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CAPA Iran Aviation Finance Summit Tehran 18-19 September 2016, with many decision makers and global experts

No-one doubts the potential for expansion of Iran’s aviation industry. After decades of exclusion from much of the world’s aviation system, the country is eager to take an appropriate place that reflects its well educated population, its geographically important location and a potentially valuable tourism industry.

However, despite lifting of many sanctions, there remain several hurdles and uncertainties to overcome before some semblance of normalcy can be regained. The financial sector is central to most of these issues and securing a degree of certainty and transparency of process in international financial markets will be essential to stimulating new growth. Aircraft and related orders are ready to be implemented, but much hangs on decisions that must be made at a political level, across a range of disciplines.

The September Summit in Tehran will bring together many of the key decision makers and global experts in the area.

The complex status of Iran, post sanctions

The Joint Comprehensive Plan of Action (JCPOA) was implemented on 16-Jan-2016. As a result nuclear-related sanctions against Iran were lifted. The US also eased its secondary sanctions against non-US companies doing business with Iran.

However most sanctions preventing US national and entities from trading remained in place as the US embargoes are linked primarily to human rights and terrorism concerns.

OFAC licenses remain necessary for aircraft sales and leasing

But civil aviation was to be an exception. The Treasury Department’s Office of Foreign Assets Control (OFAC) established a favourable licensing policy under which US entities could apply for permission on a case-by-case basis to sell, lease or transfer aircraft and spare parts to Iran, and to offer maintenance and safety services, provided that these were purely for civilian purposes.

Non-US entities are also required to obtain OFAC approval to sell, lease or transfer aircraft if they include more than 10% US-origin content or technology.

Within days of the lifting of sanctions, Iran Air placed an order for 118 Airbus aircraft. The following month it placed an order for 20 firmATR-72s plus 20 options.

The US political situation is complicated by it being an election year

Mixed signals are emerging from the US. Following Airbus’ announcement of sales to Iran in Jan-2016, Republican candidate Donald Trump stated in an interview with the Washington Post in Mar-2016, “[the Iranians] are not buying anything from us, they’re buying, you noticed, they didn’t buy Boeing, they bought Airbus, 118 planes from what I understand, but they bought them all from Airbus, they go out of their way not to spend any money in our country.”

Iran was in fact keen to purchase Boeing aircraft as well. At CAPA’s Iran Aviation Summit in Jan-2016, Dr. Abbas Akhoundi, Minister of Roads and Urban Development, stated that “we are open to buying from Boeing”.

However, until late Feb-2016 the US government prohibited Boeing from even discussing orders with the Iranians. But following a visit to Tehran by Boeing officials in Apr-2016, agreement on a Letter of Intent for an order for a reported 80 aircraft plus 29 on lease was reached within a couple of months.

Then however, Boeing’s confirmation of the Letter of Intent was met with significant opposition in the United States, due to concerns in some quarters that the aircraft could be used for military purposes. In Jul-2016 a House of Representatives panel approved three bills seeking to prevent the sale of aircraft by Boeing. It is unlikely that any such bill would become law, but their existence further muddies the water over what the US policy really is.

OFAC appears hesitant to move on approvals

Both the Airbus and Boeing orders are awaiting OFAC approval. Given the sensitivity around this issue, there may be some hesitation to announce a decision in the lead-up to the US general election.

And in addition to the legal and political complexities of the decision, there is also an operational challenge as OFAC has been inundated with thousands of applications since the lifting of sanctions – but available resources have grown at a much slower rate and reviews are taking longer than expected.

There is also the wider issue of US dollar transactions, causing wide uncertainty

The challenges do not end there. Even with OFAC approval, the use of US dollars in transactions involving Iran is banned, and banks and lessors remain nervous about transactions being deemed to have touched the US financial system and the massive fines and additional scrutiny that would result.

More than 250 aircraft orders, and others in the pipeline, and billions of dollars of investment in airport infrastructure, are being held up as a result of the continued legal and regulatory uncertainty.

Iran Air aircraft orders awaiting OFAC approval

Aircraft Type

Orders

Airbus A320-200

21

Airbus A320-200neo

24

Airbus A330-300E

27

Airbus A330-900neo

18

Airbus A350-1000XWB

16

Airbus A380-800

12

ATR 72-600

20

Boeing 737

6

Boeing 737 MAX

40

Boeing 747-8

4

Boeing 777-300ER

15

Boeing 777-9X

15

Total

218

And these are of course only the tip of the iceberg. The modernisation and expansion of Iran’s aviation sector would undoubtedly create new business opportunities across the aviation value chain in sectors such as ground handling, maintenance, refuelling, catering andtraining, each of which will require increased capacity and expertise. Tourism would of course be a major beneficiary.

