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Meeting Iran Air's dealmaker

Posted 5 October 2016 · Add Comment

Iran Air chairman Farhad Parvaresh sheds light on the flag-carrier's historic agreements with Airbus and Boeing. Martin Rivers reports.

While everyone expected that the lifting of nuclear sanctions against Iran would unleash a flurry of deal-making, the scale of the ambitions laid out by flag-carrier Iran Air in January took many observers by surprise.
Within a fortnight of the implementation of the joint comprehensive plan of action (JCPOA) – an international agreement that lifts sweeping embargoes against the country – Transport Minister Abbas Akhoundi had announced a heads-of-agreement between Iran Air and Airbus for 118 aircraft. A parallel deal with ATR covered up to 40 turboprops for the flag-carrier.
In June, yet another memorandum to buy 80 aircraft from Boeing brought Iran Air’s provisional order book to a jaw-dropping 238 planes – nearly 10 times the number it deploys today.
Chairman and chief executive, Farhad Parvaresh, is keen to put the spending spree in context, noting that the entire country has been blocked from purchasing aircraft for several decades. He estimates that Iran needs to acquire 350-400 aircraft in the coming years – at least half of them replacement units for its ageing fleet – and says Iran Air is “thinking long-term” about market share. The headline figures for its orders also include non-firm options.
Even so, with officials talking up Tehran’s prospects as an intercontinental mega-hub, the government is plotting a bold new path for the flag-carrier. Repatriating traffic from Dubai, Abu Dhabi and Doha has suddenly become a strategic necessity.
“Just imagine how many passengers we can have on direct flights if we take this opportunity,” Parvaresh said during an interview at the International Air Transport Association (IATA) annual meeting.
“I came to Tehran with one of these regional airlines three weeks ago. The pilot said to the passengers, ‘Ladies and gentlemen, we have to wait for 30 minutes because we have 38 passengers on another flight from Los Angeles who want to take this flight to Tehran’ … I thought to myself, ‘Just that one aircraft has 38 passengers going to Tehran!’ There are many daily flights by these airlines to Tehran. They’re taking passengers who can’t be carried by Iranian airlines.
“We can have a big share of this market if we have the right equipment. I’m sure that people would rather take a direct flight to Tehran.”
Having transported fewer than four million passengers last year – compared with 52 million at Emirates – Iran Air has a long way to go before it approaches the scale of the Gulf super-connectors. But a roadmap is slowly taking shape, with management first “stretching” frequencies to existing points, then resurrecting services lost during sanctions, and finally moving into new markets.
The initial focus will be on Europe. Iran Air currently serves 14 destinations on the continent, versus five in the Middle East and five in Asia. Lifting frequencies to the all-important hubs of London, Frankfurt and Paris is an urgent priority.
“British Airways is planning to come to Tehran with six flights per week. We are flying just three or four times to London,” Parvaresh noted, referring to the UK flag-carrier’s upcoming winter schedule. “We have the right to fly daily to London in the bilateral agreement – why not take advantage of this?”
Re-launching routes that were forced to close under the weight of sanctions will be the next step. The past five years have seen Iran Air suspend flights to Seoul, Tokyo, Bangkok, Geneva and Copenhagen. “We had to stop because we didn’t have the right type of equipment,” Parvaresh said of the Asian pull-out, which has left the flag-carrier with just two points in the Far East: Beijing and Kuala Lumpur.
Iran Air’s historic route from Tehran to New York is another oft-cited casualty of the political climate. President Hassan Rouhani has repeatedly affirmed his desire to restore the US link, citing the needs of the two million ethnic Persians who live in America.
Despite echoing those sentiments, however, Parvaresh downplayed expectations of an imminent route launch. “I don’t think this will happen soon,” he said reluctantly. “We need time.”
As well as capturing point-to-point demand, officials want to take a slice of their Gulf neighbours’ sixth-freedom traffic. Tehran’s Imam Khomeini International Airport (IKA) – opened in 2004 but designed in the 1970s – was always conceived as a bridging point between east and west. The capital offers shorter flying times from Europe to southeast Asia, but its appeal as a transfer hub waned as Iran became side-lined by the international community.
