Selective Openings…

How Sanctions Relief Will Impact Iran’s Civil Aviation Industry 

In 1968, the first Boeing 747 jumbo jet rolled off the assembly line. A landmark event in the civil aviation industry, the “Queen of the Skies” would ultimately connect far-flung locales around the world that were once considered too distant for direct point-to-point air travel. Prestigious airlines such as Pan Am and Trans World Airlines were quick to put the new airliner into service on their most prominent routes and tout its superiority over smaller, shorter-range aircraft.

Less than ten years after the first 747 flights, Iran Air, the national airline of Iran, took possession of its first 747 aircraft. It would later be the first airline in the world to purchase and operate the 747SP “special performance” aircraft, which was put into service on Iran Air’s famous New York to Tehran route. This was no aberration: at the time, Iran Air was growing into one of the world’s largest airlines, connecting travelers in the United States, Europe, Asia, and elsewhere with Tehran. By the mid-1960s, it had already taken possession of its first jet aircraft, including Boeing 707s and 737s, and was even considering the purchase of Concorde supersonic jets in the 1970s. At the time of the Iranian Revolution in 1979, Iran Air had amassed such a strong reputation that it stood with a select group of airlines at the industry’s pinnacle.

Times have drastically changed for Iran Air in the more than 35 years since the Iranian Revolution. International isolation and economic sanctions have denied it access to new technology and the spare parts needed to update and maintain its fleet of aircraft. It has gone from having one of the worlds most modern air fleets with an impeccable safety record to one with an aging and increasingly dangerous stable of aircraft. It continues to operate eight Boeing 747s, which have an average age of over 35 years, making its fleet of jumbo jets the seventh oldest in the world. The lack of available spare parts has been a persistent challenge for Iran Air’s engineers and technicians, who have done a remarkable job keeping these aircraft in the air given these circumstances.

Iran Air’s fleet of Airbus aircraft is only marginally younger. While Iran was able to acquire several A300s in the 1980s and 1990s, as well as second-hand A320s in the 2000s, it faces similar problems as its Boeing fleet: sanctions against the country have made it difficult for Iran Air to acquire the spare parts and modern equipment needed to maintain these aircraft and keep them airworthy. And sanctions have further retarded Iran Air’s ability to procure new aircraft so that it can replace its most timeworn airliners.

But Iran Air is not the only casualty of the country’s tense relations with the West. Sanctions have limited all Iranian aircraft operators from obtaining modern technology, including avionics equipment and the parts needed for the regular maintenance of their aircraft. And concern over the quality of Russian-made civilian airliners after a spate of accidents involving such aircraft in 2009 and 2010 has only served to place further strain on Iran’s civil aviation industry as a whole.

The challenges extend beyond the operation of aircraft from one destination to another. While Iran recently completed the first phase of construction of the new Imam Khomeini International Airport, much of the existing airport infrastructure in the country remains in a poor state of repair. Increases in air traffic and new security needs have strained the operating efficiency of Iran’s airports, many of which depend upon 1970s-era equipment. Upgrades to navigational aids, communications, gate, and baggage management systems, as well as other critical facilities management systems are badly needed.

Plans to continue to expand Imam Khomeini International Airport, as well as the many challenges faced by Iranian air carriers and airport operators should necessitate a large inflow of investment, as Iran currently lacks the necessary resources and expertise to make the wide-ranging upgrades that are needed. Until recently, many assumed that this investment would never arrive, given the sanctions and economic embargo that prevent experienced Western firms from conducting business with Iran’s air industry.

This situation, however, is beginning to change. Confidence-building measures in nuclear talks between the United States and its allies on one side and Iran on the other have led to an opening: sanctions relief in some specific industries, which notably includes civil aviation. American and other international firms, once barred from selling even the most basic and needed parts to Iranian air carriers and airports, will now be allowed to do so.

This represents a potential opportunity, albeit a challenging one, for both Iranian airlines and the international aviation industry. Major aircraft manufacturers can jump into an underserved market, in which at least 30 new aircraft will be needed immediately, as estimated by the director of Iran’s Civil Aviation Organization. Ali Reza Jahangirian further added that Iran may need to purchase 40 new aircraft each year for the next ten years in order to fully meet demand in the country. Boeing, Airbus, Embraer, and other aircraft manufacturers are now presented with the prospect of selling a large, diverse array of much needed aircraft to a once sophisticated aviation market. Makers of avionics and maintenance equipment can too seize upon this opportunity, while simultaneously helping to shore up the safety record of Iranian air carriers and improve the experience of the thousands of people who depend upon it every day.

The language of sanctions relief is not entirely precise, but it could also lead to new market prospects for makers of airport facilities equipment. Upgrades to air traffic control systems would help to improve efficiency, reduce congestion, and lower the risk of accidents in Iranian airspace, while new security systems would help mitigate threats to international civil aviation. In several years, passengers traveling internationally to and from Iran may even find copies of “SkyMall” tucked behind their seats.

A complete reversal of economic sanctions against Iran may be a far off possibility, but selective openings have the chance to simultaneously offer new market opportunities for Western firms while improving the lives of ordinary Iranians. There was once the prospect of a vibrant and successful aviation industry in Iran. Iran Air’s once glorious history may not, after all, be entirely behind it.

GGA Publications — All Rights Reserved.

• Main Author: Aaron S. Goldblatt — Research Associate at Global Growth Advisors Washington D.C.
• Contributing Author: Roozbeh Aliabadi — Managing Partner at Global Growth Advisors & Advisor to Iran Air Show 2014 New York

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