for short-haul and regional routes.
Aseman Airlines has asked for 30 of the same, the new 737 model, a contract worth $3 billion, plus options for 30 more. However, it is not clear whether this second deal has been completely signed off yet.
For its part, Airbus has signed deals for a total of 173 aircraft—a mix of A320, A330 and A350 models—in a set of contracts worth more than $20 billion. Iranian companies Airtour Airlines and Zagros Airlines are among the customer carriers.
These and other sales currently being discussed were made possible by the controversial agreement made with Iran by the Obama administration in 2015. The agreement, which lifted some technology-related and financial sanctions, had prohibited both companies from making any deals with Iran, due to the U.S. content in the aircraft built by both. These contracts also still require U.S. Treasury Department approval.
However, those who follow closely how and where airliner aircraft sales are financed, and how aircraft leasing companies are organized, point out that even if all of the Iran deals pass muster with the U.S. government, there is still the problem of an Iranian banking industry that is also now feeling its way through doing business with the rest of the world’s financial institutions; sales of airliners would have to be financed by large, international commercial banks.
These banks would be unwilling to provide financing until Iran becomes one of the signatories to the 2001 Cape Town Convention, specifically the aircraft protocol that apply to airliners and other mobile high-value assets. The primary aim of these agreements is to provide legal redress in the event it becomes necessary to seize aircraft—such as in the event of non-payment.
“This problem arises primarily from the fact that legal systems have different approaches to securities, title retention agreements and lease agreements, which creates uncertainty for lending institutions regarding the efficacy of their rights. This hampers the provision of financing for such aviation assets and increases the borrowing cost,” reads the agreement.
Military Equipment
While Iran is finally going to get its 1970s-era fleet of airliners replaced with shiny new Western models, the country’s military leadership realizes that there will be no corresponding acquisitions of U.S. or European military equipment. Iran’s McDonnell-Douglas F-4s, Northrop F-5s and Grumman F-14s are also 1970s vintage, but they are most likely going to be replaced by Sukhoi Su-30SM models from Russia or one of the offerings from the People’s Republic of China (PRC).
Russia may have the initial advantage in what could turn out to be one of the largest export fighter sales in modern times. Iran already operates Mikoyan MiG-29 fighters and Su-24 strike aircraft that it acquired in the 1990s. Iran also has had a long association with Russia’s aircraft sector with the use of Russian-made on-board components in many of its designs, such as the reverse-engineered copies the country has made of the F-5.
This aircraft, designed by Iran’s Aerospace Industries Organisation (AIO), is called the Sa’eqeh and made an appearance at last November’s Kish show. It resembles the original F-5, except that the original U.S.-designed rear section’s single vertical tail is replaced by two outwardly canted vertical control surfaces. It also retains the original Pratt & Whitney J-85 engine, as Iran has been able to acquire significant numbers of extra powerplantss from other one-time F-5 operators, such as Vietnam.
Indigenous Fighter?
Another aircraft designed with Russian assistance that has been through a more than 15-year development history is a basic jet trainer and attack aircraft called the Shafaq. Russian engineers from the Mikoyan Design Bureau originally participated in the first versions of the aircraft, but later withdrew from the project, according to Iranian officials with the AIO. One of the engines that has been considered is a single-engine installation of the MiG-29’s Isotov RD-33.
The aircraft has seen several configurations, including a change from a twin vertical tail variant to a single-vertical design, which was called the Borhan. Since then, the original design with a twin tail has returned as the preferred concept. In addition, this design now appears to have been the inspiration for a more stealthy-looking configuration called the Qaher-313.
Israeli and other foreign aircraft analysts state that this design appears to take some of its other features from the well-known PRC export fighter program, the Shenyang FC-31. The PRC’s industry also has a long history of working with Iran, dating from the earliest days of the founding of the Islamic Republic following the 1979 revolution. When Iran’s armed forces were denied access to purchase spare parts for their U.S.-made equipment, PRC engineers instructed Iranian firms in how to make reverse-engineered copies of the components they needed.
For the moment, however, Russian industry appears to be the first choice of Iran’s military. During the Iran Air Show last year Russian firms were extremely careful to point out that they were only offering commercial defense products to Iran for the moment. However, at the same time the Iranian defense minister, General Hossein Dehghan, stated that an agreement for major military purchases is still in the cards.
One week after last year’s airshow he expanded on his previous statements about a contract for an Su-30MK acquisition, saying, “The purchasing of the fighter jets is on the Defence Ministry’s agenda,” and that, “Any sort of cooperation with the selling side should be conditioned upon technological partnership and joint investment.” Russian representatives have also confirmed acceptance of these Iranian terms on technology transfer and industrial participation for their own local industry.
Iran clearly has ambitions to be a major regional power equipped with the newest weapon systems. All indications are that the next two years could see a series of new agreements in place that will have Iran buying an entire list of new weaponry, most of it from Russia, as well as from China. The question is what will be the consequences for the Middle East region, a part of the world already beset by numerous conflicts.