Aviation giants tread carefully for post-sanctions Iran
DUBLIN, January 22, 2016
Freed from nuclear-related sanctions, Iran has signalled its appetite to buy more than 100 Western planes, a prospect that would usually have the giants of the $130 billion-a-year jet industry scrambling for a piece of the action.
But a muted response from both Airbus and arch-rival Boeing underscores the lingering uncertainty and complications of doing business with Tehran.
Western and Iranian officials say Iran will require at least 400 jets over a decade to replenish its ageing fleet. Of those, 100-200 are pressingly needed, and would be worth over $20 billion at list prices.
That makes it a hugely enticing market at a time when planemakers are facing a slowdown after years of strong orders.
But industry leaders say it could take months or longer to remove all the legal, regulatory and political obstacles so that significant numbers of jets can be sold to Iran, which still remains subject to a broad range of other US sanctions.
"This is an opportunity in a big market that needs a lot of replacement capacity, let alone growth capacity. But we have to be crystal clear that sanctions have been removed," said Aengus Kelly, chief executive of Dutch leasing giant AerCap.
The willingness and ability of planemakers to enter the Iranian market will provide an early test case of how quickly the country can reopen for business after years of UN, US and European Union sanctions over its nuclear programme, which the West feared was aimed at developing weapons. Iran has always denied that charge.
In recognition of Tehran's moves to curb its atomic programme, the nuclear sanctions were lifted on Saturday.
The same day, an Iranian news agency quoted the transport minister as saying Tehran had "taken the first step in agreeing with Airbus to buy 114 planes.”
The announcement caught some European officials off guard and drew a cautious reaction from the planemaker itself, which said it could not start negotiations before laws allowed.
Still, analysts said the comment delivered a clear signal to foreign businesses and political rivals in the region that Iran was serious about restoring its economy and welcoming investors.
WELCOME TO TEHRAN
Echoing that sentiment, Iran is to host aviation leaders on Sunday and Monday at a Tehran conference together with Australian consultancy CAPA to discuss ambitious plans to restore and expand its airline and tourism industries.
The first major business gathering since the lifting of sanctions comes against the backdrop of opposition to the nuclear deal from Republicans in the US Congress and escalating tensions between Iran and Saudi Arabia.
That leaves aerospace firms, especially those based in the United States, facing a dilemma over whether to risk upsetting Congress and key Gulf customers, or bide their time and lose business, diplomats and industry sources said.
Despite its edge over rival Boeing in the headlines, any deals Airbus strikes will also require US licence approval, since more than 10 percent of its planes come from US parts.
With significant US interests including a new Alabama factory, the European company is expected to tread carefully.
"We are studying our way forward ... in full compliance with all international laws," a spokesman said.
Although Washington has liberalised rules to allow US and foreign firms - including Airbus - to seek licences to sell passenger jets to Iran on a case-by-case basis, Boeing and other US companies have displayed little appetite to take the lead.
"Europe dialled restrictions down from an eight to a four, while the US went from 11 to nine on a scale of 10," said Christopher Swift, a former US sanctions official and a lawyer at Washington-based Foley & Lardner.
A Boeing spokesman said, "There are many steps that need to be taken should we decide to sell airplanes to Iran's airlines. For now, we continue to assess the situation."
SANCTIONS SNAPBACK
Some aircraft executives are worried about the risk that sanctions can be reintroduced if Iran fails to curb its nuclear activities, under a so-called 'snapback' mechanism.
If that were to happen, there are conflicting views on the status of any deals negotiated during the break in sanctions.
Republican candidates have meanwhile signalled a more aggressive posture towards Iran if they succeed President Barack Obama in the November 8 US election.
"I think there is a huge opportunity. But I think most of us, especially in the US, are a bit cautious," said John Plueger, president of Air Lease Corp. "We have an election coming up in the United States (and) we could have a very different person in the White House in November."
European business groups have displayed more willingness in recent months to put out feelers to Iran, vexing their US rivals. Lawyers say this stems in part from a discrepancy in the way the lifting of sanctions has been implemented.
"In Europe it is 'Yes Unless' and in the US it is 'No Unless'," Brian Mulier, partner of law firm Bird & Bird, said.
A senior Western diplomat said companies would have to make their own decisions and their reticence was understandable.
"If I was a company I would certainly be wanting to look at the opportunity, but I would also want to be looking at how stable I thought this was and how confident I was that the Iranian government was going to keep its word," the diplomat said on condition of anonymity.
Iranian President Hassan Rouhani said on Monday his country would not breach its deal with world powers as long as the West honoured its commitments.
In an opportunity for further business announcements, Rouhani is due to visit France, where Airbus is based, on January 27. Iran says it welcomes US and European companies, but has made clear it will also look towards Russia and China.
LEGAL TESTS
Sponsors of Sunday's Tehran meeting include Chinese-backed Dublin leasing firm Avolon and other foreign lessors, who could have a significant role due to long delivery times for new jets.
Lessors control 40 per cent of the world's fleet and act nimbly, moving jets around the world to meet demand. But they need to be confident they can always recover their assets.
Iran may be urged to join a treaty of over 60 nations that have agreed to set up an international aircraft registry to protect foreign aircraft owners in the event of defaults.
"Lessors and banks will want to see what kind of legal framework is available. They always want to know: 'Is my ownership status going to be respected?'" said aviation banker Bertrand Grabowski, a managing director of Germany's DVB Bank.
Answers to questions such as these may set the tone for tens of billions of dollars of other investments in Iran.
"One would assume that if they are serious about getting aircraft in, there will be the ability for creditors to exercise their rights," AerCap's Kelly said, predicting that this would be resolved.
In the longer term, Iran's rebound may depend on significant spending on airports, air traffic control and other infrastructure: topics also due to be discussed with investors.
"It will take some time. It requires upgrades in infrastructure...and won't happen from one day to the next. But I see this as an important point of departure," Grabowski said. - Reuters