Iran is hoping to see the fruits of compromise that led to sanctions being lifted

Meanwhile, there is some frustration in Iran that, despite having complied with its obligations under the JCPOA, the anticipated economic benefits from the resumption of trade with the West have yet to materialise. This was the justification that the moderate factions in the Iranian government had used for negotiating the agreement. The resultant benefits were seen to be vital to restoring Iran’s economy.

With Presidential elections scheduled for May-2017, President Rouhani will be keen to be able to demonstrate the tangible benefits of the nuclear deal. The expansion and modernisation of Iran’s civil aviation sector was intended to be a visible symbol of this.

A forum in Tehran for addressing the important aviation financial issues

CAPA’s Iran Aviation Finance Summit, to be held in Tehran on 18-19 September, is a timely event intended to provide a forum to identify financing solutions for transactions related to aircraft acquisition, leasing and the development of airport and airspace infrastructure.

Key issues to be discussed include:

  • What are the prospects for domestic, inbound and outbound travel in Iran?
    • Which market segment and routes will see the strongest growth?
  • Which airline business models and aircraft types will be best suited to the Iranian market?
    • How many aircraft will be required and what are the key challenges that Iranian carries will face in managing expected growth?
  • What is the status of international commercial banks with respect to sanctions?
    • Are Chinese and other Asian banks likely to see an opportunity to finance aircraft transactions at this stage?
    • Is there a role for offshore financial centres in the Gulf and Asia to act as a conduit for the financing of Iranian carriers?
  • How can restrictions on the use of US dollars for aircraft financing be addressed?
    • What solutions and structures can be developed for the Iranian market to minimise risk for airlines and financiers? Can we draw from experience in other markets?
  • What is the role and profile of export credit agencies as guarantors?
    • What are their strengths and weaknesses?
    • What they can and cannot offer?
  • Are lessors less sensitive to sanctions?
    • What role will operating leases play in the Iranian market and which structures will be most appropriate?
    • What are the benefits to Iranian carriers?
  • The Cape Town Convention: what benefits will it deliver to airlines and financiers for transaction involving Iranian carriers?
    • What are the practical steps that Iran needs to take to sign up to Cape Town?
    • What has been the experience in other markets?
  • Can the secondary market play an important role in the expansion of the Iranian fleet, by providing aircraft sooner and on a more cost-effective basis?
    • What are the costs and benefits of the secondary market. Is the financing of pre-owned aircraft easier than for new equipment?
    • What infrastructure and services are required in-country to be able to support this segment?
  • What investment will Iran need to make in airport and airspace infrastructure to support projected growth?
    • What role will private and foreign capital play?
    • Which are the most suitable models and financing structures for airport and terminal upgrades and transactions?
    • What are the key legal and regulatory issues facing foreign companies?
    • What role can export credit play for airport and ANS equipment transactions?

The list is long and the issues complex. This forum will seek to address many of them at a high level, with Iran’s key aviation leaders and a highly informed and interested audience.

The event is supported by Iran’s aviation leaders

The event has the full support of the Ministry of Roads & Urban Development, Imam Khomeini International Airport City Company and the Iran Civil Aviation Organization (CAO).

Confirmed participants in keynotes and panel discussions include:

  • Eshaq Jahangiri, First Vice President of the I.R. Iran;
  • Abbas Akhoundi, Minister of Transport (Roads & Urban Development);
  • Asghar Fakhrieh Kashan, Deputy Minister of Transport (Roads & Urban Development);
  • Ali Tayebnia, Minister of Economic Affairs & Finance;
  • Akbar Torkan, Secretary, Supreme Council of Free Trade and Special Economic Zones, and special adviser to President Rouhani;
  • Ali Abedzadeh, President, Civil Aviation Organization;
  • Mahmood Navidi, Chairman & CEO, Imam Khomeini Airport City;
  • Farhad Parvaresh, Chairman and MD, Iran Air;
  • CEOs of most of Iran’s airlines;
  • Alex Cruz, Chairman & CEO, British Airways;
  • Bertrand Grabowski, Member of the Board of Managing Directors, DVB Bank;
  • Firoz Tarapore, CEO, DAE Dubai Aerospace;
  • Claude Brandes, VP Customer Financing, Airbus;
  • Antony Single, Partner, Clifford Chance

For more information and to register visit www.capaevents.com/iransep16

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