BY MAY 10, 2017
Perched on the tails of Iran Air’s aircraft is the mythical Persian bird known as the Homa. Versions of its legend describe how the Homa is periodically reborn, consuming itself in fire before rising reborn from the ashes. As Iran’s aviation sector makes moves for an epic overhaul, the mascot seems particularly appropriate.
Since January 2016, when the nuclear agreement negotiated with the United States and its five partners went into effect, President Hassan Rouhani’s government has tried to pull Iran’s economy out of its sanctions-era doldrums. On the campaign trail and in the first two presidential debates leading up to elections on May 19, Rouhani’s conservative rivals have focused their attacks on his record on this issue, rather than the deal itself. “The Iranian people should decide whether they want the current situation — which means unemployment, social harms, and recession — to continue, or they seek a change,” argued Tehran mayor Mohammad Ghalibaf, one of Rouhani’s most prominent challengers.
A key part of Rouhani’s strategy — as well as his pitch for a second term in office — requires raising Iran’s tourism numbers and bringing back major foreign players in areas like oil and finance. The government hopes that these steps can provide the revenues and investment needed to create jobs and drive growth. This push also involves working with international companies on Iran’s transportation sector. Automakers like Renault and Peugeot have signed agreements worth hundreds of millions of dollars. Iran is developing its railroad infrastructure, signing deals for freight wagons from Russia and locomotives from Germany.
But none of these has the pizzazz — and certainly not the price tag — of the administration’s foray into aviation. And as the country heads to the polls later this month, Rouhani is relying on the promise of new planes to help make the case to Iranians that his signature diplomatic achievement is paying off.
Iran’s civilian fleet has fallen on hard times since the heady days when the shah was testing out a Concorde in the skies over Tehran. It’s been four decades since Iran last unveiled a new Boeing, and before last January it hadn’t taken delivery of a fresh jet for more than 20 years. As one industry observer has noted, since the establishment of the Islamic Republic in 1979, a combination of post-revolutionary sanctions on planes and parts and internal bureaucratic wrangling was to blame for the increasingly outdated planes, as well as the aviation industry’s worrying safety record and precarious corporate fortunes. By one recent tally, there have been more than 90 aviation accidents in Iran since the revolution, claiming almost 1,700 lives.
The text of the Joint Comprehensive Plan of Action (JCPOA), as the deal is formally known, specifically includes a commitment by Washington to “Allow for the sale of commercial passenger aircraft and related parts and services to Iran.” The resulting purchases, argued one Iranian official, are “among the most important achievements” of the entire agreement.
Tehran has moved quickly to make the most of this economic opening. To hear Iranian officials tell it, the country’s airfields will be welcoming as many as 500 planes over the next 10 years — triple as many as it has working today. They have already gotten to work finalizing some major deals: During Rouhani’s trip to Paris last year, Airbus inked an agreement for 118 aircraft, with an estimated list value of nearly $27 billion (the order has since been pared down to 100). In December, Tehran followed up with a purchase from Boeing — another 80 jets for state carrier Iran Air, at a $16.6 billion list price. Last month, Aseman Airlines reached its own $3 billion deal with Boeing for at least 30 737 MAXs, with a possibility of doubling the order down the line. And these agreements with the two titans of global aviation don’t even tell the full story of Iran’s shopping spree: In the past several weeks, for example, Iran has also ordered more than half a billion dollars’ worth of turboprop aircrafts from the European company ATR, in addition to confirming the purchase of at least a dozen Russian Sukhoi Superjet 100s.
Iran is also looking for $3 billion in investments to upgrade more than half a dozen airports around the country. Just a few days ago, for example, it was reported that Vinci SA, a French construction firm, signed a $400 million contract to modernize the facilities at Mashhad International Airport and Isfahan International Airport. At Imam Khomeini International Airport (IKIA) in Tehran, ambitions are to swell passenger numbers from 7.2 million in 2015 to as many as 30 million per year in half a decade.
To be sure, not everyone in Iran has been impressed by the outlay, seeing it as a costly splurge benefitting Iran’s elite. They counter that resources would be better spent on Iran’s domestic development, rather than providing a boost to Western companies. One official from the Islamic Revolutionary Guard Corps lamented that by buying from Boeing, Rouhani “poured another $16 billion in [Americans’] mouths.” Supreme Leader Ali Khamenei, too, has voiced concerns over the project, and whether it was a worthwhile allocation of resources. “This is a very important and necessary task,” he noted last year. “But is it a priority?”
Last year, Rouhani hit back at the critiques by saying: “When the government wants to buy a plane, some individuals state that ‘you should buy buses instead of planes.’ … If the government doesn’t purchase planes, they say, ‘What is the result of the JCPOA?’ And if we buy a plane, they say, “This plane is luxurious and brand-new.’”
Despite the criticisms, the fruits of Iran’s buying spree have slowly begun to appear. A trio of new Airbuses have joined Iran Air’s fleet since the start of this year. Meanwhile, images of what may be the first batch of 20 ordered ATR aircraft, decked out in Iran Air livery, are popping up on social media: “One … two … three … FOUR! #Iran is waiting for you,” the airline recently tweeted.
With the Airbus deliveries already in motion and ATRs due to follow imminently, the rest of Tehran’s orders might seem a done deal. But there are a few issues that still need to be addressed before Iran’s aviation sector can truly reach cruising altitude.
First of all, analysts have serious misgivings about the medium- to long-term viability of the project. Their concerns range from the corporate practices of Iran’s airlines and the aviation sector more generally — every Iranian airport but one loses money — to whether there is passenger demand for such a substantial rise in capacity. Secondly, one of the recurring problems that the Islamic Republic has faced since the JCPOA is attracting international financing; as one official pointed out, cash isn’t an option for such big-ticket items as airplanes. So Tehran seems to now be relying on leasing deals rather than straight purchases: Last November, Reuters reported that one such arrangement had been reached, possibly with an Emirati firm, for 17 Airbuses, and since then a few dozen more planes appear to be accounted for. Yet reports on Friday that an agreement to develop IKIA had fallen apart over financing problems only underscore the broader challenge (the Iranians have since blamed the French contractor and insist they have alternatives lined up).
Finally, there’s Washington. The Treasury Department’s Office of Foreign Asset Control (OFAC) has been steadily issuing the necessary licenses for Boeing, Airbus, and ATR to proceed with their Iran sales — even a Russian company like Sukhoi needs OFAC’s blessings. Given President Donald Trump’s critiques of the nuclear agreement reached under his predecessor, Boeing has emphasized how its sales to Iran “will support tens of thousands of U.S. jobs.”
However, critics of the airplane sales on Capitol Hill and the think tank world argue that Iran uses its fleet for nefarious purposes, particularly to buttress Syrian President Bashar al-Assad’s regime. Fingers have been pointed at Iran Air as a possible contributor to these efforts. For the moment, however, both the airplane sales, and the JCPOA writ large, remain in effect.