That long-forgotten strategy is now back on the agenda, as evidenced by the inclusion of Airbus A380s and Boeing 747-8s in the post-JCPOA deals. Those jumbo-sized models are typically only deployed by the very largest network carriers.
Parvaresh said the government was eager to lift capabilities as quickly as possible. Talks are under way with Aéroports de Paris about expanding IKA’s annual capacity from 6.5 million to 15 million by 2018. “If that happens, we can use Tehran as a hub for passengers and cargo between Europe and the Far East,” he affirmed.
At the same time, however, officials are being pragmatic about the scale of the commitments tentatively given to Airbus and Boeing. Neither agreement has been set in stone.
“We don’t have enough infrastructure for the A380s yet,” Parvaresh admitted, emphasising the need to modernise IKA’s terminal buildings, jetways and transit facilities. Despite provisionally agreeing to take the first A380 in 2021, Iran Air will not make a final decision about the type until 2018. “We will let Airbus know later on when we are ready for that aircraft,” he said. “We have the possibility to change it to other [models].”
The Airbus deal also faces other, more fundamental hurdles.
Several financial institutions have had their fingers burned in the past when dealing with Iranian entities which they considered innocuous, but which the US Treasury judged to have illicit ties. Despite lifting nuclear sanctions against Iran, Washington still prohibits transactions with individuals and companies suspected of terrorist associations. The perceived threat of enforcement action – though misplaced for Iran Air specifically – has had a chilling effect on European banks.
Uncertainty about legal protections for repossessed aircraft, as well as the upcoming US presidential election, has further jangled nerves. Nonetheless, Parvaresh remains upbeat.
“I’m very optimistic and positive about the banking issues,” he said, pointing to expressions of interest from several European and Chinese financial institutions. “Of course, it’s not easy – still some people are hesitating – but Iran’s central bank and some banks from other countries are working on this issue.”
The flag-carrier is holding out for “one or two financiers” to fund the “whole [Airbus] package,” rather than signing deals for a handful of aircraft at a time. Operating leases are the only structures being considered.
Once funding is in place, the speed of deliveries will depend on the willingness of the US Treasury – acting through the Office of Foreign Assets Control (OFAC) – to issue the relevant export licences. This could be another stumbling block, as it is unclear whether third-parties involved in the deals – engine manufacturers, insurers, spare-parts suppliers and so on – will need to secure their own independent authorisations.
“If the licence is granted for Airbus to deal with Iran Air, then everything related to this deal should be licenced as well,” Parvaresh argued. “If every company which is dealing with us needs to go to OFAC again, that is nonsense. They will be very busy and it will be very complicated.”
All being well, Iran Air aims to receive five new Airbus jets this year, followed by about 14 per year until 2024. Its provisional agreement covers 45 A320-family aircraft, 45 A330s, 16 A350-1000s and 12 A380s.
In America, the historic memorandum with Boeing faces hurdles of a different nature. Lawmakers on both sides of the aisle have lobbied against the deal, accusing the manufacturer of endangering national security by – in the words of Republican congressman Peter Roskam – trying to “weaponise the Islamic Republic”. Boeing has reacted scathingly to the criticism, insisting that sanctions-relief under the JCPOA is actually helping to defuse a geopolitical crisis.
The US memorandum covers 46 737s, 30 777s and four 748-8s, with deliveries expected to run from 2017 to 2025.
Boeing has also agreed to facilitate the leasing of 29 737s, enabling Iran Air to begin re-fleeting as soon as possible. Efforts to find a bridging solution with Airbus “didn’t work out”, Parvaresh said, though independent talks with lessors continue. He estimates that two to four used Airbus jets – mostly wide-bodies – could be leased this year.
With the European Union lifting most restrictions against Iran Air in June, the floodgates to a new era of growth have already opened. Time, effort and politics will determine its success.
 

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